A Picture of Provincial Debt: Part 5, Manitoba
Manitoba has been facing some pretty hard times the past couple of years. And while it’s typically easy in any province, to point fingers at the government and blame them for overspending, the debt Manitoba has accrued over the past few years is largely not their own fault. Still, this province is said to be one of the most balanced economies in Canada, and they hope to turn things around and start showing a surplus in just two years.
First, the scary stuff. As you can see from the chart above, Manitoba’s debt has been on a steady incline ever since 2008; and their debt as a percentage of their GDP (a measure to determine overall wealth) has also been climbing. Both are projected to go even higher next year, while the provincial government is still spending $1 billion a year on just servicing its debt.
But unlike some other provinces, the debt in Manitoba hasn’t been racked up simply through overspending. In fact, most of that spending has been on natural disasters that the province simply had absolutely no control over.
It was in 2010 that the provincial government of Manitoba released a budget showing that they would return their budget to fiscal balance by the year 2014-2015. Not long after, in 2011, disaster struck and the southern part of the province experienced major flooding. That flooding caused major damage to both infrastructure, and on the homes of people who live in that portion of the province.
The government had to spread their resources (and their spending) fairly far throughout the province during this time of flooding, as it tried to repair both the infrastructure, and help the people of the province. Even with help from the federal government, flooding costs forced Manitoba’s deficit to go past the $1 billion mark for the first time in three decades. And that $1 billion is more than the near $700 million deficit the province had projected.
The total cost of the flooding was $936 million. The federal government has stepped in to offer $445 million worth of assistance, cutting the initial cost in half for the province.
Still with these unexpected costs, Manitoba expects that it will be back to balance by the 2014-2015 fiscal year. So how does it plan on doing so?
Because Manitoba would have to hold a referendum in order to get approval from the people before it can make any significant tax hikes, it’s instead chosen measures that won’t need any outside approval – and that won’t cost their residents enormously. However, that doesn’t mean that all taxes are safe from being increased.
Taxes on things such as spas, manicures, pedicures, and even haircuts; as well as the premium for certain types of insurance, will all be raised to $100 million every year. Tobacco products are going to see an increase of 2.5 cents per cigarette per package; and gasoline is going up 2.5 cents a litre. These latter two hikes will give the province $10 million and $50 million respectively to help them make investments that will restore the province’s infrastructure.
Businesses and investors are also going to be asked to lend a helping hand, with capital tax being raised to 4 per cent from 3 per cent. This will generate $12 million more the government to spend in trying to deal with its debt.
But it’s not just the people of Manitoba that are going to have to help offset the costs of flooding – it’s the government too. While the provincial government has stated that they will actually be boosting spending in some “key frontline services” such as education, health, and family services; it’s also going to be making some serious spending cuts in certain areas. One of them is the Legislative Assembly, where salaries and expense rollbacks for cabinet ministers and members of the legislature will be cut by 14 per cent. Agriculture, trade, energy, and housing are all also said to be making some major cutbacks in order to help get the province back to a balanced budget.
And that cutting off of funds goes even further than that within the provincial government itself. While the province once had 11 Regional Health Authorities, it now only has 5; and the Manitoba Liquor Control Commission and Manitoba Lotteries have merged into one in order to “reduce regulatory costs.” But the province wants to go even further – eliminating one for every five agencies, boards, and commissions that are currently in place. All of these savings account for a total $128 million added to the fiscal budget in 2012-2013.
But things aren’t all rosy. Manitoba’s debt is right around the average for all provinces; but unlike others, it’s been climbing since 2008, and the GDP is hedging towards 33% – a dangerously high number, and one the province hasn’t seen since 1997-1998. What may be even more worrisome is that Manitoba doesn’t currently have a debt reduction plan in their budget; and currently, debt servicing costs sit at around only 6 per cent for the provincial revenue. That means that only six cents of every dollar the provincial government collects (through taxes or otherwise) is going towards debt repayment. And at that rate, Manitoba may never see themselves out of debt.
Even with all of these scary stats, Manitoba is said to be one of the most balanced provinces in the country. A restraint in government spending, and a gradual step-by-step plan to reduce costs in all areas show that while the province’s debt may be a difficult thing to swallow right now, it’s slowly being broken down into bite-sized pieces. However, now is the time for Manitoba to be extremely mindful. With no real plan in place to service the debt, and with a very small percentage of every dollar going towards the cause, Manitoba could be in trouble.
And if another flood, or other natural disaster were to hit, the province may not be so prepared for it.
The 10 biggest cities in Manitoba are:
Join us in a few weeks, when we take a look at each of these city’s debt, and delve deeper into how they’re doing, and how soon they’re going to pay it off.