How Manitoba can recover from financial impact of COVID-19

This column is an opinion by Shiu-Yik Au,an assistant professor of finance with the University of Manitoba's Asper School of Business anda member of the Manitoba Progressive Conservative Party. For more information aboutCBC's Opinion section, please see theFAQ.

There is an ongoing debate between political leaders over how to best deal with the latter half of the pandemic.

The Manitobagovernment appears to be pursuing a cautious combination of spending and saving. It is forecasting a deficit of $1.6 billion for the 2021-2022 fiscal year down approximately $400 million from the previous year.

In contrast, the US federal government is pursuing an aggressive stimulus policy.

It launched a $1.9 trillionstimulus plan to try to speed the U.S.'s recovery from the pandemic, which is projected to increase the U.S. deficit to nearly $3.4 trillion.

Which is the correct path? Cautious spending or an aggressive expansion in spending?

Caution before expansion

I believe caution is the best course for Manitobans, as our province must combat the twin realities of the damage from the pandemic today and to prepare ourselves for future crises.

To recover from the damage today and to prepare for the future, Manitoba's government needs to do twothings:

1. To continue spending to deal with consequences of COVID-19.
2. Toensure the province has the fiscal firepower to fight future crises.

First and foremost, the province must spend to fight the consequences of COVID-19.

We need to spare no expense on vaccine rollouts and ensuring that every Manitoban can be vaccinated as soon as possible.We need to make sure there are well-staffed vaccination sites and usepharmacists and doctors to distribute shelf-stable vaccines.

Israel has vaccinated more than half of its population, and has largely been able to reduce deaths, hospitalizations and reopen their country.

Furthermore, we must ensure that our health system is able to handle the aftermath impact on Manitobans' health, such as the backlog of surgeries and the damage to mental health.

The pandemic hasforced the cancellation of many surgeries and the system needs to work overtime to catch up on these surgeries, something that the government is already planning.

Expenditures on mental health, addiction and other invisible health problems from the pandemic will also need to be addressed by the health system.

Moreover, we must deal with the educational fallout of COVID-19. Students particularly younger students from poorer familieshave fallen behind due to the pandemic. The damage from a few months of shutdown followed by online learning is quite large.

In one dire forecast, the educational shutdowns could reduce children's future earnings by three per cent and GDP by 1.5 per cent. Consequently, the province should invest in programs to allow students to catch up such as enhanced summer school, extended school years, additional online resources and other educational boosts to help children close the gap.

Be prepared

Second, Manitoba must prepare for the next crisis by reducing sky high debt levelssomething previous Manitobagovernments have struggled to do.

Due to the Assiniboine river flood of 2011, the previous provincial government ran a $1.1 billion deficit in 2011 to fight the effects of it.

Unfortunately, the higher spending was never curtailed, and the Manitobadebt-to-GDP ratio ballooned from 26.1 per centin 2011-2012 to a whopping 34.4 per centby 2018-2019. These high debt-levels constrained the province's ability to stimulate the economy during the pandemic.

The government should avoid repeating this mistakeby ensuring that debt-to-GDP ratios fall to more manageable levelsthrough reduced spending and economic growth. Or, to put it more plainly, the government must save for the next rainy day.

We can come back stronger than everand be prepared for whatever is thrown our way.- Shiu-Yik Au

Given the large proportion of non-discretionary expenses the provincial government has in health, education, and debt servicingthe province must work hard to identify areas where spending is no longer required to fight COVID-19, to reduce high debt levels.

The biggest area for this would be any broad support to individuals and businesses. The pandemic had a very uneven effect on individuals and businesses in the economy.

Poorer people and businesses in the tourism and hospitality sectors were savaged by the pandemic,however, some people and businesses who could remotely worktypically wealthier peopleactually saw improvements in their financial situations.

By ending broad, un-targeted support, the province could reduce its expenditures and still maintain targeted programs.

Further, even targeted programs should be tapered down over the next year. The pandemic economic effects appear to be temporary Canada's GDP and unemployment have improveddramatically from March 2020 and are approaching pre-pandemic levels. Consequently, long-term support for even heavily damaged sectors would be expensive and unnecessary.

Smart spending

Manitobans are no stranger to crisis. We have survived the Red River Rebellion, the Winnipeg General Strike of 1919, the 1950 Red River Floodand now the COVID-19 pandemic. And after each crisis, Manitoba has come back better and stronger with entry into confederation, new worker rights and the construction of the Red River Floodway.

Through a combination of smart spending in health and education and a reduction in other pandemic support, we can come back stronger than ever and be prepared for whatever is thrown our way.

• Read more opinion pieces published by CBC Manitoba.