Does balancing the budget resonate anymore?

Hey there, time traveller!
This article was published 10/10/2025 (219 days ago), so information in it may no longer be current.

Spring is typically budget season, but this year is different. A federal budget, the first of the new Carney Liberal government, is scheduled for Nov. 4. Manitoba just released a fiscal update that pegged the provincial deficit for 2024-25 at $1.1 billion, overshooting the original forecast by $353 million.

The federal budget will be unsettling as Canada’s economic growth slows amid tariff and trade uncertainty. The Parliamentary Budget Officer projects a budget deficit of $68.5 billion for 2025-26. This represents a 32 per cent increase over last year’s deficit of $51.7 billion but, more significantly, it is a 62 per cent increase in the projected deficit of $42.2 billion for this fiscal year from last December. And the deficit projection does not include election promises for new defence spending. The federal government has promised significant cuts to public service spending, but it is difficult to see how this will provide much immediate budget relief.

Nor is the provincial budgetary outlook comforting. The province projects a budget deficit of $890 million for 2025-26, $96 million higher than anticipated. An expensive wildfire season and low Manitoba Hydro revenues because of ongoing drought are cited as extraordinary factors. I wonder, however, if extraordinary is the appropriate qualifier under ongoing climate change. While a return to past weather patterns might offer some budgetary relief, worsening wildfire seasons and drought might be more sensible trend projections. Nevertheless, the Kinew government is retaining its commitment to balance the budget by the end of its term in office.

There was a time, not long ago, when government commitments to balance the budget were enshrined in legislation. The Federal Balanced Budget Act of 2015, required annual budget balance or surplus except during a recession or under other extraordinary circumstances, but the Act was repealed the next year. The act followed on a modest budget surplus of $1.9 billion in 2014-15, the first and so far last federal budget surplus of this century.

Provincial balanced budget legislation has a much longer history, and more success, dating back to 1995. Although the legislation accompanied the first balanced budget in 22 years, the province was able to balance the budget regularly until 2001, less regularly until 2009 and not at all since — except for a small surplus in 2019-20. Manitoba’s balanced budget legislation was first modified and then repealed in 2016.

It is not surprising that enthusiasm for balanced budget legislation has followed success in balancing the public books and ebbed with failures to sustain that success. Research with a former colleague, Jared Wesley, could not detect any statistical effect of balanced budget legislation on expenditure growth across the seven Canadian provinces that had enacted the legislation. For proponents of balanced budget legislation who often argue that it would restrain government spending, this is not a promising result.

Confronted with the first economic setback, the recession of 2008-9, provincial governments fell into deficit mode and, ultimately, took steps to evade the legislation, weaken it or repeal it entirely. Our conclusion was that balanced budget legislation was only as effective as the political will and public support surrounding it, which would crumble during adverse economic conditions. Moreover, deciding how much to put away for a rainy day, as Manitoba continues to do with its Fiscal Stabilization Account, is complex in a world fraught with unknowns. Running an account balance of $585 million, while running a deficit projected to be $890 million, makes little sense as it would for a household putting money in a low-interest savings account, while running up high-interest credit card debt.

One of those unknowns, and a big one, was the COVID-19 pandemic. Its dramatic effect on the economy, government revenue and spending led to significant deficits of $327.7 billion for the federal government and $2.1 billion for Manitoba in 2020-21. The budgetary positions improved to deficits of $90.2 billion federally and $704 million provincially for 2021-22, but have not recovered significantly since then, leaving concerns about ongoing structural deficits and ability to fund future economic adversity.

While governments, and the public it would seem, have little appetite for balanced budgets at this time, governments would not be wise to abandon some form of fiscal prudence. The federal government established fiscal guardrails in 2023 to keep future deficits below one per cent of GDP and maintain a declining debt-to-GDP ratio. While these seem like sensible goals in terms of ability to finance the debt, the Parliamentary Budget Office projects a rising debt-to-GDP ratio through the remainder of this decade based on current budget projections. Manitoba does not specify fiscal guardrails, and continues to rely on questionable projections of a balanced budget in 2027-28.

One reason for these budget dilemmas is slowing economic and government revenue growth. Real per capita GDP growth has been negligible in Manitoba and less than one per cent per annum for Canada since 2021.

Current projections for economic growth remain anemic, leaving little opportunity for program expansion to meet public aspirations without program reductions elsewhere, higher taxes or deficit financing.

Wayne Simpson is professor emeritus of economics at the University of Manitoba.