Manitoba's provincial sales tax will drop by a percentage point on Canada Day as the Progressive Conservative government follows through on its signature election pledge.

The 2019-20 budget, the province's spending plan for the next 12 months, calls for the PST to return to seven per cent, as Premier Brian Pallister promised when he ran for office in 2016.

The former NDP government raised the PST to eight per cent in 2013 after promising not to hike the consumption tax.

"We're delighted to follow through on our election commitment," Finance Minister Scott Fielding told reporters during a budget lockup on Thursday.

Finance Minister Scott Fielding says in spite of a PST cut, the province has the financial means of handling 'storm clouds,' including floods and economic downturns. (Jeff Stapleton/CBC)

"We're giving Manitobans the government they want at a cost they can afford."

The Tories say shaving one point off the PST will save the average Manitoba family $239 this year, after the change comes into effect on July 1, and $500 over the course of the coming fiscal year.

The PST cut will also cost the province $237 million this coming fiscal year, and will reduce revenue by $325 million over the course of 12 months.

Deficit drops to $360M

In spite of the PST cut, the provincial deficit will drop this year to $360 million. That's down from a projected deficit of $470 million for the 2018-19 fiscal year, which ends on March 31.

In its fourth budget, the PC government was able to reduce Manitoba's deficit at the same time it cut the PST through a mix of modest spending hikes and another large increase in federal transfers.

Total provincial spending is projected to rise $57 million this fiscal year to $17.48 billion, an increase of 0.3 per cent over the last fiscal year.

Transfers from Ottawa are slated to rise $319 million to $4.8 billion, a rise of seven per cent. Manitoba now relies on Ottawa for 28 per cent of its revenue.

"Sure, it all helps when you're getting more money in federal transfers. But we're doing what we said we'd do," Fielding said. "We're living within our means."

In spite of this rosier financial picture, Manitoba's debt continues to deepen.

At the end of the coming fiscal year, the provincial debt is expected to rise to $26.1 billion, up $902 million from 2018-19. The increase is due to the $360-million deficit as well as $542 million in debt-financed capital spending.

Premier Pallister declined to comment on the wisdom of reducing sales tax revenue while the province is still running a deficit and debt continues to grow, other than to say Manitobans deserve a break on their taxes.

Manitoba NDP Leader Wab Kinew said he does not believe it's wise to reduce the PST by a percentage point, even though he no longer supports former premier Greg Selinger's decision to hike the tax.

"Increasing the PST was a mistake. However, now that it's in place, Manitobans will have to ask themselves, is saving 10 cents when you buy your lunch worth giving up two emergency rooms in Winnipeg?" Kinew asked.

Among provincial departments, the big winner is education, whose budget is projected to rise $130 million to $4.56 billion. While support to schools and universities is down, education spending on immigration and economic opportunities will receive a dramatic boost.

The other big winner is sport, culture and heritage, whose budget will rise $18 million to $106 million, mostly because the provincial film and video production tax credit will nearly double from $16 million to $31.5 million.

Health spending takes largest hit

The department taking the largest hit is health, whose budget drops $120 million to $6.65 billion, mostly because of a drop in capital spending on the likes of hospitals and equipment.

Health spending this year includes $20 million set aside to conclude a federal-provincial agreement on addictions treatment and mental health. The province has also promised to help municipalities reduce ambulance fees to $250.

Infrastructure funding is also flat, save for a one-time, $45-million contribution for capital projects in recognition of Manitoba's 150th anniversary.

Support to schools and universities is down, but education spending on immigration and economic opportunities will receive a dramatic boost in the latest budget. (Warren Kay/CBC)

Fielding said the province must make "reasonable investments" in capital spending to keep the cost of servicing debt under control.

Funding for municipalities, including the City of Winnipeg, is static. The budget speech notes the PST cut will save Winnipeg $1.7 million, but the budget does not make it clear what Winnipeg will receive this year.

Fielding suggested the city should stop complaining about what it receives from the province.

"Enough of the drama. We want to get things done," the minister said.

Winnipeg Mayor Brian Bowman said the province made it clear what the ceiling would be for municipal funding — but not the floor.

The budget makes little mention of transit, and includes only a brief section on the new federal carbon tax and the province's plan to reduce greenhouse gas emissions.

It also did not include specific provisions for the flood expected this spring along the Red River — but does rely on economic growth projections that exceed those made in February by the Conference Board of Canada.

Fielding also said the province has the financial means of handling "storm clouds," including floods and economic downturns.

Manitoba NDP Leader Wab Kinew says Manitobans may come to regret the PST cut. 'Manitobans will have to ask themselves, is saving 10 cents when you buy your lunch worth giving up two emergency rooms in Winnipeg?' he said Thursday. (Jeff Stapleton/CBC)

The spending plan says next to nothing about costs or revenues related to cannabis legalization. Fielding said he doesn't expect any net revenue for two years after legalization commenced.

This gives the government a potential source of revenue to present in 2020, which is expected to be an election year.

Fielding said cannabis revenue figures will be clear in September, when Manitoba Liquor & Lotteries will present its annual report.

Pallister refused to say whether the election will be called earlier than 2020, or whether the reduction of the PST makes that inevitable.

"The media and the opposition have done their share of predicting on the election date, so I don't need to add to that," he said after the budget was tabled.

Liberal Leader Dougald Lamont said he believes an election could happen as early as this spring.

'Christmas comes early': taxpayers federation

Todd MacKay, the Prairie director of the Canadian Taxpayers Federation, says he was pleasantly surprised by the PST cut.

"I'd love to lie and say that I totally saw this coming but I did not. I did not think this would come today," MacKay told reporters. "It's great when Christmas comes early."

Molly McCracken, Manitoba director of the Canadian Centre for Policy Alternatives, wasn't as enthused by the budget.

"They've cut post-secondary education, they've cut child care, there's no new money for social housing," she said.

"They've brought down the PST one year before they said they would, so what's the rush? That's 325 million [dollars] we could have used for strategic investments."