Manitoba Was Ahead of Fiscal Policy Curve

By Stanford, Jim | Winnipeg Free Press, November 23, 2015 | Go to article overview

Manitoba Was Ahead of Fiscal Policy Curve


Stanford, Jim, Winnipeg Free Press


Economists worldwide have undergone a sea change in attitudes on public deficits and debt in the last five years. Deficits were once viewed as inherently negative, to be reduced and eliminated as a government's first priority.

However, in the wake of chronic global stagnation and the destructive after-effects of austerity in Europe (and other regions), most economists have adopted a very different view. With rock-bottom interest rates and stubborn unemployment, economists in many international agencies now support expanded deficit financing to inject badly needed vitality into stagnant economies.

An especially important form of public spending is infrastructure investment. Public capital projects (such as transportation, basic utilities, urban transit and housing) help to offset weak business capital outlays.

They generate both short-term and long-lasting benefits: boosting employment and incomes during construction, but also lifting long-run productivity (even in the private sector) thanks to a more efficient economic infrastructure.

Support for expanded public capital spending, funded with public borrowing, now comes from many blue-chip sources -- the International Monetary Fund, the World Bank, former Bank of Canada governor David Dodge and many others. Public attitudes toward deficit financing are also changing, as indicated in the recent federal election.

Where many voters once accepted holus-bolus Conservatives' disapproval of deficits, the Liberal proposal for modest borrowing to fund infrastructure expansion struck a chord among Canadians tired of persistent economic underperformance.

It turns out Manitoba has been ahead of the curve in this important shift in fiscal policy. Like all jurisdictions in Canada, Manitoba slipped into deficit during the 2008-09 financial crisis. But unlike others (including Ottawa) who then rushed to eliminate deficits as the top priority, Manitoba followed a more balanced and cautious approach.

The provincial government boosted spending (focused on infrastructure) after the recession, incurring seven consecutive deficits in the process. Those deficits have been gradually shrinking since 2011, and are now scheduled to disappear in 2018-19. Relative to GDP, which has grown steadily in Manitoba, provincial debt grew modestly, to around 30 per cent of GDP now. …

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