Manitoba NDP government has little wiggle room left to balance budget by 2027

After only 14 months in office, Wab Kinew's New Democrats have found themselves with little fiscal room left  to manoeuvre in Manitoba if they want to avoid the same chain reaction of runaway spending that doomed Greg Selinger's NDP government a decade ago.

On Monday, NDP Finance Minister Adrien Sala announced the projected deficit for the current fiscal year is now $1.309 billion, $513 million above the predicted deficit in the budget he presented only eight months earlier.

The main culprits for the growing deficit are a mix of factors, only some of which the NDP government can control.

Since Kinew and Sala can't control the weather, they cannot be held responsible for relatively low water levels on Lake Winnipeg, which acts as a reservoir for Manitoba Hydro. According to a Monday fiscal update, the Crown corporation is expected to contribute $164 million less to provincial coffers than Sala expected on budget day.

What the NDP government can be held responsible for is overspending on health. Sala's fiscal update projects health-care spending will end up $438 million over budget by the time the current fiscal year ends on March 31.

In his update on Monday, Sala placed the blame for this on unnamed health-care administrators, whom he accused of failing to "deliver services within funding or anticipate clinical pressures" and creating an environment "where overages in health spending are not only accepted but assumed unavoidable."

It is fair to describe that rhetoric as colourful language from a government that campaigned for office in 2023 on promises to "hit the ground running" and "fix health care."

Almost every time now Premier Kinew or Health Minister Uzoma Asagwara were asked during that campaign how they planned to rein in health-care spending when previous Progressive Conservative and NDP governments could not, they responded by promising to listen to health-care workers.

So far, listening has not kept costs down. It is also debatable whether a majority of Manitobans believe the quality of health care has improved since they booted Heather Stefanson's PCs out of office in October 2023.

But that is not the question of the day. The real question is how Sala can hope to contain spending in Manitoba, let alone balance the provincial books by the end of a first NDP term in 2027.

Further away from balanced budget

On Monday, the finance minister sounded optimistic about the prospects.

"We're going to make smart, responsible decisions through strong fiscal management that'll keep us on track to a balanced budget by the end of our first mandate, a target we are committed to reaching," Sala said at the Manitoba Legislative Building.

Nonetheless, Sala is now further away from balance than he was eight months ago, and not just because the projected deficit has risen. The province has also hired more workers and is paying them more, which means it will be more difficult to contain spending next year than it was this year.

On paper, the task of balancing the books ought to have been easier this year. In 2024-25, $6.9 billion of Manitoba's $24.1-billion budget is subsidized by the federal government. There is no guarantee transfers on that scale will continue to flow from Ottawa in the currently very likely event Pierre Poilievre's Conservatives wrest power away from Justin Trudeau's faltering Liberals.

This province cannot even count on future windfalls from Manitoba Hydro to save the day, even if Lake Winnipeg water levels rise. The Crown corporation faces billions in deferred maintenance costs and must make additional billions worth of investments in new power generation.

The days of bleeding Manitoba Hydro for profits may need to come to an end, said University of Winnipeg economist Phil Cyrenne.

"It's been used in some sense to fund the government or to make deficits look sort of less worse. But in general, you have to reinvest and you have to maintain your infrastructure if you want to go forward," Cyrenne said Tuesday in an interview.

For the NDP government, one easy option to raise more revenue in the short term is to end the provincial gas tax holiday, he said.

That tax would have raised about $340 million for the government in 2024.

It should be clear within days whether that tax break will be cancelled or extended, Sala said Tuesday in an interview.

But even $340 million a year won't solve Manitoba's fiscal woes, as they now stand. Next year brings even greater risks, including the potential economic fallout from U.S. president-elect Donald Trump's threatened tariffs on Canadian imports.

Sala said Manitoba is planning to mitigate any disaster.

"Regardless of the risks that are on the horizon, we need to make sure we're prepared for them," he said Tuesday, insisting a balanced budget can still be achieved by 2027.

But Cyrenne questioned whether an NDP government needs to fulfil such a promise.

Under Tory governments, "the base tends to be quite fixated" on balanced budgets, he said.

But for the NDP, "if their base is OK with the policies that they're taking, I don't see that there's a real strong incentive for the government to get to a balanced budget, if it requires sort of draconian actions."