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This article was published 22/8/2016 (1491 days ago), so information in it may no longer be current.

Opinion

Last month, S&P Global Ratings (formerly Standard & Poor’s) downgraded the Manitoba’s credit rating.

It will affect every Manitoban, since the City of Winnipeg and Manitoba Hydro will also see their borrowing costs rise. Governments will get less bang for their buck because more money will be spent on interest and less on education, health care or fixing roads.

The premier and the finance minister have said they are not to blame. They say they haven’t been in office long enough, that they inherited a fiscal mess from NDP overspending and cuts will be necessary to balance the budget. On top of that, they claim Manitoba faces reduced social and health transfers from the federal Liberal government.

None of this is strictly accurate, though it takes some unpacking to challenge it.

First, S&P’s report makes it clear the downgrade is, in part, because the PCs’ 2016 budget announced they plan to run deficits for eight years, with no fiscal plan beyond the first year.

The same ratings agency that upheld the province’s credit rating last November now gives a one-in-three chance the government will fail to meet its targets.

The NDP was not a big-spending government. Like many social democratic parties in the 1990s, the Manitoba NDP made a strategic decision to move right and abandon their supporters on the left, assuming they would have no one else to vote for. This meant tax cuts, frozen social spending and tough-on-crime policies from a "centre left" party.

By spring 2008, the NDP’s tax cuts meant $1 billion less a year in revenue for the provincial government — about the size of the current deficit.

In the fall of 2008, the global financial crisis hit. It was a colossal private-sector banking crisis, created by a toxic mix of reckless lending and occasional fraud. Government debt soared as economies tanked, revenue evaporated and banks were bailed out at public expense. The estimated worldwide cost of the bailout to taxpayers is from $3 trillion to $13 trillion.

While Canada was one of the few countries in the world to have no bank failures, Canadian banks were not immune. They took billions in U.S. bailout money, were backstopped by the federal government by $113 billion and the Canadian Mortgage and Housing Corp., a federal Crown corporation, took $66 billion in risky mortgages off the banks’ books.

Government debt did not cause the crisis. The financial crisis caused government debt, and it remains the root cause of government deficits, debt and slow economic growth here in Manitoba and around the world.

The crisis also turned economic thinking upside down, because a generation of ideas that has informed government policies since the 1970s turned out to be wrong. This is especially true of austerity — the idea we can cut our way to growth in a downturn.

Without exception, every country that stimulated its economy since 2008 ended up with better growth and a better debt-to-GDP ratio. Every country that followed austerity (or had it imposed) ended up with lower growth and more debt. That is evidence, not ideology.

Governments taking on debt is not all bad, if that debt is being used to grow the economy. Manitoba’s Heavy Construction Association has called for smart debt: if you borrow at three per cent and invest in infrastructure that generates a 15 per cent return on investment, you are ahead.

Much of Manitoba’s recent economic growth was driven by infrastructure spending.

It may be that the Manitoba government hopes it will be able to balance the budget in less than eight years with more revenue from federal policies — higher transfers, new taxes on carbon or legal marijuana, or better growth from a spillover from the federal stimulus.

However, it is not the federal government’s job to balance Manitoba’s budget.

Ratings agencies don’t want cuts: they want to know governments can pay their bills. S&P cited Manitoba’s majority government as a strength, because it can raise taxes to balance the budget. But the PCs have ruled out tax increases (though they hiked education taxes on seniors), leaving only more debt or cuts as options.

There is little question Manitoba’s credit rating is being lowered because the PC government’s plan is likely to lower growth and increase public debt while decreasing our ability to pay it off. The real question is whether they will do anything to change course.

Dougald Lamont is a lecturer in government business relations at the University of Manitoba. In 2013, he ran for the leadership of the Manitoba Liberal Party.