Premier Wab Kinew says his government plans to bring in austerity measures to make good on an election pledge to balance the books by the end of the NDP’s first term in office.
The premier also said this week he’s considering extending the so-called gas tax holiday. That would make it more difficult to eliminate the provincial deficit, especially on top of the multitude of provincial tax cuts implemented over the past four years.
“I think the average Manitoban right now is looking at their family budget and they’re making tough choices because of inflation about tightening the belt,” Kinew said in a recent interview with The Canadian Press. “And I think Manitobans should expect that their provincial government is going to be going through the same hard work so that we can deliver responsible government for you.”
Premier Wab Kinew says his government plans to bring in austerity measures to make good on an election pledge to balance the books by the end of the NDP’s first term in office.
(Matt Goerzen/The Brandon Sun files)
That includes containing spending to bring down a provincial deficit estimated this year at $796 million, said Kinew.
The premier didn’t say how or where spending would be reduced, only that there’s “a significant amount of work being done … to articulate that path to balance.”
The NDP’s medium-term forecast projects a razor-thin surplus of $18 million by 2027-28. It’s a bit of shaky projection considering it’s based on very modest spending increases of between 2.2 per cent and 2.4 per cent per year.
Containing spending at that level while also making good on election pledges to significantly increase funding in key areas such as health care, education, justice and child welfare seems unrealistic.
At that level, it barely keeps up with inflation and doesn’t account for population growth. It’s questionable whether it’s enough to cover recent public sector wage settlements. Last week Manitoba teachers inked a four-year deal that includes annual wage increases of between 2.5 per cent and three per cent.
To make matters worse, the provincial government has less revenue to work with after four years of deep tax cuts. The previous Progressive Conservative government brought in a wide range of tax cuts, including income tax and property tax reductions that add up to more than $1 billion a year in lost revenue.
The NDP adopted most of those rate changes, although it did reverse part of the former government’s property tax cuts by an estimated $148 million a year. However, that’s offset to some degree by other NDP tax cuts, including a $36.9-million rental housing construction tax credit and a renter’s tax credit ($8.6 million).
The Kinew government’s biggest tax cut is the temporary elimination of the province’s gas tax, which normally generates some $340 million a year in government revenue.
The NDP brought in the gas tax holiday on Jan. 1, extended it to Sept. 30 and is now considering keeping it in place until the end of the year. And who knows, it may be longer.
The problem with a temporary gas tax holiday is that it not only robs the provincial treasury of much needed revenues to help pay for expensive road and bridge infrastructure (and to fight climate change), it will boost inflation when it’s eventually reinstated.
The gas tax holiday has had a small impact on reducing inflation in the short term. That will be immediately reversed when it’s reintroduced.
In the meantime, the province will have about $340 million less in fuel tax revenue to work with this year if it’s extended to the end of 2024. If it’s kept in place beyond that, the treasury will take a further hit.
The gas tax holiday may yield some short-term political benefits for the NDP, but it’s bad policy in the long run, given the fiscal pressures the province is facing.
It will also make it more difficult to balance the books by 2027-28. That’s bad news for a provincial government struggling with a debt load that is climbing at an alarming rate.
The province’s net summary debt as a percentage of the economy (a metric credit rating agencies keep a close eye on) is expected to grow to 38.5 per cent this year, up from 35 per cent in 2022-23. Manitoba Finance projects it will rise again next year to 39.1 per cent and start to fall after that.
That’s based on the NDP reducing the current $796-million deficit to zero within three years, which under current spending plans seems far-fetched. If the Kinew government fails to meet those fiscal targets, the debt-to-GDP ratio could easily exceed 40 per cent, a level not seen in recent Manitoba history, even during the COVID-19 pandemic when government revenues plummeted and costs and borrowing requirements soared. For context, Manitoba’s debt-to-GDP ratio was as low as 21.8 per cent in 2007-08.
There are no quick-fix solutions to the provincial government’s fiscal challenges. However, borrowing money to finance tax cuts, as both the previous Tory government and the current NDP government have done, has only made matters worse. Any further tax cuts, including extending the NDP’s gas tax holiday, would add to that misery.
Tom Brodbeck
Columnist
Tom Brodbeck is a columnist with the Free Press and has over 30 years experience in print media. He joined the Free Press in 2019. Born and raised in Montreal, Tom graduated from the University of Manitoba in 1993 with a Bachelor of Arts degree in economics and commerce. Read more about Tom.
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