Shaping expectations about a balanced budget

In September, Manitoba Finance Minister Adrien Sala released the public accounts on spending for the 2024-25 fiscal year, together with the fiscal update for the first quarter of 2025.

Most of the significant economic and financial numbers were heading in the wrong direction, which suggested the NDP government will be hard-pressed to fulfil its campaign promise to deliver a balanced budget ahead of the next election, which must occur on or before Oct. 5, 2027.

My speculation, not based on any insider information, is that the government will break that promise.

Instead, before the election it will issue a multi-year financial plan which lays out a path to balance during a second term. That plan will be supported by a communications campaign intended to explain the unpredictable and uncontrollable forces — such as wildfires and tariffs — which have driven revenues down and spending up.

To enhance its re-election prospects, which are presently good, the government must tell a compelling budgetary story which signals its ongoing commitment to prudent financial management. Given the complexities of fiscal policy, the public’s limited knowledge of government finances, the fragmented media environment and the requirement for concise messages which speak to the needs and concerns of all voters, the communications task will be difficult.

At the fiscal update on Sept. 25, the finance minister boasted, among other things, that the NDP had reduced the deficit by 42 per cent since taking office, claimed operational spending in most departments was stable, pointed to a contingency fund of $200 million and noted that both the auditor general and the credit rating agencies had issued positive reports on the province’s financial position.

Against these “positive” indicators, he acknowledged that revenue growth would fall below the budget forecast, deficits would be higher and the debt to GDP ratio would increase.

Higher than forecast spending had occurred in the major departments of health and families. A contingency of $200 million does not go far in a $25 billion budget. On the revenue side, federal financial transfer payments, which account for approximately one-third of total revenues, are scheduled to decline over the next several years. Despite these discouraging numbers, the finance minister insisted the commitment to balance by 2027 was firm.

One day later, Premier Wab Kinew signalled optimism with the release of an economic strategy document which set the ambitious goal of Manitoba becoming by 2040 a “have” province which no longer qualified for equalization payments (currently 19 per cent of its revenues) from the national government.

Such an aspirational goal to motivate and stretch performance is fine, but it is probably not realistic in just 14 years. Manitoba’s economy is diversified, stable and resilient. However, it lacks a powerful growth engine. Hydro is a major asset, but it will never generate enough windfall earnings to power the province to “have” status.

The economic strategy contains useful ideas (tax breaks, investments, training, etc.) and the premier has hinted that several megaprojects are in the planning stages.

Transforming the fundamentals of the economy, however, will require some economic good fortune and will likely take decades. There is also the risk that Parliament will modify the equalization formula reducing Manitoba’s entitlement, as could the performance of other provincial economies.

For both public policy and political reasons, the government needs to tell a convincing budgetary story which engages the public, speaks to their concerns about taxes and spending, and mobilizes support for future budgetary actions. Most Manitobans want government which is affordable and nobody loves tax increases (especially for themselves) but they also see the necessity for spending to promote economic growth and to address ongoing problems in such fields as healthcare, social services, housing and crime. They also want assurances that they are obtaining value for their tax dollars.

At some point there will have to be tax increases. Personal and corporate income and sales taxes are the main own-source revenues for the province. To date the government has retained the income tax cuts made by the former government. The decision in 2024 to de-index tax brackets for personal income taxes brought in some limited new revenue. This will be offset by the selective cuts to sales tax and tax credits promised in the economic strategy document.

To demonstrate it is prepared to listen, the government could launch a consultation exercise on the options for public finance over the medium range future. A task force could develop an approach to “balance” which goes beyond the narrow focus on the financial deficit to include the equally important social, performance and trust deficits. It could explain why taxes must increase, how tax changes must balance economic efficiency with fairness and how any changes will impact different segments of the public. Other topics to be examined would be how to put spending on a sustainable path and how to reduce dependence on federal transfer payments.

No one in government asked for this free advice, which I am certain will be treated for what it is worth.

Paul G. Thomas is professor emeritus of political studies at the University of Manitoba.