This column originally ran in the Winnipeg Free Press on Aug. 21, 2015
Finance Minister Greg Dewar will win the Nobel Prize in Economics – if his financial plan for the province works. Of course, it hasn’t been working so far and if that continues, Manitobans will be weighed down with new borrowing that’s soaring into the billions. Please place your bets.
On Monday, DBRS, an international bond rating agency, released its assessment of Manitoba’s finances. It said “weak fiscal discipline” is the reason any hope of a balanced budget remains distant. It went on to say that despite some strength within the economy, the province’s “fiscal outlook continues to disappoint.” It didn’t immediately downgrade Manitoba’s credit, but it put the writing on the wall with fluorescent spray paint.
Mr. Dewar counted to 10 before responding. In fact, he waited until Wednesday. His comments are stunning.
“We have a plan,” said Mr. Dewar. “Our plan is working.”
This is the plan? Weak fiscal discipline is the plan? And a mountain of debt is what Manitoba gets when the plan works?
It gets worse.
The Manitoba government reported a deficit of $424 million last year. But DBRS has seen enough government accounting shenanigans to be suspicious. Governments often report only one year’s worth of payments on capital spending. DBRS adds all of that spending back in to its calculations. According to DBRS, that puts last year’s actual deficit up to $1.3 billion.
And the plan continues to work. DBRS scraped the spin off the government’s projected deficit of $422 million for the coming year. When the whole truth is told, DBRS estimates the real deficit will be $1.1 billion.
Moody’s, another bond rating agency, issued a report earlier this summer. Moody’s foresaw “significant challenges in achieving fiscal balance.” It went on to say the situation will depend on a “political willingness to rein in spending.” Clearly, Moody’s found that willingness wanting because it promptly downgraded Manitoba’s credit rating.
The other major bond rating agency, Standard and Poor’s, has yet to release its views of the latest Manitoba budget. When it last wrote about Manitoba in December, it left the province’s credit rating unchanged, but it based that decision on the expectation that the budget will be balanced by 2016. That’s not even close to happening. It seems certain that Standard and Poor’s will side with its counterparts.
But who cares?
Well, the people who lend money to governments care a great deal. Credit ratings for governments are like credit scores for individuals. When a family takes on too much debt, lenders get worried and they jack up mortgage rates next time the family comes asking for a loan. Lenders are getting increasingly worried about Manitoba and that means provincial interest rates will likely be higher.
This year, every Manitoban is on the hook for $650 to cover the province’s interest payments. That’s $842 million. It’s money that won’t be spent on roads or bridges, nurses or teachers, tax relief or even debt repayment. And the government’s plan will continue to push those costs higher.
Undeterred, Mr. Dewar ignores the naysayers. He’s not listening to DBRS, Moody’s or Standard and Poor’s. He’s certainly not listening to Conservative Leader Brian Pallister who suggests it might be good to heed the warnings and trim the budget. Mr. Dewar is committed to his plan.
If Mr. Dewar is right, his plan is so innovative and advanced the current consensus of bond rating agencies will be over-awed. He will prove it’s possible to spend a province out of debt. The Nobel Prize committee will be compelled to recognize the genius.
But there is a chance Mr. Dewar is wrong. The poet T.S. Eliot once wrote: “between the idea and the reality falls the shadow.” There’s a shadow between the government’s stated intent and actual result. That shadow is growing longer and darker behind new billions in debt.
Todd MacKay is the Prairie Director for the Canadian Taxpayers Federation
