Uhhh… about that deficit

Hey there, time traveller!
This article was published 24/04/2015 (4063 days ago), so information in it may no longer be current.

No one should be surprised Finance Minister Greg Dewar confirmed on Friday the NDP government would not be able to balance its budget by 2016-17, as previously promised.

This was something we could see coming a long way off. Over the past year, the language used by the province went from “will,” to “still on track,” to “our goal remains,” to the admission it is no longer realistic.

Is it possible to balance the budget? Yes, the province most certainly could cut spending in any budget year to account for the remaining deficit. But Premier Greg Selinger has been resolute since 2009, when he took over from Gary Doer, he would not use austerity to balance the budget because it would require significant reductions in core services. Selinger believes modest economic growth will return the budget to surplus on its own, without painful and potentially disastrous cuts to core government services.

Dewar’s statement, less than a week before he delivers his first provincial budget, is a clear indication that even with the recent coup and leadership battle, Selinger is still on message.

Interestingly, the NDP is taking the exact opposite approach of the federal Conservative government, which last week delivered a balanced budget predicated on some pretty risky fiscal policies.

To eliminate the deficit and cut taxes, the Conservatives had to sell off some valuable assets, shrink the budgetary contingency fund and continue strangling federal government services. To the Tories, a balanced budget is a philosophical and political imperative, something they feel distinguishes them from other political parties, and emboldens the party’s electoral base in time for a fall federal election.

As was pointed out last week, that’s a pretty risky strategy because Canadians, on the whole, are willing to endure deficits and forgo tax cuts in order to protect core services. Does that mean the NDP approach in Manitoba will help them with voters for the April 2016 budget?

If the budget deficit was the NDP’s only problem, perhaps this strategy of admitting failure in advance would be a winner. But the NDP in Manitoba has many other problems, not least of which is the fact it has been in power a long time, and voters appear to be growing tired of it.

If — and it’s an enormous if — the NDP gain any political advantage from not balancing the budget, it would be by dragging Progressive Conservative Leader Brian Pallister into a debate over the pain of a short-term, deficit-cutting plan.

Manitoba first went into deficit when the world went into recession in 2008-09 and, like all provinces, it ramped up infrastructure spending to help stimulate the moribund economy. These deficits were exacerbated by hundreds of millions of dollars in unanticipated costs associated with spring and summer flooding. Now, regardless of how and why the province spent all that money, it is stuck with an annual deficit of about $400 million it seems unable to shake.

Dewar and the NDP are correct when they point out many of Manitoba’s economic trends point in the right direction. Over the next two years, Manitoba is expected to lead or be above average in economic growth, and perform well in terms of job creation. Even so, it apparently isn’t enough to balance the budget.

In general, this is because the growth in revenues has not been able to keep up with the growth in expenditures. Critics say this is evidence of a spending problem, but those critics have a hard time identifying specific areas of expenditures that Manitobans could or should live without.

How hard is it to balance the budget without touching health care, social services, education, infrastructure and justice? Based on the 2014-15 estimates, those five departments account for $10.6 billion or 86 per cent of the province’s $12.3 billion budget. And even a freeze in spending in these departments would erode service levels significantly.

What about the non-core areas of government spending? To achieve $400 million in savings, you would have to completely eliminate all salaries for MLAs, cabinet ministers and their staffs, hold back pension contributions for the civil service and cut the entire budgets of the eight smallest departments. And among those departments would be Housing and Community Development, Aboriginal and Northern Affairs and Labour and Immigration. It also includes axing the Finance department, which is bad because it collects taxes and that won’t help the government’s bottom line.

Pallister and the PCs have promised to slay the deficit without cutting any front-line staff, and roll back the one-point increase in the PST to fund infrastructure without reducing the total amount spent on roads, bridges and water treatment across Manitoba. Pallister and the Tories will howl about the NDP’s admission of failure, but deep down he does not want a substantive debate on his own fiscal policies.

Dewar is not trying to fool Manitobans about the reality of the province’s fiscal predicament, and that’s a good thing. His admission leaves voters to decide next spring whether they want their government to run a deficit. And if not, the cost they are willing to pay to get rid of it.

 dan.lett@freepress.mb.ca