Manitoba is projecting a $10 million surplus in its latest budget released on Tuesday, but only because of a $48 million transfer from its fiscal stabilization fund.

The province used $77 million of the fiscal stabilization fund to produce a $4 million surplus last year.

New Brunswick and Saskatchewan also dipped into their “rainy day” funds to balance their budgets this year. These provinces will have depleted their funds by 2004 and 2005 respectively, but Manitoba expects to have $106 million in its fund at the end of 2004-05.

Manitoba is legally required to produce a balanced budget and the projected $10 million surplus provides some leeway should revenues be lower or expenditures higher than expected.

It is also the only province to put a set amount into debt repayment and the unfunded pension liability every year. The figure is $96 million for both this year and last.

Although the province has a good record of fiscal responsibility — it has the second lowest tax-supported debt-to-GDP ratio at a projected 19.4% next March 31 — analysts currently have a few concerns. The province is using all its $91 million share of the special $2.5 billion federal health trust this year in 2003-04. It is also including in this year’s revenues its $73 million share of the $2 billion in health care funds that Ottawa will provide only if next January the federal surplus for 2003-04 is expected to be at least $5 billion. If Manitoba doesn’t get the full $73 million, it will have to either cut spending or dip further into the fiscal stabilization fund.

In addition, Bank of Montreal economists point out that on a consolidated basis (including special funds, government enterprises and crown corporations and pension liabilities), Manitoba has a significant deficit, expected to be $110 million this year, down from $271 million in 2002-03 but way up from $10 million the previous year.

This is the seventh province to balance its budget or produce a surplus for 2003-04. The exceptions are British Columbia, with a huge $2.3 billion shortfall; Newfoundland with a relatively large $287 deficit; and Prince Edward Island with a small and manageable $11 million shortfall.

The New Democratic Party government, whose term ends in October 2004, is expected to call an election later this year. That makes this the seventh provincial election budget this year. Only Alberta, B.C. and P.E.I. are not going to the polls in 2003.

Like the other pre-election budgets, this is not packed with “election goodies.” There are some modest cuts, including a drop in the middle-income bracket tax rates to 14% from 14.9% in 2004 and a 30% personal income tax credit for investments up to $30,000 in community enterprises.

The province is also changing of the $5 million capital tax exemption to a straight deduction, as of fiscal years staring in 2004, which will benefit larger corporations. In addition, it is providing tax credits of up to $1,000 per student for companies offering internship programs to young people and the manufacturing investment tax credit, scheduled to end on June 30 is extended for three years.

These are on top of tax cuts announced in previous budget which take effect in 2003, including a drop in middle-income tax rate to 14% from 15.4%, a cut in the corporate tax rate to 16% from 16.5% and an increase in the small business tax threshold, to $320,000 from $300,000.

By 2005, the corporate tax rate is to drop to 15%, although it will still be the fourth highest, and the small business threshold to rise to $400,000, matching what many of the other provinces are doing.

The one tax increase is for tobacco, a move made by a number of other provinces as well. Program spending is expected to rise by 4.4%. That’s a “middle-of-the-pack” increase in a period when there’s a lot of pressure for more spending on health and education.

Look for our budget round up in the May 2003 issue of Investment Executive.