Manitoba Budget 2021

Highlights:

  • The government projects a deficit of $1.6 billion in FY 2021-22, or 23% smaller than in FY 2020-21
  • Expenditures to fall $122 million to $19.4 billion with significant fiscal stimulus still in place
  • Revenues to grow by $361 million as tax receipts rise
  • Manitoba’s net debt-to-GDP will rise to 39.9%


Overview

Manitoba Finance Minister, Scott Fielding, lauded Manitoba as “Canada’s most resilient province” as he delivered his sixth budgetary address. His government expects a “COVID-19 deficit of significant proportions,” of $1.6 billion in FY 2021-22, though this will be 23% smaller the $2.1 billion shortfall in FY 2020-21. The budget presents a gradual, 8-year approach to balance the books, citing the need to “grow” out of the deficit while providing tax relief, and investing in jobs and economic growth. Manitoba continues to provide significant stimulus (one of the highest provincial levels of pandemic stimulus on a per capita basis) allocated to recover from COVID-19 this year to the tune of $1.2 billion. The province’s net debt-to-GDP ratio will mount above the average level of other provinces. A low interest rate environment will keep debt servicing costs low for the time being, however.

Program expenses mount to Protect Manitobans and Advance Manitoba

Expenditures in FY 2021-22 are expected to fall $122 million (-0.6%) to $19.4 billion. COVID-19 expenses will represent ~6.5% of total expenditures at $1.2 billion (for a total of $3.2 billion devoted to the pandemic so far), down $797 million from FY 2020-21. COVID-19 response allotments devote $350 million for additional health care costs to prepare for future waves of the virus, alongside $230 million for PPE, testing, vaccine infrastructure, and contract tracing. Excluding expenditures associated with COVID-19, programming, debt servicing, and emergency expenditures are projected to increase 3.8% to $18.2 billion. A significant share of program expenditures are allotted to health care, education, and families. The Health and Seniors Care department accounts for close to one-third of expenditures at $6.6 billion. Notable expenditures include funding to shorten wait times for priority procedures and services such as surgeries delayed by the pandemic, and funding for programming and services in the new department of Mental Health, Wellness, and Recovery. Education expenses will grow by 3.2% this year to $3.1 billion to meet cost increases in school divisions.



Revenue growth will reflect economic recovery in FY 2021-22

Revenues are set to grow by $361 million (+2.0%) this fiscal year despite a $227-million drop in federal transfers as one-time pandemic-related items wind down. Increases in tax revenues will more than offset lower transfers. Income tax receipts, Manitoba’s second-largest source of revenue, are projected to rise $286 million though this largely reflects a low base in FY 2020-21. Retail sales taxes are forecast to jump more than 10%, as the provincial economy reopens more fully, and households and businesses satisfy pent-up demand. Of note, the provincial government will eliminate its locally-determined municipal education property taxes. Manitoba is the only province that currently levies this form of taxation. For the next two years, Manitoba will offer a 25% rebate to residential and farm property owners as the beginning of the province’s phasing out process. This measure will cost the province $190 million in FY 2021-22.



Strategic infrastructure investment will bolster growth

Minister Fielding emphasized that building infrastructure in the province “is key to advancing Manitoba’s recovery past COVID-19.” Manitoba is set to invest a record-breaking $2.1 billion in strategic infrastructure, with over one-quarter of the allotment dedicated to highway and road construction. Infrastructure investments in health care facilities (notably, emergency departments), and the building and improvement of K-12 schools will cost the province $292 million and $415 million, respectively.


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Debt-to-GDP ratio highest on record but still manageable

Manitoba’s net debt-to GDP ratio will rise this year to 39.9%, the highest in the province’s history (since the 1980s). The ratio is projected to taper off in the coming years, albeit not below pre-pandemic levels within the medium-term forecast horizon. Moving forward, as the recovery progresses and interest rates rise, higher debt levels will become more costly to service—yet still manageable. Borrowing requirements in Manitoba will be $5.7 billion in FY 2021-22.

Minister Fielding vowed “this government will not rest until COVID-19 has been put to rest.” And Manitoba has delivered on record-breaking stimulus of $1.2 billion—one of the highest provincial levels of stimulus on a per capita basis. With COVID-related expenses declining this year as the recovery progresses, and revenues growing, the province expects the deficit to shrink in the coming years alongside net debt-to-GDP ratio. Manitoba is forward-looking in its gradual approach to balance the budget in eight years time. Minister Fielding emphasized that the path to balance will be “gradual and balanced.” “Even though we are not yet through the darkness, we must begin to plan for the light of recovery that lies ahead.”


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Carrie Freestone is an economist at RBC. She holds a Bachelor of Arts (honours) in Economics from Queen’s University and a Master of Arts in Economics from the University of Ottawa.

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