Total debt among provincial governments is expected to jump by a record amount this year and eight of 10 provinces — including Manitoba — will post deficits in 2024-25, according to a recent BMO Capital Markets report.
Manitoba has among the highest debt as a percentage of the economy compared with other provinces, the report says.
It’s bad news and taxpayers should be very worried.
Heavy government spending and an economic downturn during the COVID-19 pandemic are partly to blame for the fiscal mess provinces are in. But that’s only part of the story. In Manitoba, the former Progressive Conservative government’s pre-election spending binge last year (followed by similar levels of spending by the new NDP government this year) have also been key drivers. It seems most other provinces are in similar situations.
Alberta and New Brunswick are the only provinces projecting budget surpluses this year, the BMO report says. The rest are borrowing record amounts to pay the bills and to finance big-ticket infrastructure projects.
Manitoba is projecting a deficit of $796 million this year. That’s down from nearly $2 billion in 2023-24, but is still one of the highest on record.
“The group (of provincial governments) has begun to backslide after a few years of fiscal progress,” says the report under the heading: “Provincial finances: the shine is wearing off.”
Manitoba’s net debt to GDP (one of the most important measurements of a government’s fiscal health) is fourth highest among the provinces at 37.5 per cent, according to the report. Newfoundland and Labrador has the highest (45 per cent), followed by Quebec (39 per cent) and Ontario (38 per cent). The three provinces west of Manitoba have far lower debt-to-GDP ratios: Saskatchewan (13.3 per cent), Alberta (9.3 per cent) and British Columbia (18.1).
One of the biggest challenges facing all provinces is the rapid growth in public sector wages, owing in large part to high inflation, the report says. While few, if any, public sector wage settlements have kept pace with soaring price inflation, they are nonetheless putting a strain on provincial treasuries.
That’s especially true in an environment of slow economic growth, which is showing no signs of picking up any time soon. Manitoba’s economy is expected to grow by only 1.1 per cent this year, slightly below the national average.
Tax cuts have also contributed to the problem, at least in Manitoba where the former Tory government cut taxes by hundreds of millions of dollars a year during its two terms in office. The NDP has continued the trend by keeping all of those tax cuts and adding more, including a temporary fuel tax holiday.
It’s bad policy on many fronts, including limiting the amount of resources needed for front-line services in health care, education, mental health and addictions. It also leaves less borrowing room for critical infrastructure, such as upgrades and expansions to roads, highways, bridges, schools and flood protection.
Perhaps the most galling aspect of cutting taxes while running massive deficits is that future generations will have to pay for them. The money government is borrowing today to cut taxes will have to be repaid by our grandchildren and their grandchildren.
What the BMO report shows is that most provincial governments, including Manitoba, are struggling with what economists call structural deficits. They don’t have the revenue to pay for the public services they’re providing. That’s a serious problem that will need a solution sooner rather than later. And it won’t likely come from the federal government.
Unlike in past years, the provinces can’t expect Ottawa to bail them out through higher transfer payments. That’s because the federal Liberal government is also posting massive deficits and running up record debt. It, too, has created a structural deficit (which the Trudeau government seems unwilling to tackle) and has virtually no fiscal capacity to significantly raise transfer payments.
The only way out of this mess, short of raising taxes, is to control spending and hope for better economic days ahead. Since governments can’t hope their way out of it (and are probably not willing to raise taxes by any significant amount) spending control is really the only long-term answer.
Governments can’t operate on perpetual deficits. Eventually, they run out of money to borrow.
tom.brodbeck@freepress.mb.ca
Tom Brodbeck
Columnist
Tom has been covering Manitoba politics since the early 1990s and joined the Winnipeg Free Press news team in 2019.