Wave of uncertainty means budget can’t be ‘Trump-proof’

Opinion

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This article was published 20/03/2025 (199 days ago), so information in it may no longer be current.

The Manitoba government’s 2025 budget is almost meaningless until Canada finds out whether U.S. President Donald Trump will make good on his threat to impose a 25-per-cent across-the-board tariff on Canadian goods April 2.

Finance Minister Adrien Sala released the NDP’s second budget Thursday. It included massive spending increases in health care, justice and infrastructure. Overall spending is up 7.1 per cent — more than three times the rate of inflation — compared to last year’s budget.

To pay for it, the province is relying on increased tax revenues from a growing economy, a de-indexed income tax system (yes, bracket creep is back), and significant increases in federal transfers. The rest is financed largely through borrowing.

Without Trump’s tariffs, the assumptions underlying the fiscal blueprint are reasonable. They’re based on an economy growing at a modest 1.7 per cent (adjusted for inflation) and a debt load that is manageable.

According to budget estimates, the province’s debt-to-GDP ratio — an important metric for credit rating agencies — is expected to fall slightly to 36.9 per cent from a projected 38.5 per cent in last year’s budget. It has remained below the 40-per cent threshold (even during the COVID-19 pandemic) and has been stable for several years. That’s good news.

But those projections do not include Trump’s possible tariffs.

If the tariffs proceed, the budget projects a 1.4-billion reduction in trade between Manitoba and the U.S. and a $559-million reduction in provincial government revenue.

It would also include an estimated $1.1 billion in provincial government support for businesses harmed by the tariffs, as well as help for other areas of the economy. Under the tariff scenario, the province is projecting a staggering deficit of $1.894 billion.

According to provincial finance officials, that could push the debt-to-GDP ratio up to 38 per cent — perhaps higher after an expected drop in nominal GDP is factored into the equation.

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The damage could be mitigated if the federal government agrees to share revenues with the provinces from the retaliatory tariffs it plans to impose, should Trump pull the trigger. Finance officials say the provinces and the federal government have discussions planned to address that possibility. But that’s a big “if.”

The amount of uncertainty around this budget is unprecedented, even compared to the pandemic, when the world economy tanked. At least during the pandemic, there was some ability to plan on a month-to-month basis.

Today, with Trump’s on-again, off-again tariffs and his ever-changing political narrative, it’s virtually impossible to keep up. Finance officials are left scrambling almost daily to update revenue and expenditure projections. It’s a nightmare.

Still, the NDP is on the right track by using the levers of government spending to try to offset the effects of possible tariffs. Governments regularly use stimulus spending during economic downturns, including increases in infrastructure spending, which creates jobs and generates tax revenues.

Governments in Canada have no choice but to provide those supports. The problem is, how sustainable is it? If the tariffs are applied and remain in place for an extended period of time, the NDP government could be in deep trouble. An $1.9-billion deficit would be a massive blow to the public treasury. And it could get worse.

If that were to occur and the debt-to-GDP ratio rose above 40 per cent, the province could face a credit rating downgrade, which would drive up the cost of borrowing further.

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The Manitoba government’s debt servicing costs are already at $2.3 billion a year and are projected to rise to almost $2.5 billion by 2027. And that’s without tariffs.

Sala described the 2025 budget as “Trump-proof.” It isn’t. If the tariffs go through, the Manitoba economy would be severely damaged. The province would be able to mitigate some of that with stimulus spending, but there’s a limit on how much it can do.

This is one of the many problems with running consecutive years of deficits, including during relatively good economic times. The Manitoba government, with a deficit of $1.2 billion last year, is entering this fiscal crisis in a position of weakness. It doesn’t have a lot of wiggle room to offset the effects of a trade war.

One thing is for sure, the NDP government will not balance the books by the end of its first term (2027) as promised in the last election. Sala continued to insist Thursday that he could still accomplish that goal, which is a pipe dream.

Barring some miraculous economic recovery and a massive increase in Manitoba Hydro revenue, it won’t happen. And it doesn’t need to, as long as government is showing progress towards a balanced budget and is keeping its debt under control.

Normally, budget day is a day when Manitobans get a pretty good window into the state of the province’s finances for the next 12 months. Today, with the possibility of crushing tariffs hanging over Canada’s head, no one has a clue where this will land.

tom.brodbeck@freepress.mb.ca

Tom Brodbeck
Columnist

Tom Brodbeck is an award-winning author and columnist with over 30 years experience in print media. He joined the Free Press in 2019. Born and raised in Montreal, Tom graduated from the University of Manitoba in 1993 with a Bachelor of Arts degree in economics and commerce. Read more about Tom.

Tom provides commentary and analysis on political and related issues at the municipal, provincial and federal level. His columns are built on research and coverage of local events. The Free Press’s editing team reviews Tom’s columns before they are posted online or published in print – part of the Free Press’s tradition, since 1872, of producing reliable independent journalism. Read more about Free Press’s history and mandate, and learn how our newsroom operates.