Manitoba says deficit won't be as bad as expected, but Pallister won't promise PST cut for 2021

Manitoba's projected year-end deficit arising from the pandemic response isn't as bad as originally feared, the provincial government says.

The province is now forecasting a deficit of $2.9 billion, down from the $5 billion estimated in the early days of Manitoba's COVID-19 response, Premier Brian Pallister said on Tuesday at the Manitoba Legislature.

"What's changed quite evidently is that Manitobans have responded to the challenge better than arguably any other citizens in the world," the premier said while updating the government's financial picture for the first time since March — when the pandemic was at its height.

"What's changed is we have the right to be optimistic now." 

But despite the optimism, Pallister wouldn't commit to cutting the provincial sales tax next year. 

He originally wanted to drop the PST to six per cent as of Wednesday, but those plans were pushed to 2021 when the pandemic emptied the province's pocketbook.

PST cut in limbo for 2021

"I wouldn't want to commit to that at this point in time. I think that there's just too many plus-minuses right now with respect to COVID to do that," Pallister said.

The consensus position among the government's forecasters, though, is Manitoba's economy will rebound quickly in the second half of 2020, thanks in part to a low number of COVID-19 cases.

A government document portrayed the economic picture as a V-shaped recovery, which represents the shape of a chart showing a sharp rise in economic fortunes after a sudden dip.

"When COVID loses, Manitobans win — and we are winning," Pallister said.

The deficit may still approach $5 billion under a prolonged downturn, according to the updated forecast. It assumes the province will not have to reverse course and clamp down on business activity from a spike in COVID-19 cases.

It is expected the province's economy will shrink by five per cent this year, with revenues slipping $1.5 billion this year and more than $1 billion the next year.

Income from taxes and other government revenue sources is expected to fall by $1.5 billion, but officials warned it may drop as much as $3 billion if recovery efforts sour.

The province's additional expenses from the COVID-19 pandemic are forecast at $1.2 billion this year. That could rise to $2 billion, depending on the coming months, a document said.

In total, the government said, it is spending $2.1 billion to fight the pandemic, ranging from already announced programs such as wage subsidies for employers, $360 million to acquire personal protective equipment and a $200 cheque for every senior.

Even in a scenario where the economy rebounds quickly, the province is expecting its summary net debt to exceed $29 billion and the net debt to GDP ratio to reach 41 per cent. That's an increase from the 34.2 per cent forecast in this year's budget.

Interest costs rising

The additional interest costs alone would be an extra $70 million, which is the equivalent of building three new schools annually, a government document said. 

It is estimated the province will borrow more than $9.5 billion this fiscal year. 

"Now we must grow our way back to prosperity," Pallister said.

The Opposition New Democrats say the government shouldn't be applauded for austerity in a pandemic. The province ordered cuts to non-essential funding and oversaw reduced work weeks for civil servants. 

"They've dug a six-foot hole with their cuts and then with this flimsy document today, they're promising to fill it back in five feet and then they expect a pat on the back for that," leader Wab Kinew said.

"Meanwhile, our economy is heading for a relapse because we know that there are still small businesses struggling and there's still so many people out of work." 

The Manitoba Liberals said the government is deceitfully counting some spending, such as $280 million in safety upgrades to personal care homes, as a measure fighting COVID-19.

"It's not enough … to slap a COVID-19 sticker on something and say, 'We did this for COVID-19,'" leader Dougald Lamont said. "It's a whole bunch of stuff that had to happen anyway."