PCs’ pre-election moves posed ‘high budgetary risk’: Report

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This article was published 24/02/2024 (571 days ago), so information in it may no longer be current.

WINNIPEG — The NDP government has no immediate plan to roll back a massive income tax cut found to be among the high-risk financial decisions made in the Tories’ pre-election spending spree that contributed to the forecast $1.6-billion deficit.

On Friday, Finance Minister Adrien Sala released a 36-page report by consulting firm MNP. It was hired by the NDP to provide an opinion on whether the province’s deficit was affected by decisions made by the former Progressive Conservative government leading up to the fall election.

MNP’s analysis concluded decisions made between the release of the PCs’ 2023-24 budget and the Oct. 3 election “collectively represent high budgetary risk.”

“We will continue to be accountable to the people of Manitoba going forward as we clean up the former PC government mess,” Sala said at a hastily called news conference Friday. “We will keep our commitments to fix health care and make life more affordable while we get a handle on our province’s finances.”

Before heading to the polls last fall, Manitobans were under the impression the province’s forecast deficit was $363 million, based on the first-quarter report released in July.

The deficit worsened by the end of the second quarter to $1.6 billion, according to a report released in December by the NDP government, which accused the PCs of hiding the province’s financial state from Manitobans.

For its part, the PCs insisted all spending was accounted for in its budget and claimed the NDP was inflating the deficit to score political points when its budget is released this spring.

Sala said the analysis by MNP shows the PCs were reckless during their final months in office.

“The former government made a series of very risky decisions that created a huge financial mess for our province and ultimately those risky decisions, in total, are what led us to this $1.6-billion deficit,” the finance minister said.

The report identifies several decisions that when combined were high risk, including cutting personal income taxes, increasing spending on operating and capital, and spending a $270-million surplus from 2022-23 on programming instead of debt reduction.

The 2023 budget — the final one for the PCs before the election — included $500 million in personal income tax cuts when implemented over a full year.

During the election, the NDP promised to use the budget document and the tax cuts as its fiscal framework.

MNP’s analysis determined that slashing taxes while hiking spending — by as much as 10 per cent — has increased the province’s reliance on federal transfers while reducing Manitoba’s capacity to invest in public services.

“There is inherent risk to this approach, as control of federal transfer payments is not within the control of the government of Manitoba,” the report’s authors wrote.

The higher-than-normal revenue earned by Manitoba in 2022-23 was thanks to a post-pandemic spending surge, big earnings from Manitoba Hydro owing to high water levels, and strong economic performance.

It should have been viewed as a “one-time circumstance,” the report noted.

Cutting income taxes at a time when the economy appeared to be slowing can also be interpreted as a decision with “significant risk,” the report states.

Despite the findings, the personal income tax cuts laid out in Budget 2023 will be maintained, Sala said.

“Our commitments were clear on this and we plan on delivering on our commitments,” he said.

Slashing taxes was only one part of the equation laid out by MNP, he said.

“We do look forward to our upcoming budget and will be able to speak more to our approach,” he said.

Paul Thomas, a longtime political observer and University of Manitoba professor emeritus, said the report provides the NDP political cover as it prepares to release its first budget, which will be its first major test.

“Is there a path that the NDP can identify towards the goal of getting things under control so you don’t have interest charges on debt that are consuming too much of the provincial budget?” the veteran political studies professor said.

“If you want to see how (the NDP) is going to pull off this financial miracle, they’ll have to give us some indication about how, in a staged way year over year, they’ll get to their goal.”

The report also gives credibility to the NDP’s claims the former government was living beyond its means, he said.

“‘High budgetary risk’ — I think that’s polite accountant’s language for politically motivated spending and taxing decisions,” Thomas said.

Tory finance critic Obby Khan dismissed the report as a political document based on unaudited figures intended to distract from broken promises and place blame.

MNP notes findings were based on publicly available documents and interviews with treasury board and finance staff. Confidential cabinet documents were not available to the firm.

“The NDP are trying to change the channel from the 228 million litres of raw sewage being poured into Lake Winnipeg and their interference with Manitoba Hydro,” Khan said in a prepared statement.

“PCs acted to make life more affordable for Manitoba families, invest in schools and highways, and address health staff shortages. The NDP are failing to act on these priorities.”

MNP estimates spending increases in the current year’s budget will create “long-term obligations for the government” largely related to salaries and infrastructure capital spending. The report notes several additional expenditures (both capital and operating) were approved in-year valued at $1.6 billion, including wage settlements and the redevelopment of the Health Sciences Centre.

An additional $200 million for the health human resource action plan announced in July was “not accounted for in any public reporting, resulting in an incomplete picture of the province’s fiscal pressures.”

Sala would not say if the PCs’ spending went too far, but promised the NDP will be transparent in its financial reporting.

» Winnipeg Free Press