The Conference Board of Canada’s Economist Daniel Fields offers insights on Manitoba’s 2019 Budget:
“Based on the ambitious spending plan outlined in the Province’s 2018 Budget, Manitoba is well positioned to balance its budget ahead of its 2024 target. Yet, the budget released yesterday provides little detail on how spending restraint would be achieved beyond 2019–20.”—Daniel Fields, Economist, The Conference Board of Canada.
The 2019 Manitoba budget, released on March 8, is mainly focused on reducing the deficit but also included a one percentage point reduction in the Provincial Sales Tax (PST) rate.
The PST will drop to 7 per cent on July 1st of this year, forfeiting $237 million in tax revenues for the government in fiscal 2019–20. Once fully implemented, the tax will lower provincial government revenues by $325 million per year.
The drop in the PST rate is being implemented ahead of schedule; the province had stated in last year’s Budget that it would lower the PST by 2020.
This year’s budget lacked the transparency of the prior year’s budget. In its 2018 budget, the province projected total revenues and total expenditures through 2021–22, giving some clarity around how the province will slay their decade-old deficit. This year’s budget focused only on 2019–20 and provided just the bottom line-deficit projections until 2022–23 with no details on how these targets will be met.
The government expects a deficit of $360 million in 2019–20, down from a projected $470 million this year. Unlike last year, when the government assumed a $115 million increase in revenues (or reduction in spending) to reach a deficit of $388 million, this year’s target has a contingency of $95 million in the case of any unforeseen loss in revenues or increases in spending.
The inclusion of a contingency is a positive development. Budgets should be setting aside money in the form of contingency as opposed to counting savings or revenue gains before they are identified. This was the case last year, where a $115 million planned savings was included in the government’s fiscal plan for every year of the forecast.
The 2019 Manitoba budget is based on a real GDP forecast of 1.7 per cent in 2019 and 1.5 per cent in 2020. This is slightly stronger than the Conference Board’s current economic outlook.
Overall, the Manitoba budget projects revenues to grow by 2 per cent in 2019–20, with gains in equalization being offset by the cut to retail sales tax revenues.
We expect revenue growth will continue to be bolstered by equalization payments, however the bigger question mark on the fiscal forecast going forward is the spending plan.
If the province can follow its plan from last year, which was one of the most ambitious spending restraint plans in over 20 years, balance could be achieved ahead of schedule.
However, with no spending plans given beyond 2019–20, we do not know how the province plans to return to balance.
Net debt is slated to rise to $26 billion next year up from a projected $25.2 billion in 2018-19. Net debt has more than doubled since 2006–07.
In all, after nearly a decade in the red, Manitoba looks to be on a path to balance. However, it is hard to say how the province plans to achieve this without the spending details. For more on our fiscal forecast, which uses the ambitious spending targets from Budget 2018, see our Manitoba Fiscal Snapshot 2018.