Manitoba premier cites high debt load, uncertainty for workforce cuts

WINNIPEG — A high debt load, a potential rise in interest rates and a possible credit rating downgrade.

Those factors appear to be behind Manitoba Premier Brian Pallister’s drive to control costs and have many public-sector workers accept reduced hours or temporary layoffs during the COVID-19 pandemic.

The Progressive Conservative premier has rejected demands from unions, opposition parties, pundits and some economists to maintain public-sector jobs in order to prevent the recession from being even deeper. Protests have also grown to include a weekly “honk-a-thon,” in which people drive around the legislature blaring their horns while practising physical distancing.

In a wide-ranging interview with The Canadian Press, Pallister laid out his reasons for reducing labour costs to prop up the economy at a time when health-care costs and overall spending is expected to rise dramatically.

“Our provincial debt is going to rise significantly, and I think every Manitoban understands that. But I think to suggest that … it might go up $4 billion so let’s make it $5 billion is not only illogical, it’s unfair,” Pallister said.

“It’s unfair because we’re going to have to pay it back plus interest. Interest rates might be low now, but I’m not entirely confident they’re going to stay as low as they are for the next 50 years.”

Like all provinces, Manitoba has been hit by rising health-care costs and a drop in tax revenues because of the pandemic’s effects on the economy.

Just how big the deficit will grow depends largely on how severe and how long the pandemic will last. The government has predicted a deficit of $5 billion. The Royal Bank of Canada has estimated $1.5 billion.

In order to both free up money for health care and control the flow of red ink, Pallister’s government ordered school divisions, Crown corporations and other bodies last month to map out temporary workforce reductions of between 10% and 30% that would last from May through to the end of August. The options included unpaid days off, job-sharing and temporary layoffs.

Pallister has said many workers don’t have work to do, such as those at the province’s two casinos, which have been closed under public health orders. But public-sector unions say workloads remain virtually unchanged in other areas such as universities and Manitoba Hydro, the province’s energy utility.

In a similar move, the Alberta government in March directed school boards to lay off more than 20,000 support staff, including substitute teachers and educational assistants as schools were shut down.

Manitoba’s Opposition New Democrats have said public-sector job cuts will only add to losses in the private sector and further damage the economy. Some 64,000 jobs were lost in April, according to Statistics Canada.

“Governments have to keep people working during recessions, otherwise they risk turning them into a depression,” NDP Leader Wab Kinew said in the legislature during a special sitting.

Pallister said one reason for the tight fiscal policy is the possibility of another downgrade from credit rating agencies, which would drive up borrowing costs. Manitoba hasn’t seen a balanced budget in more than a decade, has one of the highest debt loads among the provinces, and saw downgrades – including two in 13 months from S&P Global Ratings – in the wake of high deficits under the former NDP government.

“I think every province … all of us are concerned, obviously, that debt-to-equity ratios are going to shift as a result of this pandemic,” the premier said.

Pedro Antunes, chief economist at the Conference Board of Canada, said cutting public sector jobs will add to the economic downturn, but provincial governments were already running deficits during good times, which can limit their ability to open their wallets now.

“Typically, we would look to see governments hold up their spending or even add to spending when we see a business cycle happening,” he said.

“The problem is … when times are good we don’t see a lot put aside, a lot saved. And so when times get bad, it just adds to the stress.”

Antunes also said the full effects of the pandemic are hard to predict at this point. But he said there is a risk of credit downgrades for provincial governments, as well as a risk of higher interest rates for everyone in the next year or two as life starts to return to normal.

Pallister, who has reduced annual deficits since taking office in 2016, said the work to keep the province’s finances in check must continue.

“We got up off the mat, and we worked hard to do it. And we’re not stopping.”