PC tax cut claims don’t add up

Opinion

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This article was published 02/10/2023 (740 days ago), so information in it may no longer be current.

After cutting $1.6 billion in revenues since 2016, the Progressive Conservative Party of Manitoba is promising another $1.2 billion in tax cuts.

While the previous tax cuts coincided with well-documented cuts to health, education and other public services, the PCs are saying the new tax cuts will be paid for out of economic growth arising from large economic development projects initiated under the business-friendly environment created in Manitoba under their governance.

The PCs have pointed to $8 billion in new economic development projects in the pipeline, with an anticipated revenue increase of $3.5 billion. Upon further questioning on these projects, the PCs have said they can only publicly name four of the 13 projects included in their calculations. Only one is actually confirmed to be moving forward, while the other three “have hurdles to cross before construction can begin.”

Manitoba Hydro staff, for example, have raised questions as to whether Manitoba’s energy infrastructure can meet the needs of any these energy intensive projects, given the lack of hydro or alternative energy development under the PCs.

The $3.5 billion in new revenues then appears to be quite speculative at this point. The four projects disclosed are also large manufacturing and agricultural production facilities and would take multiple years to develop, so any tax revenues generated would also be spread out over a longer time horizon. These types of projects also often benefit from government financial incentives and require new infrastructure and services that add new costs onto the government.

Given all this, the claim that $1.2 billion in tax cuts can be paid for by the government revenues from these projects becomes increasingly doubtful.

Historical data on economic growth and tax revenues also raise serious doubts regarding the possibility of generating $1.2 billion dollars in annual revenues from new economic growth. Average annual growth, according to provincial government budget data, was 3.9 per cent from fiscal years 2007/08 to 2021/22. In recent years, from 2016/17 to 2021/22, provincial own-source revenue (provincial revenues minus federal government transfers) increased on average by $208.6 million per year, after adding back in revenue lost to tax cuts.

What this data tells us is that if the government wanted to rely on incremental economic growth to fund $1.2 billion dollars in tax cuts, the economic growth rate of Manitoba would need to increase by an estimated six percentage points, or more than double the average annual economic growth rate of the Manitoba economy over the past 15 years, a level of growth that would need to be sustained year after year.

This is not a credible claim, particularly given that Manitoba has not achieved such a rate of annual economic growth in modern history (although the data may show we did in fiscal year 2022/23, due to the high price inflation we experienced, once it comes in).

An alternative, more generous way to interpret the PC claims is that they will pay for the tax cuts using all new revenue generated going forward, not just from these noted economic development projects. In that case, they would then need six per cent economic growth per year in total to meet this threshold.

But average economic growth has been less than four per cent, so the PCs would require a sustained 50 per cent increase in the economic growth rate going forward and freezing funding to all government programs and services, despite rising costs and growing population.

Freezing funding to Manitoba’s health, education and broader public services is an inadvisable, if not unrealistic, prospect.

After years of wage freezes and mandated cuts, public services are in crisis, with deep dissatisfaction among public sector workers, leading to recruitment and retention challenges and high vacancy rates. A series of strikes are also increasing costs as wage settlements are negotiated or imposed, as wages partially catch up with inflation.

Increasing public spending at least the rate of inflation plus population growth will likely be required to rebuild public service levels to a service standard acceptable to Manitobans.

Statistics Canada data shows that since 2007, the Manitoba economy only grew on average by 0.7 per cent per year when adjusted for inflation and population growth. This means that if public spending is increased enough to offset rising prices and population, there is relatively little left to fund tax cuts.

Despite rosy projections and optimistic promises regarding growing the economy, the proposed PC tax cuts will need to be paid for by increased deficits or additional cuts to public services.

The reality of the situation is that if the PCs are re-elected and follow through on their tax cut and balanced budget commitments, Manitobans should be prepared for another round of deep austerity and cuts to public services.

Jesse Hajer an assistant professor ineEconomics and labour studies at the University of Manitoba