Manitoba Premier Greg Selinger will face at least two major challenges in 2013 — addressing a growing deficit and convincing Manitobans that now is the time to build $20 billion in hydro projects.
Both issues have been exacerbated by the global economic downtown. Revenues are not keeping up with spending increases, due in part to a drop in exports and flat transfer payments from the federal government.
The soft economy in the United States has also helped reduce the price Crown-owned Manitoba Hydro can get on the spot market south of the border.
Selinger has already taken political heat on both fronts. Before the October 2011 election that saw him take the NDP to a record 37 of 57 legislature seats, the premier had already announced plans to run deficits until 2015 (the red ink started in 2010).
Near the start of the election campaign, the NDP issued a news release saying the province was on track to be back in the black by 2015 — without raising taxes.
Just over a year later, the New Democrats had broken those commitments.
Last spring's budget increased taxes on many types of insurance as well as on personal services such as haircuts and tattoos. The gasoline tax went up as well.
More recently, Selinger said balancing the budget would take an extra two years.
Earlier this month, the province announced its deficit for the fiscal year that ends in March is set to jump by $107 million to $567 million.
More tax increases possible
Selinger is not ruling out further tax increases.
"We have not taken anything off the table," he said in a recent interview.
"We're not ruling anything out. But we do have an overall objective of keeping Manitoba an affordable place to live and then narrowing that gap between revenue and expenditure to come back into balance."
Selinger is not alone. Almost every province, as well as the federal government, is in the midst of multiple deficits.
Alberta Premier Alison Redford, who was elected with a plan to eliminate red ink, is now facing a $3-billion deficit this fiscal year.
So far, Selinger's tax hikes have been largely on goods and services that are already taxed by the federal government or in other provinces. In 2012, the provincial sales tax was expanded to cover tattoos, insurance and other goods.
Several years earlier, the tax was expanded to cover fees charged by lawyers, architects and other professional services.
Ambitious Hydro plans
In the midst of the economic uncertainty, Manitoba Hydro is embarking on an ambitious plan to build two new generating stations — Keeyask and Conawapa — on rivers in the north, along with a new transmission line to bring the power south.
The Opposition Progressive Conservatives have called for a halt on the projects so that their viability can be assessed. They have accused Selinger of "rolling the dice" in the face of slumping prices on the spot market.
Demand is down due to the continuing soft U.S. economy. Competing energy sources such as natural gas are cheap.
The Public Utilities Board, the provincial regulator, warned last year that low prices could force Manitoba consumers to eventually subsidize exports and see domestic prices jump by 140 per cent over the next 20 years.
Hydro originally predicted a rise of roughly half that rate, but has changed its projections. In a financial forecast released in November, the utility said it would aim to annually raise rates by 3.95 per cent for 18 years, which would roughly double current rates.
Selinger is confident export prices will rebound. His idea was recently backed up by The Conference Board of Canada, which said natural gas prices will rise faster than the rate of inflation in the coming years.
The NDP has long said that hydro could be for Manitoba what oil is for Alberta.
"The great thing we have going in the mid-West … is that we all have growing economies and for sure we know there is going to be a greater demand for good quality, reliable and clean energy."