• Newly-elected Progressive Conservatives to tighten spending
  • Government says predecessors inflated revenue estimates

Manitoba’s newly elected Progressive Conservative Party says it expects to cut the province’s deficit and return to surplus in eight years.

“The previous administration has spent beyond its means and that has resulted in a legacy of accumulated debt,” Finance Minister Cameron Friesen said Tuesday from Winnipeg. “These decisions have eroded the trust and confidence of Manitobans in their government.’’

The province’s deficit is forecast to fall to C$911 million ($695 million) from an estimated shortfall of C$1 billion for the 2015-16 fiscal year, according to budget documents. The former New Democratic Party government initially estimated the shortfall for the 2015-16 fiscal year at C$422 million.

Manitoba has posted consecutive deficits since 2010. The Progressive Conservative Party, led by Premier Brian Pallister, defeated the ruling New Democratic Party in April elections after 17 years in office, in part because of lingering frustration over a tax increase. Pallister has pledged to roll back the provincial sales tax to 7 percent from 8 percent as part of the party’s mandate.

‘Runaway Deficit’

“We don’t want a runaway deficit,’’ Robert Hogue, senior economist at Royal Bank of Canada, said in a telephone interview from Toronto before the report. “We would expect that a responsible government in Manitoba will have a fiscal plan with commitments to reduce the deficit over its mandate.’’

While Manitoba’s economy is vibrant, it isn’t “booming,’’ and the province doesn’t require as much fiscal stimulus as provinces such as Alberta that have been significantly impacted by the downturn in oil, Hogue said.

Manitoba departments will be held accountable for meeting their budget targets to reduce spending growth to sustainable levels and ensure “chronic overspending’’ comes to a halt, according to budget documents. The province plans to decrease spending by reducing the size of cabinet by one-third and deliver property tax credits and rebates to seniors through the income tax system administered by Canada Revenue Agency, Friesen said.

The province’s fiscal strategy is based on 2.2 percent growth this year and a 2.4 percent expansion in 2017, according to the budget plan. The province’s manufacturing and export sales, hampered by uneven demand and a slowdown in oil in 2015, are expected to benefit from stronger demand from the U.S. and a weaker Canadian dollar in 2016.

Strongest Performers

Manitoba -- Canada’s fifth most-populous province, with 1.3 million people -- is expected to be among the country’s strongest performers in 2016. Its economy is projected to grow by 2 percent this year, according to a survey of economists by Bloomberg News, trailing only Ontario and British Columbia.

“On the growth side things are actually very stable,” Robert Kavcic, senior economist at BMO Capital Markets, said in a telephone interview from Toronto before the report. Manitoba has not been affected by the downturn in energy and a shift to smaller deficits in the coming years is positive for the province’s credit, Kavcic said.

Revenue in the 2016-17 fiscal year will rise 3.1 percent to C$15.2 billion amid increases in individual and corporate tax revenue and federal transfers, according to the budget plan. Manitoba plans to borrow C$6.5 billion in capital markets in 2016-17, up from the C$4.7 billion a year earlier. The province’s net debt will rise this year to $23.1 billion, equal to 34 percent of gross domestic product, according to budget documents.

Moody’s downgraded its ratings on Manitoba’s senior unsecured ratings to Aa2 from Aa1 in July, citing “the deterioration in Manitoba’s financial metrics to an increased debt burden and our expectation that the province will face significant challenges in achieving fiscal balance by 2018-19.”

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