It’s time for a steady fiscal hand

Opinion

Hey there, time traveller!
This article was published 27/03/2024 (537 days ago), so information in it may no longer be current.

The temptation for Manitoba’s NDP government, when it brings down its first budget on April 2, might be to make good on its election pledge to balance the books within its first term in office.

If that means underspending in key areas such as health care and education — which have been starved of resources for most of the past seven years — that would be a mistake.

The NDP promised voters in last year’s provincial election that, if elected to government, it would eliminate the province’s deficit in four years. However, that was based on a projected deficit of $363 million for 2023-24. According to the province’s third-quarter financial report released last week, that shortfall has ballooned to almost $2 billion.

There are multiple reasons for the elevated deficit. Manitoba Hydro is projecting a $190-million loss in 2023-24, down from an estimated surplus of $450 million at the beginning of the year. Taxation revenue is also lower than projected, owing to a softening economy and the NDP’s temporary elimination of the province’s fuel tax. Expenditures, primarily in health care, are also up as new, more expensive collective agreements signed during the 2023-24 year are now kicking in.

In other words, the fiscal landscape is vastly different today than it was six months ago when the NDP pledged to balance the books in four years.

Even if Manitoba Hydro’s finances turn around in 2024-25 — which they could if water levels rise this year — the province would still be facing a significant deficit. It’s unlikely that shortfall could be eliminated in four years without a degree of austerity that would do more harm than good, both economically and socially.

Barring an unexpected burst of economic growth over the next year or two, the elimination of a $2-billion deficit over four years seems unrealistic and potentially harmful. There is no sound economic reason to stick to that arbitrary timeline, especially if it means underspending on front-line services.

It is important for governments to live within their means, especially during good economic times. Failure to do so, as Manitoba saw from a previous NDP government between 2013 and 2016, results in unmanageable debt levels, soaring finance charges and eventually credit rating downgrades.

The current NDP government should avoid those pitfalls. But that doesn’t mean it should rush to balance the books by attempting to meet an artificial deadline established under very different economic assumptions.

What it should do when it brings down the 2024 budget is find the right balance between adequately funding front-line services and making progress on deficit reduction. The social and economic benefits of properly funding front-line services would outweigh the incremental costs of extending the budget surplus timeline beyond four years.

What would help achieve that balance is if the NDP government abandoned its misguided commitment to cutting taxes. The income tax and education property tax cuts brought in by the previous Progressive Conservative government and adopted by the NDP have robbed the provincial treasury of much needed resources and driven up the deficit unnecessarily. The NDP exacerbated the situation by temporarily eliminating the fuel tax, which reduced taxation revenue by over $100 million this year.

The last thing Manitobans need right now are more tax cuts.

What they need is a government that will make sound, evidence-based decisions by properly funding front-line services and charting a long-term path to a balanced budget.