"Expenditure pressure and prospects for modest GDP growth will make it challenging for the province to achieve its target of a return to a modest surplus and stabilizing debt burden by 2016-17."
— Kathrin Heitmann, AVP-Analyst and Moody’s
lead analyst for the Province of Manitoba
The NDP’s penchant for attempting to spend its way into prosperity seemed to catch up to the Selinger government on Monday.
Moody’s Investors Service changed the outlook for Manitoba’s debt rating to negative from stable yesterday, based on its assessment of the execution risk surrounding the province’s plan to achieve a balanced budget by 2016-17 and the risk of a continued increase in Manitoba's high debt burden beyond 2016-17.
Essentially, Moody’s said it doesn’t believe the province will be able to achieve a balanced budget by the 2016-17, in spite of the NDP’s promise to do so. It also noted that the provincial government’s increasing debt poses a risk to Manitoba’s "creditworthiness."
The international credit-rating service noted Manitoba's debt burden is expected to reach about 150 per cent of revenues in 2016-17, compared to 141 per cent expected for 2013-14 and 101 per cent recorded in 2008-09.
While Moody’s suggested Manitoba’s deficits are small as a percentage of revenues, it also said spending pressures in health care and social services — which account for 70 to 80 per cent of the provincial budget — offer a steep challenge to the province to contain expenditure growth.
The news out of Moody’s wasn’t all bad, however. The service affirmed the province’s Aa1 senior unsecured rating, and said Manitoba’s stable, diversified economy was expected to grow modestly and noted the province’s high degree of financial flexibility due to its access to a broad and stable tax base.
But for the province to keep that credit rating — and improve its outlook back to stable — the NDP needs to show that it is actually on track to meet that promised balanced budget by 2016-17, and ensure that Manitoba’s debt burden as a percentage of revenues stabilizes.
As a province’s credit rating lowers, it has to pay more to borrow money, which drives up the cost to taxpayers.
For a government that has been running deficits since 2009 —and failed to meet its own balanced budget targets since then — this could be a tall order. Particularly so as Manitoba Finance Minister Jennifer Howard seems intent on finding ways of spending money more efficiently than finding places to cut costs.
During a conference call with media Monday afternoon, Howard defended her government’s financial record by saying the province was creating jobs and funding services that families count on.
"We look at the impact on our kids, we look at how we want to build a province that our children will want to live in, that our parents want to grow old in," Howard said. "That means you sometimes make different decisions than you would make if all you were considering was the balance sheet."
More troubling was the fact that Howard suggested Moody’s downgraded forecast meant for her "a renewed focus on spending" and "good use of taxpayer dollars."
Back in March, we heaped praise on Howard after she delivered her first provincial budget as finance minister — the government essentially pulled together a stand-pat budget. The minister’s frank answers to media about long-overdue government restraint were a refreshing change from the partisan-fuelled NDP hyperbole that has drenched prior budget announcements.
But Howard’s suggestion yesterday that the province was still on track to balance the budget by 2016-17 — especially after Moody’s publicly chastened the NDP’s financial management — lacked plausibility.
We are not disputing the fact that a government should look at the overall financial and social picture when it comes to financial management — and not base all its spending decisions merely on the bottom line.
But government cannot be all things to all people — we simply can’t afford it. While it’s important to find efficiencies in any department, sometimes it’s also necessary to cut spending to achieve long-term goals.
Perhaps it will take a credit rating downgrade for this government to finally understand that fact. Unfortunately we will all be the poorer for it.