Deficit procrastination comes at a price
Sometimes procrastination pays off. There’s always a chance a bonus at work will come just in time to cover a credit card balance that’s been ignored. But putting off today’s problem usually leaves a bigger problem for tomorrow.
The Manitoba government is procrastinating on the province’s financial problems. It’s ignoring that fact that it’s spending too much and hoping higher revenues will balance the budget. Theoretically, that might work, but procrastination comes at a high price.
The government is planning to spend $840 million more than it brings in this year. That’s a little less than last year’s budged operational deficit of $911 million. But, in the context of a budget of $17 billion, that isn’t a real step forward – it’s barely a shuffle.
Billion-dollar denominations boggle the mind so let’s consider them in terms of a family budget.
Imagine the government is a family with an income of $75,000 per year. In that scenario, it would have spent more than it brought in by $344 every month last year. This year, that family would still be blowing its budget by $308 every month. Any financial advisor would give that family important advice: spend less money.
Unfortunately, provincial spending is going up by $520 million in this budget when compared to the previous budget. The government is counting on revenues to go up by $626 million to achieve its almost imperceptible improvement. In fact, the province plans to keep increasing spending for the foreseeable future and while it counts on revenues to keep increasing to very gradually shrink the deficit.
The bond rating agency DBRS captured the essence of Manitoba’s plan in the headline for its analysis of the budget: “Aspiration without action.”
There’s risk in this inaction plan.
First, we all hope the future will bring more money, but sometimes that doesn’t happen. If the provincial economy has even the smallest hiccup, the deficit will go up when the new money the province is counting on doesn’t materialize.
Second, expenses have a nasty habit of coming in over budget. Even a routine flood could push the province further into red ink. Any unexpected bills will sink this budget.
Third, the interest charges on the provincial debt are getting bigger. The province will pay $991 million to cover the interest on the existing debt this year. Rising interest costs are more than a risk, they’re a certainty.
“While we are living at a time of historically low rates, [Manitobans] know that rates will inevitably rise in the future, as they have in the past,” said Finance Minister Cameron Friesen, in his budget speech. “And when rates do rise, even a modest one per cent increase will mean nearly $100 million in new costs to be borne by Manitobans.”
There is a political argument to be made for procrastination. Trimming the budget always comes with controversy. Political consultants always warn that moving too fast could have electoral consequences.
The federal Conservative government opted for this go-slow approach. After plunging the country into deficit, it tried to minimize controversy by getting back to balance as slowly as possible. The result? The Conservatives lost the next election anyway.
Federal Conservative leadership candidates are making it clear it was a mistake to procrastinate on deficits. Ten out of 14 Conservative leadership candidates have pledged to balance the budget within two years if elected. Obviously, federal Conservatives have learned there a price to pay for delay.
Manitoba MLAs would do well to imagine what it will be like to knock on doors in the next election. Best case scenario, they’ll be explaining why they haven’t yet balanced the budget. But there’s a real risk MLAs will be making excuses for a deficit that’s as bad or worse than the one they were elected to clean up.