Manitoba Boosts Budget Deficit 18% to Spend on Roads, Bridges

Manitoba expects to run a deficit for the sixth consecutive year as it increases spending on roads and infrastructure.

“Budgets are about choices and this budget chooses to build instead of cut,” Finance Minister Greg Dewar said.

The province’s deficit is forecast to rise to C$422 million ($350 million) from an estimated shortfall of C$357 million for the 2014-15 fiscal year. The province plans to spend C$1.1 billion on improving roads, bridges and flood protection to create jobs and long-term economic benefits, according to the budget plan.

Manitoba has posted consecutive deficits since 2010 and previously forecast a return to surplus in 2016, budget documents show. The New Democratic Party government amended its balanced budget legislation in 2010 to allow it to run consecutive deficits amid the global recession.

Manitoba forecasts core government will post a surplus in 2018, according to the budget plan.

“I wouldn’t fret too much,” Robert Kavcic, senior economist at BMO Capital Markets, said in a telephone interview from Toronto before the report. The deficits projected in the next couple of years are “actually pretty small,” he said.

The province’s economic outlook is solid because Manitoba doesn’t have the exposure to oil prices like Alberta and Saskatchewan, Kavcic said. Growth is forecast to reach as high as 2.3 percent in 2015-16 and “Manitoba is one of the more stable economies out there,” he said.

New Mines

The province’s fiscal strategy is based on 2.5 percent growth this year and a 2.3 percent expansion in 2016, according to the budget plan. The province’s manufacturing and export sales are expected to rise with a weaker Canadian dollar and base metal production will increase from two new mines, budget documents show. The livestock industry will benefit from high prices and infrastructure spending will support growth across the province, according to the report.

Revenue in the fiscal year ending March 31, 2015, will rise to C$15 billion. The corporation capital tax on banks, trust corporations and loan corporations will increase from 5 percent to 6 percent and the tax per cigarette will rise to 29.5 cents, up from 29 cents, according to the budget plan.

Larger banks will have the capacity to absorb the increases so the province can offer tax relief to small businesses and seniors, Dewar said.

Debt Ratings

Manitoba plans to borrow C$4.72 billion in capital markets in 2015-16, little changed from the C$4.77 billion a year earlier. The province’s net debt will rise this year to $20.4 billion, equal to 30.9 percent of gross domestic product, according to budget documents.

While its five-year plan to spend C$5.5 billion on infrastructure projects is anticipated to increase the net debt, Manitoba will benefit from increased productivity from the investment, according to the budget plan.

The debt is rated AA by Standard & Poor’s and Aa1 by Moody’s Investors Service. Moody’s downgraded its rating to negative in August due to the “risk surrounding Manitoba’s plan to achieve a balanced budget by fiscal year 2016-17,” the ratings agency said in a statement.

While there is a risk of further downgrades, Manitoba may see revenue gains in the upcoming year due to the stronger economic outlook, said Laura Cooper, an economist at RBC Capital Markets. Manitoba will probably see rising demand for its manufacturing exports as the U.S. economy is forecast to grow at the highest rate in 10 years in 2015, she said.

“We actually have Manitoba growing above the national average,” Cooper said in a telephone interview before the report.

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