The provincial balanced budget plan is dead

Opinion

Hey there, time traveller!
This article was published 24/12/2024 (290 days ago), so information in it may no longer be current.

It appeared to be an unrealistic plan when it was unveiled in March. Now, nine months later, the Kinew government’s promise to balance the budget before the end of its current term appears all but impossible.

Last week, the province released its “2024/25 Second Quarter Report and Fiscal and Economic Update,” and the news wasn’t good. The report estimates the province will end the current fiscal year with a $1.3-billion deficit, more than half a billion dollars higher than the $796 million deficit that was projected in Budget 2024.

Prior to the report’s release, finance minister Adrien Sala told reporters that the super-sized deficit “is a good news story. It shows that we’re making progress on our commitments.” He also re-confirmed his government’s commitment to balance the budget by the end of its four-year mandate in 2027.

The minister deserves credit for his determination, but the odds are highly-stacked against him.

The plan to balance the books by 2027 may have seemed reasonable and responsible to Sala and his colleagues last March but, in light of the latest deficit figures, few would regard the objective as achievable within the next three years.

Page 92 of the government’s Budget 2024/25 document (“One Future. On People. One Manitoba. Budget 2024”) set out the specific details relating to the government’s ambitious plan. It called for government revenues to steadily rise from $23,437,000,000 in fiscal 2024/25 to $25,966,000,000 in fiscal 2027/28. On the expenditure side, it predicted that expenses would grow at a much lower rate — from $24,133,000,000 this fiscal year to $25,848,000,000 in fiscal 2027/28.

Based on those numbers (which included $100 million “planning contingencies” in each year), the deficit would shrink from $796 million this year to $532 million next year, to $266 million in 2026/27, and then morph into an $18-million surplus in fiscal 2027/28, just in time for the next election.

The plan contemplated that the government’s overall revenues would increase by more than $2.5 billion in just four years, while expenses would be limited to a $1.7 billion increase over that same period of time. Given the current economic climate, Manitoba’s slow-growth economy and the NDP’s long history of difficulties controlling spending, does that sound realistic to you?

It shouldn’t. Sala’s book-balancing plan seemed wildly over-optimistic last March and, with the release of the latest fiscal data last week, it appears the skepticism was warranted.

The second quarter report reveals that revenues for the current fiscal year are projected to be $38 million lower than budgeted for in Budget 2024. Even worse, it estimates that government expenses will be $475 million higher than the budget forecast.

That is primarily due to an over-expenditure of $51 million by the Justice department, combined with a $438 million overspend by the Health, Seniors and Long-Term Care department, $230 million of which is attributed to health authorities’ expenses.

The fatal blow for the government’s budget-balancing plan is that neither of those expenditures can be credibly regarded as one-time items. The inflated justice costs are largely due to increased costs in correctional services relating to overtime and workers compensation board costs. Those expenses are unlikely to go down anytime soon.

As regards the massive health overspend, the government blames “long standing failures to deliver services within funding or anticipate clinical pressures,” but health-care costs are projected to keep going up in future fiscal years, not down.

Beyond that, it is politically impossible for governments to remove money from the justice and health-care systems. This year’s overspend will almost certainly become a permanent part of future health and justice budgets.

Those realities mean that the expenditure column on the government’s balanced budget plan is hundreds of millions of dollars higher than projected at its 2024/25 starting point, and that problem isn’t likely to improve over the next three years.

The Kinew government has been assiduous in its determination to keep all of its election promises, but its budget-balancing commitment no longer appears feasible, if it ever was.

In the absence of a credible plan to raise additional revenues (a PST increase, perhaps?) and/or imposing austerity spending cuts to offset the extra expenses, Sala should admit that his original plan is dead and start working on a realistic deficit reduction strategy with achievable targets.

Deveryn Ross is a political commentator living in Brandon. deverynrossletters@gmail.com | X: @deverynross