Available in alternate formats upon request. MANITOBA BUDGET 2013

Transcription

1 Available in alternate formats upon request. MANITOBA BUDGET 2013

2 This document is available on the Internet at: Information available at this site includes: The 2013 Manitoba Budget Address Budget 2013 Budget Papers A Economic Review and Outlook Appendix 1: Manitoba s North Appendix 2: Growing Rural Manitoba Investing in Sustainable Growth Opportunities B Supplementary Financial Information C Taxation Adjustments Appendix 1: Manitoba Tax Expenditures Appendix 2: The Manitoba Advantage Appendix 3: Manitoba s Competitive Environment for Manufacturing D Update on Fiscal Arrangements Appendix: Description of Major Federal Transfers to Provinces and Territories E Reducing Poverty and Promoting Social Inclusion Appendix: Manitoba s Indicators of Poverty Reduction and Social Inclusion Estimates of Expenditure and Revenue for the Fiscal Year Ending March 31, 2014 Tax News Financial Reports Economic Highlights Economic Statistics Available in alternate formats upon request. Les documents offerts en français sur le site Internet comprennent: Discours du Budget 2013 du Manitoba Budget 2013 Budget des dépenses et des recettes pour l exercice se terminant le 31 mars 2014 Bulletin de nouvelles fiscales Rapports financiers Points saillants de l économie du Manitoba Statistiques économiques Disponible en d autres formats, sur demande Printed on recycled paper. ISSN

3 BUDGET 2013 / iii BUDGET 2013 CONTENTS SUMMARY BUDGET 2013/ FINANCIAL MANAGEMENT STRATEGY... 7 APPENDICES 1 MANITOBA SUMMARY FINANCIAL STATISTICS SUMMARY BUDGET USER S GUIDE ENTITIES INCLUDED IN SUMMARY BUDGET (GOVERNMENT REPORTING ENTITY) BUDGET PAPERS A Economic Review and Outlook Appendix 1: Manitoba s North Appendix 2: Growing Rural Manitoba Investing in Sustainable Growth Opportunities B Supplementary Financial Information C Taxation Adjustments Appendix 1: Manitoba Tax Expenditures Appendix 2: The Manitoba Advantage Appendix 3: Manitoba s Competitive Environment for Manufacturing D Update on Fiscal Arrangements Appendix: Description of Major Federal Transfers to Provinces and Territories E Reducing Poverty and Promoting Social Inclusion Appendix: Manitoba s Indicators of Poverty Reduction and Social Inclusion

4 iv / BUDGET 2013

5 BUDGET 2013 / v FOREWORD Budget 2013 provides the financial overview of the Government Reporting Entity (GRE), which includes core government and Crown organizations, government business entities and public sector organizations such as regional health authorities, school divisions, universities and colleges. Manitoba s Summary Budget aligns with the accounting standards set by the Public Sector Accounting Board (PSAB) and fully reflects Generally Accepted Accounting Principles (GAAP). A Summary Budget presents a complete picture of how the provincial government and the other related entities operate as a whole, and what the total cost is of providing services and programs to people in Manitoba. To ensure transparency and accountability, Schedules 1 and 2 in this Budget present information on core government estimates of expenditure and revenue reconciled to the Summary Budget. Budget 2013 includes an updated Financial Management Strategy, which sets out the government s priorities for financial management as well as measurable outcomes for each priority. These outcomes will be reported on in the fall of The information provided in this document will help the public assess the fiscal environment and financial status of the government.

6 vi / BUDGET 2013

7 SUMMARY BUDGET 2013/14 BUDGET 2013 / 1

8 2 / BUDGET 2013 SUMMARY BUDGET For the Fiscal Year Ending March 31, 2014 With Comparative Data for the year ending March 31, 2013 Per Cent Change 2013/14 Budget from 2013/ / / / /13 Budget Forecast Budget Forecast Budget (Millions of Dollars) REVENUE SOURCE Income Taxes 3,366 3,291 3, Other Taxes 4,015 3,630 3, Fees and Other Revenue 1,987 2,027 2,009 (2.0) (1.1) Federal Transfers 3,849 3,898 3,889 (1.3) (1.0) Net Income of Government Business Enterprises Sinking Funds and Other Earnings (2.6) (5.8) TOTAL REVENUE 14,182 13,764 13, EXPENDITURE SECTORS Health 5,660 5,416 5, Education 3,807 3,643 3, Family Services 1,133 1,109 1, Community, Economic and Resource Development 2,484 2,466 2, Justice and Other Expenditures (2.7) (0.1) Debt Servicing Costs (2.2) TOTAL EXPENDITURE 14,847 14,404 14, In-Year Adjustments/Lapse (150) (57) (241) NET RESULT FOR THE YEAR (515) (583) (460) 2013 SPRING FLOOD CONTINGENCY Expenditures (30) - - Recovery from Disaster Financial Assistance TOTAL 2013 SPRING FLOOD CONTINGENCY (3) - - NET INCOME (LOSS) (518) (583) (460) NOTES: The 2012/13 Budget numbers originally presented in the 2012 Budget Address and the 2012/13 forecast from the Third Quarter Financial Report have been re-stated to be consistent with the current presentation for the GRE. Details of Expenditure and Revenue for Fiscal Year 2013/14, and a reconciliation to the amounts reported for core government are found in Schedules 1 and 2. The 2012/13 expenditure forecast includes reductions related to Program Portfolio Management Reviews. In-Year Adjustments/Lapse could be an increase in revenue and/or decrease in expenditure. The 2012/13 Budget In-Year Adjustments/Lapse includes $128 million for the Program Portfolio Management Reviews. Numbers may not add due to rounding.

9 BUDGET 2013 / 3 SUMMARY BUDGET 2013/14 Revenue Revenue in 2013/14, including new revenue measures, is projected to increase $418 million or 3% from the 2012/13 Forecast. Income taxes are projected to increase by $75 million, with a $109 million increase in Individual Income Tax offset by a decrease of $34 million in Corporation Income Tax. Budget 2013 projects a $385 million or 10.6%, increase in other taxes, principally reflecting an increase in retail sales tax. Fees and Other Revenue are projected to decline $40 million or 2%. Net Income of Government Business Enterprises (GBEs) is projected to increase $53 million or 7.7%. Federal transfers are projected to decrease $49 million or 1.3%. Expenditure Total expenditure is budgeted to increase $443 million or 3.1% from the 2012/13 Forecast. The growth in Health expenditure is $244 million or 4.5%. Education-related expenditure is increasing by $164 million or 4.5%. Family Services is up $24 million or 2.2%. Community, Economic and Resource Development expenditure will increase by $18 million or 0.7%. Manitoba Justice is increasing by $13 million or 2.6%. Overall, the Justice and Other Expenditures sector will decrease by $26 million or 2.7%. Debt Servicing Costs are expected to increase by $19 million. 1 In Budget 2013, services to people represent 76.3% of spending. Health expenditure makes up 38.1% of total expenditure. Education accounts for 25.6% of all expenditure; it includes public schools and post-secondary institutions. Family Services, Justice, and Housing and Community Development represent 12.6% of total expenditure. 1 Debt Servicing Costs are forecast to equal 5.9 of every dollar of revenue in 2013/14, down 55.3% from 13.2 per dollar in 1999/2000.

10 4 / BUDGET 2013 Schedule 1 Summary Revenue Estimate: Details and Reconciliation to Core Government Estimates Fiscal Year ending March 31, 2014 (in Thousands of Dollars) Source of Revenue CORE GOVERNMENT CONSOLIDATION IMPACTS SUMMARY Revenue Estimate and Revenue of Other Reporting Entities Income Taxes Individual Income Tax 2,952,400-2,952,400 Corporation Income Tax 413, ,200 Subtotal: Income Taxes 3,365,600-3,365,600 Other Taxes Corporations Taxes 227, ,000 Fuel Taxes 312,100 13, ,800 Land Transfer Tax 74,000-74,000 Levy for Health and Education 433,500 (107,472) 326,028 Mining Tax 40,000-40,000 Retail Sales Tax 2,047,200-2,047,200 Tobacco Tax 283, ,000 Other Taxes 16,173-16,173 Education Property Taxes - 676, ,019 Subtotal: Other Taxes 3,432, ,247 4,015,220 Fees and Other Revenue Fines and Costs and Other Legal 52,030-52,030 Minerals and Petroleum 29,074-29,074 Automobile and Motor Carrier Licences and Fees 140, ,530 Parks: Forestry and Other Conservation 32,446-32,446 Water Power Rentals 107, ,700 Service Fees and Other Miscellaneous Charges 166,196 1,174,579 1,340,775 Revenue Sharing from SOAs 16,880-16,880 Tuition Fees - 267, ,673 Subtotal: Fees and Other Revenue 544,856 1,442,252 1,987,108 Federal Transfers Equalization 1,799,228-1,799,228 Canada Health Transfer 1,120,800-1,120,800 Canada Social Transfer 442, ,753 Health Funds 9,062-9,062 Infrastructure Renewal 22,100-22,100 Shared Cost and Other Transfers 144, , ,843 Subtotal: Federal Transfers 3,538, ,440 3,848,786 Net Income of Government Business Enterprises (GBEs) Manitoba Liquor and Lotteries Corporation 615, ,055 Deposit Guarantee Corporation - 21,561 21,561 Manitoba Hydro - 72,000 72,000 Workers Compensation Board - 10,608 10,608 Manitoba Public Insurance Corporation - 18,234 18,234 Subtotal: Net Income of GBEs 615, , ,458 Sinking Funds and Other Earnings - 227, ,302 Total Revenue Estimate 11,496,830 2,684,644 14,181,474 NOTE: Legislation to effect the merger of Manitoba Liquor Control Commission and Manitoba Lotteries Corporation will be introduced in the spring session.

11 BUDGET 2013 / 5 Schedule 2 Summary Expenditure Estimate: Details, Reconciliation to Core Government Estimates and Summary Budget Result Fiscal Year ending March 31, 2014 (in Thousands of Dollars) Sector/Department CORE GOVERNMENT CONSOLIDATION IMPACTS SUMMARY Expenditure Estimate and Expenditures of Other Reporting Entities Health Health 5,230, ,592 5,595,370 Healthy Living, Seniors and Consumer Affairs 55,490 9,112 64,602 Total Health 5,286, ,704 5,659,972 Education Advanced Education and Literacy 707, ,810 1,307,472 Education 1,681, ,971 2,499,757 Total Education 2,389,448 1,417,781 3,807,229 Family Services Children and Youth Opportunities 47,910-47,910 Family Services and Labour 1,097,412 (12,034) 1,085,378 Total Family Services 1,145,322 (12,034) 1,133,288 Community, Economic and Resource Development Aboriginal and Northern Affairs 34,249 2,902 37,151 Agriculture, Food and Rural Initiatives 214, , ,913 Conservation and Water Stewardship 146,391 (2,155) 144,236 Entrepreneurship, Training and Trade 580,539 22, ,194 Housing and Community Development 82, , ,765 Infrastructure and Transportation 639,203 (140,898) 498,305 Innovation, Energy and Mines 85,136 23, ,413 Local Government 398,678 4, ,341 Total Community, Economic and Resource Development 2,181, ,892 2,484,318 Justice and Other Expenditures Legislative Assembly 42,560 (1,220) 41,340 Executive Council 2,622 (133) 2,489 Civil Service Commission 20, ,668 Culture, Heritage and Tourism 60,841 5,872 66,713 Employee Pensions and Other Costs 18,288 52,000 70,288 Finance 69,166 4,093 73,259 Immigration and Multiculturalism 16,892 11,114 28,006 Justice 507,064 13, ,029 Sport 11, ,639 Enabling Appropriations 31,623-31,623 Other Appropriations 55,393-55,393 Total Justice and Other Expenditures 836,419 87, ,447 Debt Servicing Costs 230, , ,682 Total Expenditure Estimate 12,068,883 2,778,053 14,846,936 Subtract: Total Revenue Estimate (Schedule 1) 11,496,830 2,684,644 14,181,474 In-Year Adjustments/Lapse (70,000) (80,000) (150,000) Net Result for the Year (502,053) (13,409) (515,462) 2013 Spring Flood Contingency Expenditures (30,000) - (30,000) Recovery from Disaster Financial Assistance 27,000-27,000 Total 2013 Spring Flood (3,000) - (3,000) NET INCOME (LOSS) (505,053) (13,409) (518,462) NOTE: In-Year Adjustments/Lapse could be an increase in revenue and/or decrease in expenditures.

12 6 / BUDGET 2013 Revenue, 2013/14 Major Sources Per Cent of Total Income Taxes 23.7% Retail Sales Tax 14.5% Other Taxes 28.4% Education Property Taxes 4.8% Sinking Funds and Other Earnings 1.6% Other Taxes 9.1% Net Income of Government Business Enterprises 5.2% Other Federal Transfers 3.4% CHT & CST 11.0% Equalization 12.7% Fees and Other Revenue 14.0% Federal Transfers 27.1% Expenditure, 2013/14 Major Sectors Per Cent of Total Health 38.1% Debt Servicing Costs 5.7% Justice and Other Expenditures 6.2% Community, Economic and Resource Development 16.7% Education 25.6% Family Services 7.7%

13 FINANCIAL MANAGEMENT STRATEGY BUDGET 2013 / 7

14 8 / BUDGET 2013 FINANCIAL MANAGEMENT STRATEGY 2013/14 Financial Management Priorities The Financial Management Strategy (FMS) sets out the government s priorities for financial management. It includes four main priority areas with one or more measurable outcomes. Each measurable outcome includes objectives for the current year and for future years. For 2013/14, the FMS continues to focus on priority areas identified in prior years and reflects government s balanced approach to return to surplus. FINANCIAL MANAGEMENT PRIORITY Transparency, Accountability and Fiscal Discipline Stable and Affordable Government MEASURABLE OUTCOMES Expenditure and Revenue Product (GDP) Managing Debt Infrastructure and Capital Asset Renewal PRIORITY AREA TRANSPARENCY, ACCOUNTABILITY AND FISCAL DISCIPLINE Government has implemented a number of measures to ensure financial accountability and maintain fiscal discipline, including: implementing GAAP compliant summary financial statements as of March 31, 2005; implementing summary budgeting and reporting in 2007/08 to present comprehensive information on the total cost of providing programs and services to Manitobans and how the GRE operates as a whole; publishing a FMS as part of the annual budget and a report on outcomes within six months of the end of the fiscal year; implementing summary quarterly financial reporting, consistent with GAAP as of 2009/10; establishing a plan to reduce the unfunded pension liabilities; funding the employer s share of current service pension contributions for all employees; and ensuring all capital investments are amortized and all related costs are included in annual appropriations for core government. The commitment to transparency, accountability and fiscal discipline continues in Budget 2013, with an update on the balanced financial strategy for 2013/14 and future years.

15 BUDGET 2013 / 9 Measurable Outcome Summary Budget Outlook With slower than anticipated global economic activity in 2011 and 2012, governments around the world continue to be affected by the fragile recovery from the Great Recession. Due to the sluggish recovery, the International Monetary Fund and other private sector forecasters recently lowered their economic outlook for While Manitoba s economy has traditionally been one of the most stable in Canada, economic growth continues to be modest. The current Manitoba Finance survey of forecasters calls for 2.2% GDP growth in 2012, slowing to 1.9% in With global demand improving, Manitoba s real GDP is expected to increase by 2.3% in Budget 2013 reflects an updated multi-year financial strategy projecting a return to balance in 2016/17. Manitoba continues to be committed to a balanced approach for delivering services, while recognizing the continued uncertainty in global economies. Budget 2013 demonstrates this balanced approach by focusing on: supporting economic growth by upgrading needed infrastructure, restoring the damage from past floods and making investments to mitigate the impacts of future floods; investing in vital front-line services by continuing to improve health care, education and training, policing and supports for families; managing government spending strategically to ensure Manitobans priorities come first; restoring balance and returning to surplus in Budget 2016; and maintaining affordability to keep Manitoba one of the best places to live, work and raise a family. Challenges remain for the Canadian economies as they continue to expand at a subdued pace. Manitoba s updated strategy to return to surplus in Budget 2016 will keep the economy strong and growing.

16 10 / BUDGET 2013 Summary Budget Outlook 2012/ / / / /17 Forecast Budget Projection Projection Projection (Millions of Dollars) REVENUE Core Government 1 11,143 11,524 11,977 12,449 12,937 Other Reporting Entities 2 2,621 2,685 2,575 2,618 2,671 TOTAL REVENUE 13,764 14,209 14,552 15,067 15,608 EXPENDITURE Core Government Programs and Services 1 11,825 12,099 12,371 12,639 12,912 Other Reporting Entities 2 2,579 2,778 2,696 2,742 2,797 TOTAL EXPENDITURE 14,404 14,877 15,067 15,381 15,709 Re-statement Adjustment In-Year Adjustments/Lapse 3 (57) (150) (150) (150) (150) SUMMARY NET INCOME (LOSS) (583) (518) (365) (164) 49 1 Includes 2013 Spring Flood Contingency of $30 million in expenditures offset by $27 million in revenue. 2 Includes Consolidation Impacts. 3 In-Year Adjustments/Lapse could be an increase in revenue and/or a decrease in expenditure. The summary budget outlook assumes GRE revenue will rise by an average of 3.2% annually from 2013/14 to 2016/17, while GRE expenditures are forecast to increase by an annual average of 1.8% during the same period. Core government revenue is forecast to rise by an average of 3.9% annually, while core government expenditure will grow by an annual average of 2.2% from 2013/14 to 2016/17. Core government projections reflect the commitment to return to surplus, while protecting the services Manitoba families need. Budget 2013 makes strategic investments in infrastructure and focuses spending growth on key services. External economic factors associated with developments in the global economy present risks to the economic outlooks for Canada and Manitoba. Given the elevated level of global economic uncertainty, private sector forecasters expect Manitoba s overall economic growth to remain comparatively stable among provinces. The Manitoba government is committed to balancing summary net income over the medium term and Budget 2013 introduces more responsible, innovative ways to reduce the cost of government and to increase efficiency. Entrepreneurship Manitoba is being established to provide an integrated suite of programs and innovative service improvements for entrepreneurs and businesses. The operations of the Financial Institutions Regulation Branch have been integrated in the new Manitoba Financial Services Agency (formerly the Manitoba Securities Commission) to gain efficiencies, while acting in the public interest to protect Manitoba investors. Regional office amalgamations in the departments of Agriculture, Food and Rural Initiatives, Conservation and Water Stewardship, Entrepreneurship Training and Trade, and Infrastructure and Transportation will increase efficiency, while providing core government services. Administrative costs will be contained and the civil service will be reduced by 600 over a three-year period.

17 BUDGET 2013 / 11 The 20 per cent rollback on salaries for government ministers will continue. The focus on core government program priorities will continue. These measures will result in more efficient use of public resources, declining deficits and the return to balance in 2016/17. As part of the renewal of Manitoba s Video Lottery Terminal (VLT) program, Manitoba Liquor and Lotteries Corporation will enhance opportunities for VLT siteholders through the replacement of all VLTs across the province, increasing the number of VLTs by up to five machines for selected high-performing commercial sites, and adjusting the commission structure to benefit smaller sites. As well, additional machines will be made available to higher performing First Nations sites. The deficit to GDP ratio measures a government s fiscal deficit, or the amount by which budgetary expenditures exceed revenues, in relation to the size of the overall economy. Broadly, it is an indicator of the size of the shortfall relative to all economic activity in the jurisdiction. Comparing this ratio over time permits an eventuation of the trend in the deficit. Manitoba s deficit as a percentage of GDP in 2013/14 is forecast at (0.8)%, down from the 2012/13 forecast of (1.0)%. This percentage is declining, demonstrating the commitment to achieve improved fiscal balances. The balanced approach includes amendments to legislation that recognize the challenging economic conditions, while continuing to require a responsible plan to restore balance and provide a sustainable funding source for needed infrastructure. These amendments will: maintain the requirement to eliminate the budget shortfall with a return to surplus in 2016/17; keep the legal requirement to have balanced budgets into the future; include the provision for annual debt payments to resume once balance is achieved; continue with the provision to utilize the Fiscal Stabilization Account (FSA) to address the amortization of increases in general purpose debt and related interest expenses; recognize the requirement for immediate and future infrastructure investment; and continue with transparency through the reporting requirements. Over the past three years, the government will have transferred $360 million out of the fiscal stabilization account to meet the legislative requirement noted above. Budget 2013 includes a $100 million draw for debt repayment only, in recognition of lower than anticipated interest rates. The annual FMS and a report on outcomes will continue to be published. In addition, in-year financial reporting will provide updates on the progress made in achieving our balanced financial strategy.

18 12 / BUDGET 2013 Measurable Outcome Maintaining Accountability for Core Government Program Expenditure and Revenue Legislation requires government to include a summary of core government expenditures and projected revenues as part of the FMS. This is consistent with the main estimates of expenditure and revenue for the fiscal year. While core government expenditure will exceed revenue in Budget 2013, Manitoba s balanced financial strategy shows declining deficits over the medium term, with a return to balance in Budget Core Government Expenditure and Revenue, 2013/14 (Millions of Dollars) Revenue 11,497 Expenditure 12,069 In-Year Adjustments/Lapse (70) (502) 2013 Spring Flood Contingency Flood Fighting Expenditures (30) Recovery from Disaster Financial Assistance 27 (3) Net Result (505) Year-end information on core government revenue and expenditure for 2013/14 will be provided as part of the FMS report on outcomes, scheduled to be released in the fall of PRIORITY AREA STABLE AND AFFORDABLE GOVERNMENT The Manitoba government continues to be one of the most effective governments in Canada in containing costs. Keeping programs affordable is achieved by continuing to improve the way government operates and delivers services. Manitoba uses public revenues effectively and efficiently to deliver affordable government programs and services. As part of the balanced financial strategy, government will continue to carefully manage programs and services to protect the priorities of Manitobans. Measurable Outcome Credit Ratings Manitoba continues to maintain its reputation for fiscal responsibility. The government s measured approach to paying down debt and the pension liability, while dealing with the needs in health care and other program areas has been positively acknowledged by credit rating agencies. This is reflected in the credit rating upgrades Manitoba received from Moody s Investors Service and by Standard & Poor s through 2007, and through the re-affirmation of Manitoba s credit quality by rating agencies in the last five years. During this period of economic and financial recovery, Manitoba s stable and diversified economy, strong financial position and commitment to responsible financial management is anticipated to result in a steady credit outlook in The credit rating agencies are aware of the challenging economic conditions facing all Canadian provinces. Manitoba s balanced multi-year approach continues to include draws from the fiscal stabilization account to repay debt, while restoring balance.

19 BUDGET 2013 / 13 The Manitoba government remains committed to maintaining fiscal responsibility to achieve stable or improving credit ratings into the future. Credit Rating Agency 2007 Actual 2008 Actual 2009 Actual 2010 Actual 2011 Actual 2012 Actual 2013 Actual DBRS A(high) A(high) A(high) A(high) A(high) A(high) A(high) Moody s Aa1 Aa1 Aa1 Aa1 Aa1 Aa1 Aa1 Standard & Poor s AA-(positive) AA AA AA AA AA AA NOTE: As at March 31 (end of fiscal year) Measurable Outcome Expenditures as a Percentage of Gross Domestic Production (GDP) Maintaining stable and affordable government means managing the growth in spending to meet increasing demands for quality services. An effective measure of appropriate spending is the ratio of total expenditures as a percentage of GDP. This ratio has remained relatively stable over the last five years and is budgeted to decline in 2013/14. Expenditure to GDP ratios are reflected in the following table and as part of Appendix 1, Summary Financial Statistics. 2008/09 Actual 2009/10 Actual 2010/11 Actual 2011/12 Actual (Per Cent) 2012/13 Forecast 2013/14 Budget 2014/15 Projection Core Program Expenditure Other Reporting Entities Expenditure Debt Servicing Costs Total Expenditure The government s objective is to maintain a stable or declining ratio over the longer term. Measurable Outcome Responsible Management of Public Resources Responsible management and use of public resources are key to making government more effective. The government continues to explore ways to make sure that public spending remains under control and that tax dollars are used effectively and efficiently. Budget 2013 continues to move forward on containing core government expenditure growth. The balanced financial strategy projects medium-term expenditure growth at 2.2%, enabling declining deficits, with a return to balance in 2016/17. Meeting government priorities and getting back to a balanced budget will require continuing review and reprioritization of existing funding and streamlining internal operations to find opportunities for lowering costs. The government supports continuous internal review and reform to provide Manitobans with affordable, innovative and effective public service operations, programs and services. Lean management initiatives will be implemented throughout the year in support of this commitment. This will include continued rationalization of government offices and co-locating departmental staff where appropriate, while ensuring service levels remain constant. The government will continue to emphasize reforms that improve accountability and transparency and sustainable programs that protect the priorities of Manitobans, including its commitment to reduce the civil service by 600 over three years. Measures have been implemented to meet the commitment.

20 14 / BUDGET 2013 PRIORITY AREA MANAGING DEBT Over the years, the government has continued to implement specific initiatives to ensure sound fiscal management. These include: addressing the unfunded pension liability; funding the employer s share of current service pension entitlements; ensuring all capital investments are amortized and all related costs are fully reflected in annual appropriations for core government; and establishing a plan to address core government deficits during the economic recovery period. Solid debt management consists of a plan to address general purpose debt and the pension liability while making needed investments in Manitoba. The net debt to GDP ratio is one of the key indicators used by credit rating agencies in their analysis of provincial governments because it measures the level of debt relative to a province s financial capacity. Like all other Canadian jurisdictions, the impact of the economic downturn was an increase in Manitoba s net debt to GDP ratio. Consistent with the Summary Budget Outlook, this ratio stabilizes in 2014/15 and returns to a downward trend by 2015/16. Measurable Outcome Debt Retirement The government has contributed almost $1 billion to reduce the general purpose debt and meet pension obligations. Direct action to address the unfunded pension liabilities for the Civil Service Superannuation Plan (CSSP) and the Teachers Retirement Allowances Fund (TRAF) began in 2007/08 with the government borrowing funds that would be invested by these two pension plans on behalf of the government. Borrowing funds to pay down the previously unfunded pension liability is a sound fiscal decision, when the cost of borrowing is less than the actuarially determined expected rate of return on the plan assets and the rate of growth in the pension liability. Since 2000, over $4.1 billion have been directed to pension obligations, including over $615 million of the annual debt retirement payments, $2.6 billion in new investment provided by the government since 2007 and net investment earnings projected to be $911 million by March 31, In addition, Budget 2013 includes $176 million in core government expenditures for the employer s share of current service pension obligations. Tangible Capital Assets Net Book Value Millions of Dollars 12,000 10,000 8,000 6,000 4,000 2, /00 01/02 03/04 05/06 07/08 09/10 11/12 13/14b 00/01 02/03 04/05 06/07 08/09 10/11 12/13f f - Forecast b - Budgeted Source: Manitoba Finance The potential benefits from borrowing to pay down pension liability are especially favourable in times like these with historically low interest rates. This is why the government will be assessing the merits of another round of borrowing to pay down some portion of the remaining unfunded liability. The government continues to recognize capital investment as a priority in order to support economic growth and provide for the services Manitobans need in the future. The cost of these assets is amortized over a set period that represents the useful life of the asset as required by GAAP. The end result is increased infrastructure investment for Manitobans, accompanied by a fixed discipline for paying down the associated debt. The investment in tangible capital assets has increased steadily over the last decade, and with the $1.7 billion investment in Budget 2013, is projected to total $18.7 billion at March 31, 2014, with $7.5 billion of

21 BUDGET 2013 / 15 related debt retired through accumulated amortization. The net book value of these assets (cost less accumulated amortization) has more than tripled since 1999/2000 to $11.2 billion. Manitoba s communities and the economy have benefited over the years from the significant investment in public capital assets such as health facilities, universities, colleges and schools as well as infrastructure assets such as roads, water-control structures and parks. To meet the needs of today s and future generations, it is necessary to continue to invest in renewal of these assets. The public good provided by these investments is immeasurable. It is estimated that the insured or replacement value of these investments exceeds $38 billion. Based on projections, core government will have a total of $7.6 billion in capital asset investments at March 31, 2014, and $2.6 billion of related debt will have been retired through accumulated amortization. A total of $353 million has been included in core government appropriations to retire debt associated with capital investments $214 million for amortization of department owned assets and $139 million for principal payments for education and health-related assets. Replacement Value of Public Assets 1 Per Cent of Total Universities 9.9% Total Value: $38.7 billion Roads and Highways 20.5% 1 excludes municipal assets and assets of government business enterprises such as Manitoba Hydro Two thousand and eight saw the onset of the worst global economic downturn in a generation. Throughout the period of economic weakness, the government acted to stimulate the economy, protect jobs and preserve key services. This strategy helped Manitoba fare better than most provinces in weathering the recession. In 2011 and 2012, even as Manitoba s economic Indirect Assets: 62.5% Totals may not add due to rounding. Direct Assets: 37.5% and fiscal recovery was challenged by a historically weak global economic recovery, the government was also forced to confront the devastating effects of flooding. As the government continues to work toward returning to balance, it will benefit from the past key investments in the economy and from the commitment to fiscal prudence including a healthy FSA that will help mitigate the deficits expected in core government operations. The government s balanced financial strategy maintains the legislated requirement to utilize the FSA for the amortization of increases in the general purpose debt, including related interest expenses that are attributable to negative net results incurred during the period of economic recovery. Existing funds in the Debt Retirement Account (DRA) were withdrawn in 2010/11 to repay $145 million of debt and further debt payments of $340 million have been made by withdrawal from the FSA $90 million in 2010/11, $110 million in 2011/12 and $140 million in 2012/13. Budget 2013 provides for an additional debt payment of $100 million, for a total payment of $585 million. With a return to surplus position in Budget 2016, scheduled debt payments for general purpose debt will resume. The government has a solid debt management plan which includes addressing the previously unfunded pension liability, budgeting for the employer s share of current service entitlements for all employees, ensuring all capital investments are amortized and all related costs are fully reflected in annual appropriations, and continuing to make debt repayments to mitigate core government operating deficits. Strategic decision making has resulted in debt servicing costs as a percentage of revenue remaining constant. Since 1999/2000, the debt servicing cost rate has dropped by 55.3%, from 13.2 of every dollar of summary revenue collected to a forecasted level of 5.9 in Budget Although the lingering financial uncertainty slowed progress, the government remains committed to reducing debt over time with an ultimate goal of eliminating the general purpose debt and the remaining unfunded pension liabilities. Public Schools 25.4% Housing 7.5% Other Indirect Assets 1.8% RHA Infrastructure 17.9% Buildings, Equipment and Technology 12.3% Waterways, Parks and Floodway Infrastructure 4.7%

22 16 / BUDGET 2013 Measurable Outcome Net Debt to GDP Ratio Summary net debt is financial assets (such as cash or investments) minus total liabilities (such as loans or financing). It is the remaining liability that must be financed by future revenues. Net debt may grow from time to time, as needed investments in capital assets like the Red River Floodway, highway infrastructure and economic stimulus investments are made. These forward-looking investments help support Manitoba s economy. Therefore, it is important to measure changes in net debt against the growth of the economy as measured by the nominal GDP. Manitoba s net debt to GDP has declined from 32.9% in 1999/2000 to a forecasted 28.7% in Budget The government acknowledges that the ratio does need to rise in the short term as it makes needed investments in infrastructure projects, restores the damage from past floods and invests to mitigate impacts of future floods. The outlook is for a decline in this ratio in 2015/16, demonstrating the government s commitment to return to a downward trend over the longer term. PRIORITY AREA INFRASTRUCTURE AND CAPITAL ASSET RENEWAL Building and upgrading Manitoba s infrastructure has been a priority for the government since The government announced a four-year, $4.7 billion economic stimulus investment plan in November 2008 to fund key infrastructure projects across the province. Manitoba has also dedicated revenue raised through fuel taxes to fund infrastructure and in 2011, legislated the equivalent of one-seventh of the provincial sales tax revenue to support investment in municipal infrastructure and public transit. Record levels of investment in roads and bridges, water and wastewater treatment plants, health facilities, and schools, colleges and universities have driven growth and created a wealth of economic opportunities across the province. Budget 2013 reinforces the commitment to infrastructure funding by continuing to support public service structures and systems that benefit the people of Manitoba. This investment includes projects to restore the damages from past floods and mitigate impacts of future floods. Measurable Outcome Capital Investments Based on principles of sound financial management, the government has been able to increase its assets, while maintaining a sustainable level of debt. Since 2000, the government has invested $11.3 billion in public capital assets, including: $3.8 billion for new or renewed hospitals, universities, colleges and public schools; $4.3 billion to upgrade Manitoba s roads and highways; and $3.2 billion for the Manitoba Floodway, the modernization and improvement of social housing, improving public service buildings and parks and camping infrastructure. It is estimated that the insured or replacement value of these investments is more than $38 billion (see chart page 15). Budget 2013 invests in much needed flood-related and other infrastructure to meet the needs of Manitobans into the future. This includes upgrading roads and highways, wastewater treatment plants, health facilities across the province, building and restoring much needed social housing, and modernizing our schools and post-secondary institutions.

23 BUDGET 2013 / 17 Budget 2013 includes capital investment of $1.8 billion to support continued economic growth, reduce the maintenance burden and provide for the services Manitobans need in the future as outlined in the table below. 2013/14 (Millions of Dollars) Roads and Highways (including preservation and winter roads) 622 Universities, Colleges and Public Schools 228 Health Facilities 350 Manitoba Floodway and Water-Related Infrastructure 48 Housing (including third-party contributions) 333 Assistance to Third Parties 123 Public Service Buildings 71 Parks and Camping Infrastructure 24 1,799 The government s commitment to infrastructure investments and renewal of existing assets, while maintaining a fiscally responsible approach to budgeting and debt management, will continue to deliver benefits to Manitobans.

24 18 / BUDGET 2013

25 APPENDIX 1 MANITOBA SUMMARY FINANCIAL STATISTICS BUDGET 2013 / 19

26 20 / BUDGET 2013 Manitoba Summary Financial Statistics 2013/ / / / / /09 Budget Forecast Actual Actual Actual Actual SUMMARY FINANCIAL STATEMENTS (Millions of Dollars) Revenue Income Taxes 3,366 3,291 3,124 2,922 2,659 2,841 Other Taxes 4,015 3,630 3,531 3,406 3,281 3,276 Fees and Other Revenue 1,987 2,027 1,906 1,828 1,792 1,722 Federal Transfers 3,849 3,898 4,332 4,047 3,924 3,866 Net Income of Government Business Enterprises Sinking Funds and Other Earnings Total Revenue 14,182 13,764 13,855 13,240 12,665 12,765 Expenditure Health 5,660 5,416 5,328 5,044 4,831 4,590 Education 3,807 3,643 3,489 3,330 3,227 3,091 Family Services 1,133 1,109 1, ,295 1,192 Community, Economic and Resource Development 2,484 2,466 2,771 2,400 1,813 1,729 Justice and Other Expenditures , Debt Servicing Costs Total Expenditure 14,847 14,404 14,854 13,419 12,848 12,314 In-Year Adjustments/Lapse (150) (57) Net Result for the Year (515) (583) (999) (179) (183) Spring Flood Contingency Expenditures (30) Recovery from Disaster Financial Assistance Total 2013 Spring Flood Contingency (3) Net Income (Loss) (518) (583) (999) (179) (183) 451 Provincial Borrowings, Guarantees & Obligations General Government Programs 8,659 8,254 7,803 6,955 6,863 6,400 General Government Programs - Federal Flood Relief General Government Programs - Pension Liability 2,595 2,595 2,595 2,355 2,175 1,850 The Manitoba Hydro-Electric Board 11,046 9,608 8,999 8,362 7,730 7,499 Other Crown Organizations 2,397 2,247 1,926 1,641 1,478 1,341 Health Facilities 1,314 1,162 1,094 1, Other Capital Investments 4,089 3,668 3,195 2,546 1,846 1,411 Subtotal 30,117 27,837 25,975 22,925 21,106 19,410 Other Obligations Pension Liability 7,264 6,892 6,697 6,545 6,392 6,152 Pension Asset Fund (5,266) (5,083) (5,063) (4,814) (4,624) (4,161) Net Pension Liability 1,998 1,809 1,634 1,731 1,768 1,991 Debt incurred for and repayable by the Manitoba Hydro-Electric Board (10,698) (9,445) (8,742) (8,199) (7,479) (7,177) Education and Health Debt held by Government Enterprises Other Debt of Crown Organizations Subtotal (7,899) (6,865) (6,337) (5,734) (5,013) (4,518) Total Summary Borrowings, Guarantees & Obligations 22,218 20,972 19,638 17,191 16,093 14,892 Adjustments to arrive at Summary Net Debt Guarantees (351) (166) (257) (165) (255) (326) Net Financial Assets (4,113) (4,687) (4,870) (4,501) (4,231) (3,086) Summary Net Debt 17,754 16,119 14,511 12,525 11,607 11,480 NOTES: The 2012/13 Budget numbers originally presented in the 2012 Budget Address and the 2012/13 forecast from the Third Quarter Financial Report have been re-stated to be consistent with the current presentation for the GRE. Details of Expenditure and Revenue for Fiscal Year 2013/14, and a reconciliation to the amounts reported for core government are found in Schedules 1 and 2. In-Year Adjustments/Lapse could be an increase in revenue and/or decrease in expenditures. Numbers may not add due to rounding.

27 BUDGET 2013 / 21 Manitoba Summary Financial Statistics 2013/ / / / / /09 Budget Forecast Actual Actual Actual Actual (Percentage Change) Annual Change Income Taxes (6.4) 7.1 Other Taxes (0.4) Fees and Other Revenue (2.0) Federal Transfers (1.3) (10.0) Total Revenue 3.0 (0.7) (0.8) 2.2 Health Education (4.1) Debt Servicing Costs (8.9) (3.9) Total Expenditure 3.1 (3.0) Summary Net Debt (Per Cent) Per Cent of GDP Income Taxes Other Taxes Fees and Other Revenue Federal Transfers Total Revenue Health Education Debt Servicing Costs Total Expenditure Summary Net Debt Per Cent of Revenue Income Taxes Other Taxes Fees and Other Revenue Federal Transfers Net Income of Government Business Enterprises Sinking Funds and Other Earnings (Dollars) Dollars Per Capita Total Revenue 11,063 10,863 11,069 10,715 10,382 10,587 Total Expenditure 11,582 11,369 11,867 10,859 10,532 10,213 Debt Servicing Costs Summary Net Debt 13,850 12,722 11,593 10,136 9,515 9,521 Memorandum Items Population (000 s) * 1,281.9f 1, , , , ,205.7 GDP at Market Prices ($M) 61,850f 59,405f 56,947 54,275 51,554 51,676 Source: Manitoba Finance * official population July 1 f - Forecast

28 22 / BUDGET 2013

29 APPENDIX 2 SUMMARY BUDGET USER S GUIDE BUDGET 2013 / 23

30 24 / BUDGET 2013 INTRODUCTION This document guides readers through the format of the Manitoba Budget. It includes three components: a general explanation of the structure of the Summary Budget, Annotated Summary Budget and Schedules, and a list of Frequently Asked Questions. Schedule 1 (Summary Revenue Estimate) and Schedule 2 (Summary Expenditure Estimate) consolidate the Estimates of Expenditure and Revenue of core government with high-level projections of expenses and revenues of the Other Reporting Entities (OREs) of the GRE to produce the Summary Budget. Although the additional revenues and expenses of entities such as universities, public schools and GBEs are included in the Summary Budget, the existing relationship between the government and the related entities does not change. Governance of these organizations and their relationships with government are not affected by the Summary Budget process. STRUCTURE OF THE SUMMARY BUDGET The Summary Budget presents a high-level overview of revenue and expenditure of the entire GRE. Revenue is reported under six categories. Income Taxes are entirely revenue of core government. Other Taxes includes the Retail Sales Tax and all of the other tax revenues of core government, as well as property taxes levied to support school funding. Fees and Other Revenue includes fees such as automobile licences, park and forestry fees, and fees collected by Crown organizations such as fees for non-insured health services and rental revenue for Manitoba Housing and Renewal Corporation (MHRC). Tuition fees collected by universities and colleges are also included in this category. Federal Transfers Equalization, Canada Health Transfer, Canada Social Transfer, and other grants and transfers are mostly received by core government, although some federal funds are provided directly to entities not included in core government, such as housing subsidies to MHRC, insurance premiums for agriculture programs and grants for public education. Net Income of GBEs represents the net income of all GBEs. This income is added to the summary financial statements on a modified equity basis and includes the income of Manitoba Liquor and Lotteries Corporation whose net income continues to be recorded as revenue of core government. Sinking Funds and Other Earnings are interest and other investment earnings on sinking funds and other investments held by core government and OREs. For core government estimates purposes, investment revenue is netted against debt servicing costs. Expenditure has been classified by major sectors. See Appendix 3 for a list of entities in the GRE. Health represents all health-related expenditures including the activities of Manitoba Health, and Manitoba Healthy Living, Seniors and Consumer Affairs, all Regional Health Authorities, hospitals and other health-related entities in the GRE. Education represents costs associated with all primary, secondary and post-secondary education, including the operations of universities and colleges, and includes the activities of Manitoba Advanced Education and Literacy, and Manitoba Education. This also includes additional funding for teachers pensions and programs funded by other sources. Family Services includes all costs related to social service and youth programs, including the activities of Manitoba Family Services and Labour, and Children and Youth Opportunities.

31 BUDGET 2013 / 25 Community, Economic and Resource Development includes expenditures related to infrastructure and other government services, including the activities of Manitoba Aboriginal and Northern Affairs; Manitoba Agriculture, Food and Rural Initiatives; Manitoba Conservation and Water Stewardship; Manitoba Entrepreneurship, Training and Trade; Manitoba Housing and Community Development; Manitoba Infrastructure and Transportation; Manitoba Innovation, Energy and Mines; and Manitoba Local Government. Justice and Other Expenditures includes costs for Manitoba Justice services and the activities of the Legislative Assembly; Executive Council; Civil Service Commission; Manitoba Culture, Heritage and Tourism; Employee Pensions and Other Costs; Manitoba Finance; Manitoba Immigration and Multiculturalism; Manitoba Sport; and Enabling and Other Appropriations. Debt Servicing contains the cost of interest and related expenses for the TRAF, the CSSP, capital funding and general purpose borrowings associated with all provincial summary borrowings, excluding debt servicing costs for debt incurred and repayable by The Manitoba Hydro-Electric Board. Debt servicing costs related to those borrowings are reflected in the net income of GBEs. In-Year Adjustments/Lapse could be an increase in revenue and/or a decrease in expenditure. Net Income (Loss) is the bottom line the result after Expenditure is subtracted from Revenue. This represents the GRE s financial result for the fiscal year.

32 26 / BUDGET 2013 ANNOTATED SUMMARY BUDGET The Summary Budget includes the revenue and expenditure of the entities in the GRE. Amounts are adjusted on consolidation to avoid counting the same revenue or expenditure twice. SUMMARY BUDGET For the Fiscal Year Ending March 31, 2014 With Comparative Data for the year ending March 31, 2013 includes school property taxes includes university and college tuition fees Most Federal Transfers are received by core government but some entities also receive Federal Transfers or cost-shared payments directly. includes all expenditures of Manitoba Education, Manitoba Advanced Education and Literacy, and K-12 public schools, colleges and universities 2013/ / /13 Budget Forecast Budget (Millions of Dollars) REVENUE SOURCE Income Taxes 3,366 3,291 3,202 Other Taxes 4,015 3,630 3,684 Fees and Other Revenue 1,987 2,027 2,009 Federal Transfers 3,849 3,898 3,889 Net Income of Government Business Enterprises Sinking Funds and Other Earnings TOTAL REVENUE 14,182 13,764 13,747 EXPENDITURE SECTORS Health 5,660 5,416 5,547 Education 3,807 3,643 3,605 Family Services 1,133 1,109 1,066 Community, Economic and Resource Development 2,484 2,466 2,447 Justice and Other Expenditures Debt Servicing Costs TOTAL EXPENDITURE 14,847 14,404 14,448 In-Year Adjustments/Lapse (150) (57) (241) NET RESULT FOR THE YEAR (515) (583) (460) 2013 SPRING FLOOD CONTINGENCY This includes all health-related expenditures of Manitoba Health, Manitoba Healthy Living, Youth and Seniors, hospitals, Regional Health Authorities and other healthrelated entities. The revenue and expenditure of OREs are projections based on data obtained from the entities and may not represent final board-approved budget data from those entities. Many reporting entities have fiscal years and budget cycles different than core government. In those cases, data for the closest fiscal year-end date to core government s own year-end date are used.

33 BUDGET 2013 / 27 ANNOTATED SUMMARY REVENUE ESTIMATE: DETAILS AND RECONCILIATION TO CORE GOVERNMENT ESTIMATES Schedule I groups individual revenue sources under six categories, showing the contributions of core government and the impact of consolidating core government and OREs. Schedule 1 Summary Revenue Estimate: Details and Reconciliation to Core Government Estimates Fiscal Year ending March 31, 2014 (in Thousands of Dollars) CORE GOVERNMENT CONSOLIDATION IMPACTS SUMMARY Source of Revenue Revenue Estimate and Revenue of Other Reporting Entities Category headings match those in the Summary Budget. Similar types of revenue may be received by core government and reporting entities (ex. Service Fees and Shared-Cost Transfers). Income Taxes Individual Income Tax 2,952,400-2,952,400 Corporation Income Tax 413, ,200 Subtotal: Income Taxes 3,365,600-3,365,600 Other Taxes Corporations Taxes 227, ,000 Fuel Taxes 312,100 13, ,800 Land Transfer Tax 74,000-74,000 Levy for Health and Education 433,500 (107,472) 326,028 Mining Tax 40,000-40,000 Retail Sales Tax 2,047,200-2,047,200 Tobacco Tax 283, ,000 Other Taxes 16,173-16,173 Education Property Taxes - 676, ,019 Subtotal: Other Taxes 3,432, ,247 4,015,220 Fees and Other Revenue Fines and Costs and Other Legal 52,030-52,030 Minerals and Petroleum 29,074-29,074 Automobile and Motor Carrier Licences and Fees 140, ,530 Parks: Forestry and Other Conservation 32,446-32,446 Water Power Rentals 107, ,700 Service Fees and Other Miscellaneous Charges 166,196 1,174,579 1,340,775 Revenue Sharing from SOAs 16,880-16,880 Tuition Fees - 267, ,673 Subtotal: Fees and Other Revenue 544,856 1,442,252 1,987,108 Federal Transfers Equalization 1,799,228-1,799,228 Canada Health Transfer 1,120,800-1,120,800 Canada Social Transfer 442, ,753 Health Funds 9,062-9,062 Infrastructure Renewal 22,100-22,100 Shared Cost and Other Transfers 144, , ,843 Subtotal: Federal Transfers 3,538, ,440 3,848,786 Net Income of Government Business Enterprises (GBEs) Manitoba Liquor and Lotteries Corporation 615, ,055 Deposit Guarantee Corporation - 21,561 21,561 Manitoba Hydro - 72,000 72,000 Workers Compensation Board - 10,608 10,608 Manitoba Public Insurance Corporation - 18,234 18,234 Subtotal: Net Income of GBEs 615, , ,458 Sinking Funds and Other Earnings - 227, ,302 Total Revenue Estimate 11,496,830 2,684,644 14,181,474 NOTE: Legislation to effect the merger of Manitoba Liquor Control Commission and Manitoba Lotteries Corporation will be introduced in the spring session. The revenue and expenditure of OREs are projections based on data obtained from the entities and may not represent final board-approved budget data from those entities. Many reporting entities have fiscal years and budget cycles different than core government. In those cases, data for the closest fiscal year-end date to core government s own year-end date are used.

34 28 / BUDGET 2013 ANNOTATED SUMMARY EXPENDITURE ESTIMATE: DETAILS, RECONCILIATION TO CORE GOVERNMENT ESTIMATES AND SUMMARY BUDGET RESULT Schedule 2 groups expenditures in six sectors. It shows core government expenditure estimates, consolidation impacts to avoid double counting of expenditures, and the additional expenditure of OREs, which is not financed by core government. Expenditure of OREs is spending financed through sources other than core government. Expenditure presented to the Legislative Assembly for approval. Category headings match those in the Summary Budget. Spending of OREs is shown alongside Estimates of Expenditure for the related department of core government. Schedule 2 Summary Expenditure Estimate: Details, Reconciliation to Core Government Estimates and Summary Budget Result Fiscal Year ending March 31, 2014 (in Thousands of Dollars) CORE GOVERNMENT CONSOLIDATION IMPACTS SUMMARY Sector/Department Expenditure Estimate and Expenditures of Other Reporting Entities Health Health 5,230, ,592 5,595,370 Healthy Living, Seniors and Consumer Affairs 55,490 9,112 64,602 Total Health 5,286, ,704 5,659,972 Education Advanced Education and Literacy 707, ,810 1,307,472 Education 1,681, ,971 2,499,757 Total Education 2,389,448 1,417,781 3,807,229 Family Services Children and Youth Opportunities 47,910-47,910 Family Services and Labour 1,097,412 (12,034) 1,085,378 Total Family Services 1,145,322 (12,034) 1,133,288 Community, Economic and Resource Development Aboriginal and Northern Affairs 34,249 2,902 37,151 Agriculture, Food and Rural Initiatives 214, , ,913 Conservation and Water Stewardship 146,391 (2,155) 144,236 Entrepreneurship, Training and Trade 580,539 22, ,194 Housing and Community Development 82, , ,765 Infrastructure and Transportation 639,203 (140,898) 498,305 Innovation, Energy and Mines 85,136 23, ,413 Local Government 398,678 4, ,341 Total Community, Economic and Resource Development 2,181, ,892 2,484,318 Justice and Other Expenditures Legislative Assembly 42,560 (1,220) 41,340 Executive Council 2,622 (133) 2,489 Civil Service Commission 20, ,668 Culture, Heritage and Tourism 60,841 5,872 66,713 Employee Pensions and Other Costs 18,288 52,000 70,288 Finance 69,166 4,093 73,259 Immigration and Multiculturalism 16,892 11,114 28,006 Justice 507,064 13, ,029 Sport 11, ,639 Enabling Appropriations 31,623-31,623 Other Appropriations 55,393-55,393 Total Justice and Other Expenditures 836,419 87, ,447 Debt Servicing Costs 230, , ,682 Total Expenditure Estimate 12,068,883 2,778,053 14,846,936 Subtract: Total Revenue Estimate (Schedule 1) 11,496,830 2,684,644 14,181,474 In-Year Adjustments/Lapse (70,000) (80,000) (150,000) Net Result for the Year (502,053) (13,409) (515,462) 2013 Spring Flood Contingency Expenditures (30,000) - (30,000) Recovery from Disaster Financial Assistance 27,000-27,000 Total 2013 Spring Flood (3,000) - (3,000) NET INCOME (LOSS) (505,053) (13,409) (518,462) NOTE: In-Year Adjustments/Lapse could be an increase in revenue and/or decrease in expenditures. The revenue and expenditure of OREs are projections based on data obtained from the entities and may not represent final board-approved budget data from those entities. Many reporting entities have fiscal years and budget cycles different than core government. In those cases, data for the closest fiscal year-end date to core government s own year-end date are used.

35 BUDGET 2013 / 29 FREQUENTLY ASKED QUESTIONS Q1 What is a Summary Budget? A A Summary Budget is a comprehensive picture of core government expenditure and revenue together with high-level projections for the operations of Crown organizations, GBEs and public sector organizations such as regional health authorities, school divisions, universities and colleges. It is called a Summary Budget because the revenue and expenditure of general program and departmental operations of the government the services of government usually associated with the Legislature and the additional functions that are indirectly controlled by the provincial government, such as public schools and universities, are consolidated. For example, public school expenditures paid for by school division property taxes and provincial support payments are shown together in one sum. This approach allows taxpayers to see the total cost of providing public school services. Q2 How can I tell how much the government raises as revenue and plans to spend on core government programs and services? A Details of core government expenditure and revenue are presented in the Estimates of Expenditure and Revenue tabled in the Legislature. The Summary Budget and the Estimates both contain reconciliation schedules (Schedule 1 for Revenue, Schedule 2 for Expenditure), to help the reader move between the Summary Budget and the Estimates. Q3 What entities are included in the Summary Budget and where can I get more information about their plans? A A listing of all the entities in the GRE is included in the Summary Budget as Appendix 3. The Summary Budget combines the Estimates of Expenditure and Revenue for core government with high-level projections for other reporting entities. Questions about financial information of OREs should be directed to the appropriate entity. Q4 As Manitoba s Budget is presented for the GRE, will the government use the revenues of OREs to pay for core government operations? A A Summary Budget does not change the way in which core government operations are funded. Under the Summary Budget, only revenues from those Crown entities that have traditionally been used to support government programs and services (Manitoba Liquor and Lotteries Corporation and the Special Operating Agencies established by government) will continue to be used to support core government operations. Q5 If the government is not controlling the OREs directly, why does the government combine their revenue and expenses with its own in the Summary Budget? A The Manitoba government acted on the recommendations of the Office of the Auditor General for Manitoba. GAAP and the PSAB standards for senior Canadian governments require provincial, territorial and federal governments to prepare their annual financial statements on this basis. Q6 How do core government and summary expenses differ? A Core government expenses reflect the departmental expenditure estimates of the Manitoba government that are presented and approved by the Legislative Assembly. These expenditures include grants to OREs. The summary expenditures include incremental expenses of OREs that are financed from sources other than core government. The summary total reflects the total cost of the service provided, under the various sectors, that are financed by core government and the OREs.

36 30 / BUDGET 2013 Q7 How does the Summary Budget treat pension liabilities? A The pension liability is recorded in full in the Summary Financial Statements and therefore, changes in this liability are reflected in the Summary Budget. The pension expenses include amounts that are funded through the appropriations of core government as well as summary adjustments for actuarially determined increases in the value of the outstanding pension liability. Pension expenses related to TRAF are included in the Education sector. Q8 What is meant by Consolidation Impacts? A Consolidation Impacts are adjustments needed to bring the revenue and expenditure of the OREs into the Summary Budget. They include adjustments needed to present the information on a consistent basis and to eliminate transactions between entities in the GRE, to avoid duplicating revenues and expenses in the summary result (ex. a government grant is counted as an expenditure of core government and is eliminated from the revenue of the ORE). Q9 What is Other Comprehensive Income (OCI) and how does it impact the government s summary results? A OCI applies to certain OREs, and represents unrealized gains or losses in fair market value of financial instruments, such as investments held for sale or debt held in a foreign currency. Changes in OCI are based upon mark-tomarket variances at year end and therefore, are a one-day snapshot of the change in value when compared to the same day in the previous year. Because OCI represents an unrealized gain or loss, it does not impact an ORE s annual operating results, and therefore, does not impact the government s Summary Net Income. However, OCI does impact the balance sheet and therefore, will impact the government s Net Debt and Net Debt to GDP. When the underlying investments are sold, or when the foreign held debt is retired, OCI gains or losses are realized, which will correspondingly impact an ORE s net income and therefore the government s Summary Net Income.

37 BUDGET 2013 / 31 GLOSSARY OF KEY TERMS Borrowings: Borrowings are securities issued in the name of the government to capital markets investors. Securities include debentures, treasury bills, promissory notes, medium-term notes and Manitoba Savings Bonds. Consolidation Impacts: The adjustments needed to bring the revenue and expenditure of the OREs into the Summary Budget, and to eliminate transactions between entities to avoid duplication of revenue and expense (ex. a government grant is counted as an expenditure of core government and is eliminated from the revenue of the ORE). Core Government: A component of the GRE. Represents the operations of government, including the revenues directly under the government s control, and the programs and services delivered by government departments. Crown Organization: An organization in the GRE that is wholly owned or established by the government, such as a Crown corporation (ex. Manitoba Agricultural Services Corporation). Debt Servicing Cost: Interest and other expenses associated with provincial borrowings. Fair Market Value: Represents the value obtainable for an asset, financial or non-financial, if disposed of on the open market. Federal Recoveries and Transfers: Revenues that are either received or receivable from the federal government. Financial Assets: Assets of the government such as cash, investments, loans and accounts receivable that could be readily converted to cash in order to pay the government s liabilities or finance its future operations. Generally Accepted Accounting Principles (GAAP): Standard accounting practices and reporting guidelines as prescribed by the Canadian Institute of Chartered Accountants. General Purpose Debt: General program borrowings including any government securities that are not self-sustaining, or are not associated with the acquisition of capital assets. Government Business Enterprises (GBEs): A Crown organization delegated with the financial and operating authority to carry on a business. It sells goods or services to individuals and organizations outside the GRE and can maintain its business on those revenues. Government Reporting Entity (GRE): Includes core government and Crown organizations, GBEs and public sector organizations such as regional health authorities, school divisions, universities and colleges. Gross Domestic Product (GDP): Represents the total market value of all final goods and services produced in the Manitoba economy. Guarantees: In the normal course of business, the government may provide a guarantee to honour the repayment of debt or loans of an organization, primarily GBEs. Such a guarantee is provided on the Manitoba Hydro Savings Bonds. Infrastructure Assets: A subset of tangible capital assets that are used by the general public, such as parks, highways and bridges. Net Debt to GDP Ratio: The ratio of government net debt relative to the total market value of all final goods and services produced in the Manitoba economy. Net debt represents the total liabilities of the government less its financial assets. It is widely used by credit rating agencies and other analysts to evaluate the financial situation and trends of jurisdictions in regard to their relative credit worthiness. Net Financial Assets: Assets of the government (such as cash, investments, loans and accounts receivable) less accounts payable, that could be readily converted to cash in order to pay the government s liabilities or finance its future operations. Non-Financial Assets: Includes physical items such as tangible capital assets (ex. buildings and roads) and consumable goods such as inventories that are not normally converted to cash.

38 32 / BUDGET 2013 Obligations: Long-term, non-interest-bearing liabilities of the government, which may or may not carry specific repayment terms. Other Comprehensive Income (OCI): OCI is an accounting recognition of unrealized gains and losses in fair market value of financial instruments, such as investments held as available for sale or trading or debt held in a foreign currency. Currently, OCI accounting standards apply only to OREs, except not-for-profit organizations. It is measured as the change in mark-to-market valuations, interest rates, or foreign exchange rates at year end and therefore, is a one-day snapshot of the change in value when compared to the same day in the previous year. Other Reporting Entities (OREs): Entities in the GRE such as Crown organizations, GBEs and public sector organizations such as regional health authorities, school divisions, universities and colleges that are directly or indirectly controlled by the government, as prescribed by the PSAB excludes core government. Pension Assets Fund: Financial assets that are set aside to provide for the orderly retirement of the government s pension obligations. Pension Liability: Outstanding actuarially calculated pension liability of the government and participating Crown organizations. The expense includes amounts funded through the appropriations of core government as well as for the actuarially determined increases in the pension liability. Public Sector Accounting Board (PSAB): A board established under the Canadian Institute of Chartered Accountants responsible for setting accounting standards for the public sector based upon GAAP. Replacement Value of Assets: Represents the cost of replacing capital assets at current values. Sinking Funds: Funds that are readily convertible to cash and set aside to provide for the orderly retirement of borrowings as they become due. Summary Budget: Includes revenue forecasts and expenditure estimates for core government as well as high-level projections for the entities directly or indirectly controlled by government, as prescribed by the PSAB. Summary Net Debt: Represents the total liabilities of the GRE less its financial assets. This is the residual amount that will have to be paid or financed by future revenue. Tangible Capital Assets: Assets with a useful life extending beyond one year which are acquired, constructed or developed and held for use, not for resale.

39 APPENDIX 3 ENTITIES INCLUDED IN SUMMARY BUDGET (GOVERNMENT REPORTING ENTITY) BUDGET 2013 / 33

40 34 / BUDGET 2013 HEALTH Manitoba Health CancerCare Manitoba Diagnostic Services of Manitoba Inc. Manitoba Health Services Insurance Plan Manitoba Hospital Capital Financing Authority Not-for-Profit Personal Care Homes Regional Health Authorities (including controlled organizations) Interlake-Eastern Regional Health Authority Northern Regional Health Authority Prairie Mountain Regional Health Authority Southern Regional Health Authority Winnipeg Regional Health Authority Rehabilitation Centre for Children, Inc. St. Amant Centre Healthy Living, Seniors and Consumer Affairs Manitoba Healthy Living, Seniors and Consumer Affairs Addictions Foundation of Manitoba Funeral Board of Manitoba Financial Literacy Fund Land Titles Assurance Fund The Property Registry Vital Statistics Agency EDUCATION Advanced Education and Literacy Manitoba Advanced Education and Literacy The Council on Post-Secondary Education Assiniboine Community College Brandon University Université de Saint-Boniface Red River College University College of the North University of Manitoba University of Winnipeg Education Manitoba Education Manitoba Textbook Bureau Public Schools Finance Board Public School Divisions FAMILY SERVICES Manitoba Children and Youth Opportunities Manitoba Family Services and Labour First Nations of Northern Manitoba Child and Family Services Authority First Nations of Southern Manitoba Child and Family Services Authority

41 BUDGET 2013 / 35 General Child and Family Services Authority Metis Child and Family Services Authority Inc. Office of the Fire Commissioner Workplace Safety and Health Public Education Fund COMMUNITY, ECONOMIC AND RESOURCE DEVELOPMENT Aboriginal and Northern Affairs Manitoba Aboriginal and Northern Affairs Communities Economic Development Fund Agriculture, Food and Rural Initiatives Manitoba Agriculture, Food and Rural Initiatives The Farm Machinery and Equipment Act Fund Food Development Centre Manitoba Cattle Enhancement Council Manitoba Horse Racing Commission Manitoba Agricultural Services Corporation The Veterinary Sciences Scholarship Fund Conservation and Water Stewardship Manitoba Conservation and Water Stewardship The Manitoba Habitat Heritage Corporation Pineland Forest Nursery Green Manitoba Eco Solutions Manitoba Hazardous Waste Management Corporation Waste Reduction and Recycling Support Fund Entrepreneurship, Training and Trade Manitoba Entrepreneurship, Training and Trade Entrepreneurship Manitoba Manitoba Trade and Investment Corporation Manitoba Development Corporation The Manitoba Opportunities Fund Ltd. Taking Charge! Inc. / Se Prendre En Main! Inc. Housing and Community Development Manitoba Housing and Community Development The Manitoba Housing and Renewal Corporation Manitoba Community Services Council Inc. Co-operative Loans and Loans Guarantee Board The Cooperative Promotion Board Infrastructure and Transportation Manitoba Infrastructure and Transportation Crown Lands and Property Agency Manitoba Floodway and East Side Road Authority Manitoba Trucking Productivity Improvement Fund Material Distribution Agency Vehicle and Equipment Management Agency Leaf Rapids Town Properties Ltd.

42 36 / BUDGET 2013 Innovation, Energy and Mines Manitoba Innovation, Energy and Mines Abandonment Reserve Fund The Biodiesel Fund The Mining Community Reserve Manitoba Gaming Control Commission Manitoba Health Research Council The Mining Rehabilitation Reserve Fund The Quarry Rehabilitation Reserve Fund Economic Innovation and Technology Council Industrial Technology Centre Manitoba Education, Research and Learning Information Networks The Ethanol Fund Local Government Manitoba Local Government Community Revitalization Fund Manitoba Water Services Board JUSTICE AND OTHER EXPENDITURES Legislative Assembly Legislative Assembly Executive Council Executive Council Civil Service Commission Civil Service Commission Culture, Heritage and Tourism Manitoba Culture, Heritage and Tourism Le Centre culturel franco-manitobain Manitoba Arts Council Manitoba Centennial Centre Corporation Manitoba Film & Sound Recording Development Corporation Travel Manitoba Venture Manitoba Tours Ltd. Employee Pensions and Other Costs Pension Assets Fund Finance Manitoba Finance Crown Corporations Council Insurance Council of Manitoba Manitoba Financial Services Agency

43 BUDGET 2013 / 37 Justice Manitoba Justice Helen Betty Osborne Memorial Foundation Legal Aid Manitoba Public Trustee of Manitoba Manitoba Law Reform Commission Civil Legal Services Victims Assistance Fund Immigration and Multiculturalism Manitoba Immigration and Multiculturalism Sport Manitoba Sport Manitoba Combative Sports Commission Sport Manitoba Inc. GOVERNMENT BUSINESS ENTERPRISES Deposit Guarantee Corporation of Manitoba The Manitoba Hydro-Electric Board Manitoba Liquor and Lotteries Corporation Manitoba Public Insurance Corporation Workers Compensation Board of Manitoba SPECIAL ACCOUNTS, not attached to Sector or Department Debt Retirement Fiscal Stabilization

44 38 / BUDGET 2013

45 Budget Paper A ECONOMIC REVIEW AND OUTLOOK Available in alternate formats upon request.

46 ECONOMIC REVIEW AND OUTLOOK CONTENTS INTRODUCTION... 1 INTERNATIONAL AND CANADIAN ECONOMIC DEVELOPMENTS... 1 MANITOBA ECONOMY... 2 ECONOMIC OUTLOOK Appendix 1: MANITOBA S NORTH Appendix 2: GROWING RURAL MANITOBA INVESTING IN SUSTAINABLE GROWTH OPPORTUNITIES... 20

47 BUDGET 2013 Economic Review and Outlook / A1 INTRODUCTION Despite moderate growth in 2012, Manitoba s economy fared relatively well among provinces. The province saw strength in employment growth and further solid gains in housing, wholesale trade and capital investment. This helped offset some of the weakness arising from slower growth in manufacturing sales, a decline in exports and limited growth in retail sales associated with the more cautious consumer sentiment witnessed throughout Canada. Given the elevated level of global economic uncertainty, private forecasters expect Manitoba s overall economic growth to slow in 2013, as domestic and international demand for goods and services remains in check. Manitoba s real GDP growth is forecast to soften to 1.9% in 2013, down from the estimated 2.2% increase in 2012, but above Canada s projected growth for a second consecutive year. External economic factors associated with developments in Europe, Asia and the United States are unlikely to be resolved in the near term, and continue to present risks to Manitoba s economic outlook. In the face of these and other global challenges, the province s diverse economy is expected to remain stable relative to other Canadian provinces. Real GDP Growth, Manitoba and Canada Per Cent f Manitoba Canada f - Forecast Sources: Statistics Canada Manitoba Bureau of Statistics Manitoba Finance, survey of economic forecasters 13f INTERNATIONAL AND CANADIAN ECONOMIC DEVELOPMENTS After a sharp rebound in 2010, global economic growth has slowed. The sovereign debt concerns in Europe, fiscal consolidation in many advanced economies, unresolved budget and debt negotiations in the U.S., and slower growth in China are among the key factors elevating risks and weighing down overall business and consumer confidence. Following real GDP growth of 5.1% in 2010, the global economy slowed to growth of 3.9% in 2011 and 3.2% in The International Monetary Fund (IMF) estimates world growth to moderate in the near term, expanding 3.5% in 2013 and increasing to 4.1% in The U.S. economy, the largest economy in the world, remains fragile as it expands at a reserved pace. The economy is experiencing the weakest postrecession recovery since WWII. Both labour and housing markets, although improving, remain well below their previous peaks. Soft domestic and foreign demand is limiting business investments. On the fiscal side, the challenges of implementing any budget resolution regarding U.S. federal spending and revenue measures continue to undermine near-term economic outlook. Overall, U.S. GDP growth is estimated at 2.2% in 2012 and 2.0% in 2013, up modestly from 1.8% in Growth in China is somewhat restrained, reflecting weaker demand for goods and services in advanced economies. The slowdown shows the impacts of tighter credit policy implemented in the past. As these credit rules are eased, growth in China is expected to strengthen. The IMF projects growth in Real GDP Growth, 2005 to 2014f Percentage Change f 13f 14f Canada U.S. World f - Forecast Sources: Statistics Canada U.S. Bureau of Economic Analysis Manitoba Finance, survey of economic forecasters International Monetary Fund

48 A2 / Economic Review and Outlook BUDGET 2013 developing Asia to moderate to 6.6% in 2012, down from 8.0% growth in Growth will accelerate to 7.1% in 2013 as investment activity and household spending start to rebound. China is currently the world s second-largest economy and according to the IMF, it is expected to surpass the U.S. in size by the end of the decade. Following a recession in 2012, Europe is expected to generate almost no growth in The sovereign debt and financial markets crisis continue to weigh on economic activity in Europe. The crisis has created a credit squeeze for commercial and household borrowing, thereby dampening domestic spending. According to the IMF, the Euro Area, accounting for over 14% of the global economy, is estimated to have contracted by 0.4% in 2012 and expected to decline by 0.2% this year. Influenced by global economic conditions, the Canadian economy slowed in 2012 and is expected to grow at a modest pace over the next two years. Canada has shifted to a more moderate expansion phase, signaling a balance between the gradual withdrawal of fiscal stimulus, and moderate growth in business and consumer spending. Real GDP increased by 1.8% in According to the Bank of Canada (BOC), consumer spending is expected to grow at a tempered pace through This growth in spending will be financed through debt, thereby further increasing the ratio of household debt to income. The recent tightening of mortgage financing rules is expected to shift the housing market to a more sustainable pace by dampening residential investment spending over the near term. As global demand strengthens, the well capitalized Canadian corporations are expected to boost investment spending on productivity enhancing technology. Measured growth in sales to the U.S. and Asia, especially for mineral resources and commercial services, has constrained Canadian exports to 1.7% growth in 2012, down from 4.7% in Canadian exports are not forecast to regain their prerecession peak until the first half of Manitoba Economy, 2011 Public Admin. Health & Social Education Agriculture Mining Utilities Construction Given the global situation coupled with volatility in commodity prices, the Manitoba Finance survey of economic forecasters suggests Canadian growth will average 1.7% in 2013 and 2.5% in Consumer prices are expected to increase 1.6% in 2013 and 2.0% in 2014, compared to 1.5% in These expectations are in line with the inflation target established by the BOC. Canada s unemployment rate is expected to progressively improve over the next two years, falling from 7.3% in 2012 to 7.2% in 2013 and 6.9% in Professional & Scientific Real Estate Information Goods Other Services Finance & Insurance Source: Statistics Canada Commercial Services Manufacturing Wholesale Trade Retail Trade Transportation Non-commercial Services MANITOBA ECONOMY The Manitoba economy is highly diversified, with 11 different sectors, each making up more than 5% of GDP. This diversity, across such industries as manufacturing, mining, construction, finance and insurance, and education, makes Manitoba s economy one of the most stable in the country. Given the province s broad industrial structure, Manitoba has fared relatively well during the current global economic slowdown. Manitoba s real GDP slowed from 2.3% growth in 2010 to 2.2% in both 2011 and 2012.

49 BUDGET 2013 Economic Review and Outlook / A3 Over the five-year period from 2007 to 2012, Manitoba s average annual real GDP growth rate was 2.1%, second among provinces and almost double Canada s overall rate of 1.1%. Manitoba Finance s survey of economic forecasters suggests real GDP growth will be 1.9% in 2013, ahead of Canada s 1.7% growth. Manitoba s Consumer Price Index (CPI) increased 1.6% in 2012, marginally ahead of Canada s 1.5%. The gains were driven by price increases in alcohol, tobacco and food. Clothing and recreation prices were responsible for keeping the CPI in check. Manitoba Finance s survey of economic forecasters indicates that CPI growth in Manitoba will continue to be modest at 1.7% in 2013, in line with the 1.6% expected increase in national CPI. Household balance sheets in Manitoba remain among the strongest in the country. According to the Canadian Bankers Association, Manitoba has the second-lowest rate of mortgages in arrears. In addition, Manitoba s personal debt per capita levels are the lowest among all provinces, as measured by personal debt held at commercial banks, including mortgages, credit cards Real GDP, Average Annual Growth, 2007 to 2012f Percentage Change f - Forecast Sources: Statistics Canada Manitoba Finance, survey of economic forecasters and non-business loans. With persistently low interest rates, low unemployment and rising real wages, overall, Manitoba households find themselves on relatively secure financial footings. While population growth in the province slipped slightly to 1.2% from record increases of 1.3% in both 2010 and 2011, it remains high by historical standards. This growth has supported increased levels of domestic demand, particularly in the housing and retail sectors. It was also a factor in mitigating the negative impacts of the recession in SK MB AB PE BC QC CA NS NB ON NL Labour Market The labour market in Manitoba remained strong in Growth in the labour force was more than matched by employment growth, resulting in an unemployment rate that fell to 5.3% in 2012 from 5.4% in That placed Manitoba third among provinces and below the Canadian average of 7.2%. Employment strengthened during the last quarter of 2012, and the year finished with more Manitobans employed than at any point in history. On an average annual basis, in 2012, Manitoba s employment increased 0.9% and Manitoba s labour force expanded 0.8%. Manitoba s private sector created 7,500 jobs in 2012, while the public sector shed 1,900 jobs, for a net gain of 5,600 jobs. Most occupational groups saw employment growth in 2012, with management, construction, and educational services leading the way. Declines were recorded in manufacturing, public administration, accommodation and food services, and finance. Over the first three months of 2013, Manitoba employment is 1.8% higher (11,200 jobs) than it was in the same period in 2012, and the labour force Unemployment Rate, 2012 AB SK MB BC CA QC ON NS NB PE NL Per Cent Source: Statistics Canada

50 A4 / Economic Review and Outlook BUDGET 2013 Manitoba Employment Trend Three-Month Moving Average, Thousands 0 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Source: Statistics Canada Manitoba Manufacturing Shares, 2012 Food Machinery Primary Metals Aerospace Parts Chemicals Transportation Equipment Fabricated Metals Plastics & Rubber Wood Printing Non-metallic Minerals Electrical Appliances Paper Per Cent is up 1.3% (8,500). Over the same three-month comparison, private sector employment is up 2.1% (9,900) and public sector employment is up 0.8% (1,300). Full-time employment is up 1.6% (8,000), while part-time employment is up 2.6% (3,200). The average unemployment rate in 2013 is 5.0%, the third lowest among provinces and below the 2012 average. Manufacturing Manufacturing is Manitoba s largest industry, accounting for 10% of Manitoba s GDP and providing 10% of all jobs in the province. Sales in manufacturing have increased by an average annual rate of 4.8% over the last 20 years. This compares favourably to the national average annual increase of 3.8%. The majority of manufactured goods in Manitoba are exported. Manufacturing sales account for about two-thirds of total foreign merchandise exports. These exports include a diverse mix of industrial and consumer goods, including aerospace products, transit and intercity buses, meat, grain and oilseed based food products, wood products including doors and windows, industrial and agricultural chemicals, and agricultural machinery. Given the economic uncertainty in many of Manitoba s export markets, shipments of manufactured goods from the province may be restrained in Following the impact from the global recession, Manitoba s manufacturing sales rebounded 6.2% in 2011, principally on the strength of increases in chemical products (34%), machinery (24%), primary metals (13%) and aerospace parts (9%) In 2012, Manitoba s manufacturing sales increased 1.3% to $15.5 billion. Source: Statistics Canada Weaker global demand for food products lowered food manufacturing shipments 6.4%. Chemical sales fell 2.9%. Overall, sales on non-durable goods declined 4.8% in The increases were broad based, but mainly in durable manufactured goods. With aging fleets of aircraft in North America and Europe, and increasing passenger traffic, especially in emerging markets, Manitoba s aerospace parts manufacturing industry has rapidly expanded. Sales increased 9% in 2011 and by a further 16% in Annual sales in aerospace parts now exceed $1 billion and the industry accounts for 8% of total manufacturing sales in the province. Machinery manufacturing has also increased in the province. Machinery production for agriculture increased by 24% in 2011 and by 14% in Machinery for other sectors, including mining and construction, increased 69% in 2011 and 11% in Fabricated metal product manufacturing increased by 6% in 2012, driven primarily by a 15% increase in architectural and structural metals manufacturing. The recent strength in housing in Canada and in the U.S. pushed up sales of wood products by 20% in Sales of sawmill products increased by 20%, while sales of millwork, which included door and window products, increased 6%.

51 BUDGET 2013 Economic Review and Outlook / A5 Global competition, currency fluctuations and the tight skilled labour market continue to encourage Manitoba manufacturers to invest in lean principals and new technology. Last year, the sector spent $424 million on machinery and equipment, a 4.2% increase over the previous year. This year, according to Statistics Canada s Survey of Private and Public Investment Intentions report, machinery and equipment purchases will reach $556 million, the highest since 2000 and a 31% annual increase. Mining and Oil Production The minerals sector has been a major contributor to Manitoba s economic growth. It directly employed 5,700 people in 2012, representing almost 1% of the work force and its output was estimated at 6.4% of the total economy in In addition, this sector accounts for 16% of foreign merchandise exports. Manitoba s chief mineral commodities are nickel, copper, zinc and gold, while oil production is a burgeoning sector. The mining sector GDP increased 12.8% in 2011, following a 13.5% increase in From 2007 to 2011, it has been Manitoba s fastest growing industry at 7.8% annually. That growth has made mining the fifth-largest sector among Manitoba industries in 2011, up from tenth in While metal ore mining output decreased 2.7% annually over that time, oil production increased 17.0% annually. Production of most metals remained constant in 2012, with modest increases in nickel (1.1%), zinc (3.0%) and gold (1.6%). Copper production fell 26.2%, reflecting the closure of two mines. With reduced global economic activity and soft demand conditions, prices for nickel, copper and zinc fell in 2012, resulting in the total value of metal production in Manitoba falling by 17.0%. Despite a fall in oil prices, production continued to increase in Manitoba, growing 18.6% in 2012, to a record 17.9 million barrels. The increased output pushed the value of oil production up 8.5%. Over the past decade, oil production has increased 15.9% annually and averaged over 23% annually over the last three years. The growth in Manitoba s oil industry is supported by a sharp increase in new wells being drilled in the province. Over the last five years, the number of new wells has increased 90% to 614 units. Expenditures in the industry have grown from $361 million in 2007 to an estimated $1.3 billion in Mining sector capital investment in the province was down 8.4% in 2012, from a record high in In fact, 2012 was more than double the previous ten-year average. The level in 2012 marks the third consecutive year above $1 billion of investment, and 2013 survey estimates project a new high, with a 15.9% growth. Manitoba Oil Production Manitoba Mining Investment 1,600 1,400 1,200 1, Millions of Barrels Source: Manitoba Innovation, Energy and Mines Millions of Dollars p 13i p - Preliminary i - Intentions Source: Statistics Canada

52 A6 / Economic Review and Outlook BUDGET 2013 Agriculture Agriculture is an important sector of the Manitoba economy with many linkages to other industries. The agriculture sector s value added output directly represented 2.9% of the Manitoba economy in 2011, and employed 3.4% of the work force in Crop, livestock and related food-processing businesses represented over a third of total provincial exports last year. Crop Production Growth, Percentage Change Wheat Canola Source: Statistics Canada Corn Soybeans Barley for grain Oats Farm cash receipts gained 1.0% in the first three quarters of 2012, compared to the same period in Crop receipts fell 2.5%, livestock receipts increased 4.0% and direct payments to agricultural producers, which includes insurance and various types of income supports, gained 8.5%. Crop production faced significant challenges in 2010 and 2011, with excessive precipitation and flooding affecting seeding, yields and harvests. Farm inventory levels were drawn down, leaving levels of stocks at historical lows at the beginning of Wheat and barley inventories were at their lowest recorded levels, while canola was at an 11-year low. However, 2012 crop production rebounded, starting with more seeding and ending with higher yields. Wheat production increased 76.0%, and canola gained 20.3%. Production of corn for grain doubled, making it the thirdlargest crop in Manitoba in Soybean production spiked 83.5%, while production of barley more than doubled, up 136.6%, and oat harvests were 31.8% higher than in Crop receipts did not reflect the increase in production. Anticipating higher prices in the future, crop producers elected to rebuild inventory levels. Wheat stocks doubled to a level 10% higher than the previous five-year average. Canola inventories gained 28.4%. Grain corn and soybean stocks increased to record-high levels, reflecting their growing importance to Manitoba farmers. Since the crops were not sold, receipts for oilseeds were down 14.8% in September 2012 on a year-to-date basis, while receipts for wheat were down 13.4%, and other grains fell 12.3%. Manitoba s livestock sector continues to be hampered by challenging market conditions: weak demand, higher feed costs, livestock price fluctuation and the U.S. Country of Origin Labelling ( COOL ) law which requires country of origin identification labels for fresh beef, pork and lamb sold in the U.S. In 2012, despite an improvement in prices, cattle inventories decreased in Manitoba. Producers had fewer than 1.2 million cattle on their farms as of January 1, 2013, down 0.4% from the same date a year earlier. Total demand fell by 4.6%, led by a 3.8% drop in exports and 6.1% drop in processing. Total exports have declined in each of the past four years and are lower than levels in 2003 and 2004, during the BSE crisis. After several years of contraction following the introduction of the U.S. COOL regulations, Manitoba s hog industry is expanding. Total supply of hogs increased 1.3% in 2012, with domestic production rising in step. Aggregate demand increased in line with supply, up 1.3%, reflecting higher international exports (0.6%) and domestic sales (1.8%).

53 BUDGET 2013 Economic Review and Outlook / A7 Electricity Generation Manitoba Hydro is responsible for electricity generation, transmission and distribution within the province. More than 98% of the electricity produced in Manitoba comes from clean, renewable sources. The vast majority comes from 14 hydro-electric generating stations, primarily on the Winnipeg, Saskatchewan and Nelson River systems. In total, these stations are capable of producing in excess of 5,200 megawatts (MW). With the completion and activation of the final generator at Wuskwatim in October 2012, Manitoba Hydro is moving to consider a number of new capital projects to help meet future energy demands and safeguard service supply. The Keeyask station would be a 695 MW facility on the Nelson River, projected to commence producing power in The Conowapa generating station, potentially Manitoba s largest hydro facility at 1,485 MW, is also being evaluated with a view to commencing production in To transmit this new capacity and ease the risk of service disruptions, Manitoba Hydro is proposing to build Bipole III down the western part of the province. The projected in-service date for this project is Hydro sales declined 2.8% in 2012 on weaker U.S. demand and a relatively mild summer cooling season. Sales are expected to increase due to stronger seasonal demand. Population Manitoba s total population was estimated at 1,267,003 persons as of July 1, This is Manitoba s official population for the year. The population growth for the year was 15,313 persons, or 1.2%, third highest among provinces and above Canada s increase of 1.1%. Manitoba s population has experienced healthy growth over the past 10 years, rising 9.5%, or over 110,000 persons, compared to 3.9% or 44,000 persons, in the previous 10 years. Over the last decade, immigration levels to the province have more than tripled, net interprovincial out-migration has decreased and the number of births has increased. The demographic profile of the province has also shifted; the share of youth (0-14 years) has decreased from 20.4% in 2002 to 18.8% in 2012, while the share of Manitobans aged 65 and over increased from 13.6% to 14.2%. An absolute increase in the number of individuals aged 15 to 64 has helped lower the median age of Manitoba s population from 37.8 in 2009 to 37.6 in Last year, the national median age was In 2012, Manitoba was the third-youngest province, behind Alberta at 36.1 years and Saskatchewan at 37.1 years. Manitoba Hydro Generating Stations Station Manitoba Population Growth Percentage Change Note: at July 1 Source: Statistics Canada MW Limestone 1,340 Kettle Rapids 1,220 Long Spruce 1,010 Grand Rapids 479 Kelsey 250 Wuskwatim* 200 Seven Sisters Falls 165 Great Falls 129 Jenpeg 129 Pine Falls 88 Pointe du Bois 75 Slave Falls 67 McArthur Falls 55 Laurie River 1 & 2 10 Total 5,217 Source: Manitoba Hydro * Fully operational in October 2012

54 A8 / Economic Review and Outlook BUDGET 2013 Housing Manitoba s housing market reported a strong year in Enumerated single-detached starts, the best measure of housing demand, were up 4% from 2011, while all starts were 19% greater. Both were above the Canadian growth rates of zero and 11%, respectively. Province-wide total housing starts surpassed 7,000 units in 2012, the highest since Driven by strong population growth, the housing market in Manitoba has been underpinned by real, rather than speculative, demand. Manitoba s average resale price grew from $234,604 in 2011 to $246,318 in 2012, a gain of 5%. Average new home prices in Manitoba s urban centres rose 1.9% in 2012, roughly in line with inflation. With more than 14,000 Multiple Listing Service sales, the total dollar volume of activity was the highest on record. Manitoba Housing Starts Units 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, f 14f Singles Multiples f - Forecast Source: Canada Mortgage and Housing Corporation Despite the elevated economic activity, Manitoba remains one of the most affordable jurisdictions in Canada and in line with long-term affordability measures, according to the Royal Bank s Housing Affordability Report. Canada Mortgage and Housing Corporation is forecasting a moderation in both new and resale markets as both swing to more balanced condition in 2013 and The forecast suggests province-wide starts will level off at 7,100 units in both years, down slightly from 2012, while sales and prices in the resale market will expand by an average of 0.7% and 3.5%, respectively. Real demand, coupled with relative economic and demographic strength, mean Manitoba is expected to remain somewhat insulated in the event of a national housing downturn. Renovation activity has long been an important part of Manitoba s housing sector. In 2012, 41% of Winnipeg homeowners performed some type of renovation, among the highest propensities in the country. With nearly $1 billion spent on renovations in Winnipeg alone, this sector of the housing market is larger in size than the new home market in the province. A relatively older housing stock, regular energy related retro-fit programs from Manitoba Hydro, and recent limited supply in the resale market have all contributed to the robust activity in this sector. The average apartment vacancy rate in Manitoba was 1.6% in 2012, up from 1.0% in Both government and market incentives have spurred rental construction in recent years, with more than 2,000 rental starts province-wide in the last two years. Ongoing activity in this sector will continue to alleviate pressures on the vacancy rate. Retail Trade In Manitoba, the retail trade sector represents 6% of the economy and 11% of all jobs in the province. Supported by solid economic and demographic fundamentals, including improving disposable incomes and increasing weekly earnings, sales in the sector have expanded by almost 60% in 10 years, well above the national increase and third fastest among provinces. In 2012, growth in Canadian retail receipts softened to 2.4%, down from 4.1% in Manitoba sales slowed to 1.4% from 4.3% in All provinces experienced weaker growth except Alberta. In Manitoba, 2012 sales were tempered by a 6.4% drop in electronic and appliance sales and a 1.8% drop in gasoline store sales. Food and beverage store sales, the largest retail component, at 23% of total receipts, increased by 1.0%. Department

55 BUDGET 2013 Economic Review and Outlook / A9 and general merchandise sales were the largest gain among sectors at 4.5%. Clothing store sales increased 4.2%, while furniture and home furnishing store sales increased 5.5%. Sales at motor vehicle and parts dealerships increased 2.5% last year. New motor vehicle sales jumped 7.6% to a record 52,236 units in Passenger vehicle unit sales grew 9.8% and trucks, SUVs and vans bolstered unit sales with a 6.6% gain. Manitoba s strength in domestic demand is attracting new retail sector capital investments into the province, including IKEA, Target and Marshalls, and expansion of existing outlets. Investment in 2012 in Manitoba s retail sector was high, growing 26.5%. Over the past five years, investment has increased 3.2% annually, ranked fourth among provinces and ahead of Canada, which has been flat over that time. Retail investment is expected to continue to build in 2013 with 6.6% growth. Manitoba Retail Sales Billions of Dollars Source: Statistics Canada Wholesale Trade Manitoba s geographic location at the centre of Canada, combined with a well established rail, road and air transportation system, has provided a solid base for a diverse and growing wholesale distribution network. This network is delivering large quantities of goods to and from retailers, primary producers (agriculture and mining), and institutional clients. In 2011, inflation adjusted wholesale output Manitoba Wholesale Trade represented 6.1% of the economy, which was the second-largest wholesale by Industry, 2007 to 2012 sector share among provinces. Recent strength in commodity prices in agriculture, strong growth retail activity and a rapidly expanding energy sector have provided a boost to Manitoba s wholesale trade. Growth in nominal wholesale trade from 2007 to 2012 was 3.2% annually and has been broad based. The largest contribution was in farm products which increased by 7.1% annually. Machinery and equipment sales increased by 6.9% annually, while motor vehicle and parts sales increased by 5.8% annually over five years. In 2012, wholesale trade sales increased 6.0% in Manitoba, the third-highest growth among provinces. The largest increases were in motor vehicles and parts (13.8%), building materials and supplies (12%), and machinery and equipment (10.9%). Farm Product Machinery & Equipment Motor Vehicles, Parts Food, Beverage, Tobacco Building Materials Personal, Household Miscellaneous Average Annual Per Cent Growth Rate Source: Statistics Canada Capital investment in Manitoba s wholesale sector rose 29.4% in 2012, second highest among provinces and higher than Canada at 10.6%. Over the past five years, from 2007 to 2012, Manitoba s wholesale trade increased at an average annual rate of 5.7%, fourth highest and above Canada at 0.9% annually.

56 A10 / Economic Review and Outlook BUDGET 2013 Capital Investment Capital investment plays a vital role in economic development. Investment in industrial, commercial, institutional, road and bridge infrastructure, and housing not only provide an immediate economic boost, but offer long-term benefits through increased productive capacity of the economy. Capital investment in machinery and equipment, intellectual property products, and other technology also enhance efficiency and productivity. In Manitoba, capital expenditures have been extremely buoyant for a number of years. Over 10 years, annual capital spending has more than doubled from $6.0 billion in 2002 to $12.3 billion in Annual investment in new structures in Manitoba reached a record $8.9 billion in 2012, and investment in machinery and equipment marked a record $3.4 billion. In addition, Manitoba has the most consistent growth in business capital investment of all provinces with only one year of decline in the past 21 years. Manitoba Capital Investment Billions of Dollars Capital Investment, p i Private Public i - Intentions Source: Statistics Canada Average Annual Per Cent Growth Rate NL SK MB QC CA AB ON BC PE NS NB p - Preliminary Source: Statistics Canada In the last five years, capital investment increased 38% in Manitoba, the third-highest increase among provinces, and double the 19% national increase. Investment in Manitoba s mining, oil and gas extraction industry increased by $703 million in the last five years. Adding and improving hydro infrastructure, including the construction of the Wuskwatim generating station, helped boost capital investment by $709 million in the utilities sector since The significant increase in population and incomes has strengthened annual investment in housing by $1.1 billion in the last five years. In 2012, the value of building permits issued in Manitoba increased 34.9%, the highest growth among provinces and above the national increase of 9.3%. Manitoba residential permits increased 24.0% and non-residential permits increased 53.8%. Non-residential building permits were supported by industrial permits (126.6%), commercial permits (41.2%) and institutional permits (37.9%). Commercial and industrial investment accounted for 74% of all non-residential building permits in the province in Looking forward, Statistics Canada s Survey of Private and Public Investment Intentions report indicates that Manitoba s capital spending will increase 8.5% in This is the second-highest increase among provinces and five times more than the national expected increase of 1.7%. Capital spending is forecast to increase to a record $13.3 billion in 2013, up $1.0 billion and following a $1.1 billion increase in Among industrial sectors, waste management and remedial services (120%), utilities (38%), finance and insurance (29%), and manufacturing (20%) are expected to lead capital spending in The unwinding of several institutional infrastructure projects is expected to decrease public administration capital spending by 11% in After having been spurred on by the return of the Winnipeg Jets and the construction of the new stadium at the University of Manitoba, investment in arts, entertainment and recreational services is expected to drop by 8% this year after surging 29% and 27% in 2012 and 2011, respectively.

57 BUDGET 2013 Economic Review and Outlook / A11 Research and Innovation Innovation is a fundamental catalyst in the process of bringing new products, new processes and new services to market. It allows for the creation of new ideas, new economic activity and progressive development opportunities. As international trade expands, and global competition for all products and services accelerates, investing in leading-edge innovation businesses is essential. Innovation enhances productivity, competitiveness, standard of living and quality of life, and wealth. Manitoba is an ideal environment for investing in innovation. Fostering the right environment requires a combination of well-designed funding supports and tax measures, along with a business culture that encourages collaboration and celebrates success. Provincial government support for innovation and competitiveness is strong. From the Manitoba Research and Development (R&D) Tax Credit to the Commercialization Support for Business program, to reductions in business taxes, Manitoba has created an environment for innovation. As a result of this environment, R&D spending growth in Manitoba has outpaced Canada in each of the last two years. The product of this spending has been labour productivity growth that has been almost double the annual Canadian average over the last 5 years. Foreign Merchandise Exports The rapid growth of a number of major markets particularly in Asia, has significantly affected the distribution of global economic activity. In this changing environment, Manitoba businesses are broadening their foreign export markets. The U.S., which accounts for 19% of the global economy, remains Manitoba s largest international trading market. However, exposure to this market fell from 81% of foreign export share to 67% over the last decade. Over the same period, Manitoba has been gaining market share in exports to the BRICS countries (Brazil, Russia, India, China and South Africa), which represent over 26% of the global economy. The share of Manitoba s exports to these countries increased from 1.3% in 2002 to 10.9% of total sales in In contrast, Canadian export share to the U.S. declined from 87% to 74%, and increased to BRICS countries from 1.5% to 6.1% over the same period. Manitoba s exports to China increased from $80 million in 2002 to $962 million in China is now Manitoba s second- largest export market. Exports to Russia have increased from $4 million in 2002 to $153 million in 2012, making it the sixth-largest destination for Manitoba exports. Due to moderating global economic growth and some domestic factors in 2012, Manitoba s foreign merchandise exports decreased 4.8%. Non-U.S. exports were down 19.1%. The recovery in the U.S. provided an important lift to U.S. imports of Manitoba goods. Manitoba exports to the U.S. were up 4.5%. Total R&D Spending in Manitoba, 1991 to BRICS Share of Manitoba Exports Millions of Dollars Source: Statistics Canada Per Cent Source: Statistics Canada

58 A12 / Economic Review and Outlook BUDGET 2013 The increase in exports to the U.S. was the largest contributor to Manitoba s export growth in 2012, followed by Russia, a large purchaser of agricultural equipment, and Germany, which has increased its imports of pharmaceuticals and, in 2012, started to import copper ore. The largest contributors to decreases in exports were in Asia, led by South Korea, Japan, Pakistan and Taiwan. Asian markets received fewer exports of wheat (-49%), metal ore (-45%) and refined metals (-14%). Asian destinations comprise the largest region for Manitoba exports outside of the U.S., making up 20% of total exports. Low yields and small harvests in 2010 and 2011 reduced export sales of Manitoba crops in In addition, copper ore exports fell in 2012 after receiving a one-time boost in 2011 from a smelter closure plus an inventory reduction. Total export sales excluding these industries grew 3.6% owing to a diversified mix of goods and services. While declines were concentrated in a few primary industries, several others experienced significant growth. Large gains in export sales were found in frozen foods (+42%), heavy-duty truck manufacturing (+30%), motor vehicle manufacturing (+28%), and agricultural equipment (+14%). Double-digit gains were also experienced in aerospace products and parts, soybeans, animal processing, and vegetable oil manufacturing. ECONOMIC OUTLOOK The Manitoba economy continues to fair well relative to other regions in Canada. Over the last five years ( ) and through the Great Recession, Manitoba s economy expanded by an average of 2.1% annually, the second-best performance among provinces. However, global economic activity has slowed through 2011 and 2012, and remains fragile due to concerns in the European, U.S. and Asian economies. This has elevated the downside risks to the near-term economic outlook. Given this risk exposure, the Manitoba economy, being diverse and resilient, is projected to maintain close to average growth. Manitoba is expected to outperform the national growth in 2012 and 2013, and expand below the national average rate in The current Manitoba Finance survey of forecasters calls for 2.2% growth in 2012 and slowing to 1.9% in With global demand improving, Manitoba s real GDP is expected to increase 2.3% in Nominal GDP is projected to increase by 3.8% in 2013 and by 4.4% in With continued modest demand conditions, Manitoba consumer price inflation is expected to average 1.7% in Steady employment growth in 2013 and 2014 will result in somewhat stable unemployment rates in Canadian provinces. Manitoba s unemployment rate is expected to average 5.3% in 2013, while the national unemployment rate decreases to 7.2%.

59 BUDGET 2013 Economic Review and Outlook / A13 Manitoba Outlook at a Glance f 2014f (% Change) Gross Domestic Product Real 2.2f Nominal 3.6f Employment Unemployment Rate (%) CPI Population f - Forecast Sources: Statistics Canada Manitoba Finance, survey of economic forecasters Manitoba Real GDP Growth by Industry, Average Annual Per Cent Growth Rate Mining Construction Real Estate Wholesale Trade Health & Social Retail Trade Accommodation Public Administration Education Management Professional Services Arts, Ent. & Rec. Transp. & Warehousing Information & Culture Other Services Finance & Insurance Administrative Utilities Manufacturing Agriculture Source: Statistics Canada

60 A14 / Economic Review and Outlook BUDGET 2013 MANITOBA ECONOMIC STATISTICS, 2008 TO Millions of Dollars POPULATION July 1 (000 s) 1,206 1,220 1,236 1,252 1,267 GROSS DOMESTIC PRODUCT 1 Nominal 51,676 51,554 54,275 56,947 59,405 Real ($2002) 42,728 42,516 43,498 44,469 45,447 SECTORS Farm Cash Receipts 4,829 4,848 4,838 4,944 n/a Crops 2,763 2,805 2,729 2,555 n/a Livestock 1,716 1,657 1,760 1,880 n/a Direct Payments n/a Manufacturing Shipments 16,373 14,653 14,422 15,316 15,517 Mining 2,522 1,971 2,582 3,188 3,026 Electric Power Sales 1,737 1,560 1,569 1,592 1,547 Export Sales Housing Starts (no. of units) 5,537 4,174 5,888 6,083 7,242 Retail Trade 14,980 14,915 15,766 16,448 16,670 New Car Sales (no. of units) 48,029 43,995 45,355 48,546 52,236 FOREIGN EXPORTS Total Exports 12,972 10,567 10,238 11,678 11,120 U.S. 8,905 7,138 6,545 7,096 7,412 LABOUR MARKET Labour Force (000 s) Employment (000 s) Participation Rate (%) Unemployment Rate (%) Average Weekly Earnings ($) INVESTMENT Total 10,008 9,694 11,218 11,213 12,306 Private 7,166 6,657 7,635 7,850 8,233 Public 2,842 3,037 3,582 3,363 4,073 Non-residential 7,698 7,448 8,567 8,381 9,147 Housing 2,310 2,246 2,651 2,832 3,159 CONSUMER PRICE INDEX (Index, 2002 = 100) BANKRUPTCIES Business Farm Personal 2,025 2,443 1,994 1,514 1, are preliminary estimates by Manitoba Bureau of Statistics are Conference Board of Canada and Manitoba Finance, survey of economic forecasters. Sources: Statistics Canada and Manitoba Bureau of Statistics Totals may not add due to rounding.

61 BUDGET 2013 Economic Review and Outlook / A Annual Percentage Change POPULATION July 1 (000 s) GROSS DOMESTIC PRODUCT Nominal Real ($2002) SECTORS n/a Farm Cash Receipts n/a Crops n/a Livestock n/a Direct Payments Manufacturing Shipments Mining Electric Power Sales Export Sales Housing Starts (no. of units) Retail Trade New Car Sales (no. of units) FOREIGN EXPORTS Total Exports U.S. LABOUR MARKET Labour Force (000 s) Employment (000 s) Participation Rate (%) Unemployment Rate (%) Average Weekly Earnings ($) INVESTMENT Total Private Public Non-residential Housing CONSUMER PRICE INDEX (Index, 2002 = 100) BANKRUPTCIES Business Farm Personal

62 A16 / Economic Review and Outlook BUDGET 2013 Building Permits Growth, 2012 Percentage Change MB SK BC PE AB NL CA NS ON QC NB Source: Statistics Canada Share of Exports, 2011 Per Cent BC AB SK MB ON QC NB NS PE NL 0 International Source: Statistics Canada Interprovincial Residential Electricity Rates Cents per kwh Montréal Winnipeg Vancouver Saint John Edmonton St. John's Regina Toronto Charlottetown Halifax Source: Manitoba Hydro 20 Labour Productivity, f Annual Average Per Cent Growth Rate -2.0 SK MB NS NB BC CA QC ON AB PE NL f - Forecast Source: Manitoba Bureau of Statistics

63 BUDGET 2013 Economic Review and Outlook / A17 Appendix 1: MANITOBA S NORTH In 2012, a special celebration hosted by Premier Greg Selinger focused on 100 years of success since northern Manitoba officially joined the province in The vision and determination of Aboriginal people, pioneers and the strength of communities have created a strong and diverse region, rich in natural resources, including clean, hydro-electric power. New economic opportunities are opening up in northern Manitoba and across the Arctic and sub-arctic regions, pointing to a new era of investment, development and wealth creation. The Manitoba government introduced the Northern Development Strategy in 2000 to build on the strengths of the north and invest in the future. A new strategy, Opportunities North, will continue the important focus on the north for the benefit of the province and northern residents. In 2000, the Northern Development Strategy focused on five key areas: housing, health, transportation, employment and training, and economic development. The resulting investments have provided tangible benefits for the north and its citizens including: 14 communities to offer training closer to home; and Berens River; with Nunavut; northern roads; east of Lake Winnipeg; Economic Development Fund and expanding the Communities Economic Development Fund to support Aboriginal and northern entrepreneurs and job creation; operations, and a community freezer program to promote harvesting and preserving traditional foods in the north; and The Northern Development Strategy highlighted the value of partnerships between Aboriginal communities, the Manitoba government and private enterprise. The government s new Opportunities North strategy will continue to build on strong partnerships, ongoing consultations and efforts to ensure future development is sustainable and beneficial to northern residents. The continued development of clean hydro-electric power, the partnerships being developed on the east side of Lake Winnipeg and a thriving mining industry are key areas that will help drive future economic successes that benefit northern communities.

64 A18 / Economic Review and Outlook BUDGET 2013 Hydro In July, the Wuskwatim generating station on the Burntwood River officially opened. The 200 megawatt generating station was built through a unique equity partnership between Manitoba Hydro and Nisichawayasihk Cree First Nation community, which included training, employment and economic development for First Nations communities and northern residents. Since 2000, Manitoba Hydro has increased the number of Aboriginal employees and now 42 per cent of its northern employees are Aboriginal. Between 2008 and 2012, Manitoba Hydro entered into contracts worth over $200 million with Aboriginal and northern companies. Planning is continuing to develop the proposed 695 megawatt Keeyask station and the 1,485 megawatt Conawapa dam. Over the next five years, Manitoba Hydro is expected to invest $18 billion or more in capital spending, and recruit between 2,500 and 3,000 new employees. Contracts with local businesses, jobs, training and equity partnership will directly benefit individual northerners and support a thriving economy. East Side Road Initiative In March 2013, a fourth bridge was officially opened on the east side of Lake Winnipeg over the Red Sucker River. The bridge will be part of the permanent road system currently under construction, and extend the length of time local residents and commercial truck drivers can use the winter road network. The development of the east side road system will link isolated communities and provide training in construction, skilled labour and heavy equipment operations for local communities. Skills training and local investment were part of the $5 million Red Sucker River bridge project, which was undertaken under a community benefits agreement employing approximately 28 local residents. Community benefit agreements worth a total of $64 million are in place with 13 east side First Nations to ensure local residents benefit from job training and economic opportunities related to the construction of the all-weather road networks. Additional new bridges were recently opened to coincide with this year s winter road season at Loon and Longbody Creeks on the all-season road between PR 304 and Bloodvein First Nation. Bloodvein First Nation will be the first remote community connected to the permanent road network since 1979 when construction of this section of the all-weather road is completed in Last year, the Wanipigow River bridge was opened to coincide with the start of the 2012 winter road season.

65 BUDGET 2013 Economic Review and Outlook / A19 Mining Mining and petroleum is the largest primary resource industry in Manitoba s economy, with 2012 production value exceeding $3.0 billion and estimated capital expenditures of $1.3 billion. The sector provides jobs for approximately 5,700 Manitobans, plus additional jobs generated through the service sector and spinoff businesses. Manitoba is committed to supporting a strong mining sector through competitive mining tax rates and tax credits, as well as the Mineral Exploration Assistance Program and Manitoba Geoscience Advantage Program. Renewed efforts will be undertaken this year to reach out to local and First Nations communities to increase participation in this industry. These efforts may include initiatives such as joint venture partnerships, resource revenue benefit sharing, or job and training opportunities. Other activities that will help drive northern development include completing the work of the Churchill Task Force, in partnership with the federal government. With the opening of Arctic shipping routes and the expansion of mining, tourism and research activities in the north, the Port of Churchill is poised to become a major hub in the next phase of northern development. Links to Nunavut and the northern territories are an immediate priority. The 2010 memorandum of understanding signed with Nunavut set out a framework to promote development and strengthen shipping and transportation links. Discussions are also underway with the federal government to develop a winter road to connect Manitoba and Nunavut. Opportunities North Opportunities North has a strong base on which to grow future success in the north. It will address the unique challenges and emerging issues of the north, and ensure northern communities and stakeholders have a direct role in shaping the strategic direction of the plan. The following principles will guide the new strategy: The region s young population, natural resources and strong communities will be integral to a strong and dynamic northern region that provides a high standard of living for northern residents, attracts business investment, and brings in new residents and tourists. Opportunities North and its future partnerships will play an important role in new and ongoing development efforts.

66 A20 / Economic Review and Outlook BUDGET 2013 Appendix 2: GROWING RURAL MANITOBA INVESTING IN SUSTAINABLE GROWTH OPPORTUNITIES Population Rural Manitoba Persons 500, ,000 Unprecedented flooding along the Assiniboine, Souris and Qu Appelle Rivers affected local communities and farmland, and washed out hundreds of municipal and provincial roads and bridges. The estimated $1 billion flood in 2011 demonstrated the resilience and strength of local communities to work together to meet the challenges of rising flood waters. 460, , , Source: Statistics Canada Much of southwest Manitoba continues to rebuild and develop new flood protection systems following the flood of The recovery is well underway with the support of the Manitoba government working with local municipalities and residents. By the end of 2012, the Manitoba government had provided $697 million for financial assistance and $344 million for flood fighting, restoration and flood proofing, including the construction of the Lake St. Martin outlet channel. Rural Manitoba will continue to grow and make important economic and cultural contributions to the well-being of the province with the support of the Manitoba government. Programs such as the federal-provincial Growing Forward 2 initiative and Growing Green focus on the strengths of Manitoba s rural regions. Rural Manitoba had some of the fastest growing municipalities in Canada between 2006 and La Broquerie grew 42 per cent. Steinbach increased its population by 22 per cent. Winkler grew 17 per cent. The overall rural population increased 8.4 per cent since 2001 more than the nearly 8.0 per cent growth across the whole province. Population growth comes from immigration, people moving from other provinces and a growing Aboriginal population. At the same time, between 2006 and 2011, many smaller municipalities showed a decline in population, mainly due to aging populations and people moving to urban areas. Rural Economic Drivers Investments in infrastructure, the green economy and value added industries have helped drive tangible successes such as: upgrading highways and infrastructure across Manitoba under the 10-year $4 billion highway plan, now in its seventh year; supporting positive immigration numbers in Winkler, Steinbach, Arborg and throughout rural Manitoba; investing in regional composting in southeastern Manitoba; encouraging hemp industry development in Dauphin and Gilbert Plains; supporting biomass processing in Carman;

67 BUDGET 2013 Economic Review and Outlook / A21 investing in 100 water treatment projects worth $250 million since 1999; and partnering with the food processing industry to create Buy Manitoba, which is a program to help consumers identify and buy Manitoba products. Rural economies are mostly driven by agriculture, mineral development, manufacturing and services that support farms, local businesses and communities. These traditional sectors continue to present more new opportunities. For example, renewable bioproducts such as biomass for heating, biofibre for a number of industrial uses and bio-energy to replace fossil fuels and a wide spectrum of functional foods, nutraceuticals and advanced health products build on the traditional rural economy. China and India are providing more opportunities for food, agriculture products, animal genetics, machinery, specialized expertise and services. Development and commercialization of innovative products, paired with market opportunities at home and abroad, will help expand and diversify the rural economy. Oil and gas extraction, including support services in southwestern Manitoba, has seen 100 per cent growth since 2000, with 4,440 wells producing in The mining, oil and gas industry directly employed over 5,700 workers in 2012 and spent $1.3 billion in capital expenditures. The sector is expected to continue to expand rapidly. The government is helping municipalities amalgamate with neighbouring communities to create efficiencies and attract more funding for much needed infrastructure. Combining local expertise and experience will help communities make the transition to more affordable local government operations. Investing in the Future The Manitoba government is committed to providing programs and services that help communities seize their own unique opportunities, become more self sufficient and meet the challenges they face. The following are specific areas of focus. Green economic opportunities: Growing Green, The Manitoba Bioproducts Strategy, supports manufacturing development in the green economy and is projected to more than double bioproduct manufacturing to $2 billion by Innovation and commercialization: the government will continue supporting a strong rural economy by increasing its investments in strategic initiatives through the federal-provincial Growing Forward 2 policy framework to further enhance innovation and the long-term competitiveness and resiliency of Manitoba s agriculture and food industry. Infrastructure: the commitment to provide the equivalent of one-seventh of the provincial sales tax to support investments in municipal infrastructure complements the government s $4 billion highway plan and gives municipalities the ability to meet local needs. The Foundation for Rural Growth building on Manitoba s natural assets skilled labour infrastructure strong municipalities and communities regional and government partnerships sharing knowledge and best practices by communities quality of life Stronger municipalities and communities: Partners 4 Growth will support regional economic development planning and action in rural Manitoba, and investments will continue to help communities share information and support growth.

68 A22 / Economic Review and Outlook BUDGET 2013 Skilled labour: streamlining the Manitoba Provincial Nominee Program for skilled workers will increase the attraction of new immigrants; the Rural and Northern Apprenticeship Strategy will provide rural Manitobans with practical training options to build successful careers close to home; the new Journeyperson s Business Support Program will provide financing to help rural journeypersons set up their own businesses; and ten additional trade training courses will be delivered online. Strengthening services: new CancerCare treatment centres are being established, and there are more doctors and nurses serving rural Manitobans. The government provided $1.7 million to redevelop Assiniboine Community College s Parkland Campus in Dauphin in 2010; and $400,000 to build Red River College s mobile training labs to reach more rural and northern communities. The Manitoba government will continue to work with local communities to build on strengths and share expertise among regions. Developing new economic opportunities through value-added enterprises and green economic opportunities, opening up new markets and renewing infrastructure will be important hallmarks of future investments.

69 BUDGET 2013 Economic Review and Outlook / A17 Appendix 1: MANITOBA S NORTH In 2012, a special celebration hosted by Premier Greg Selinger focused on 100 years of success since northern Manitoba officially joined the province in The vision and determination of Aboriginal people, pioneers and the strength of communities have created a strong and diverse region, rich in natural resources, including clean, hydro-electric power. New economic opportunities are opening up in northern Manitoba and across the Arctic and sub-arctic regions, pointing to a new era of investment, development and wealth creation. The Manitoba government introduced the Northern Development Strategy in 2000 to build on the strengths of the north and invest in the future. A new strategy, Opportunities North, will continue the important focus on the north for the benefit of the province and northern residents. In 2000, the Northern Development Strategy focused on five key areas: housing, health, transportation, employment and training, and economic development. The resulting investments have provided tangible benefits for the north and its citizens including: 14 communities to offer training closer to home; and Berens River; with Nunavut; northern roads; east of Lake Winnipeg; Economic Development Fund and expanding the Communities Economic Development Fund to support Aboriginal and northern entrepreneurs and job creation; operations, and a community freezer program to promote harvesting and preserving traditional foods in the north; and The Northern Development Strategy highlighted the value of partnerships between Aboriginal communities, the Manitoba government and private enterprise. The government s new Opportunities North strategy will continue to build on strong partnerships, ongoing consultations and efforts to ensure future development is sustainable and beneficial to northern residents. The continued development of clean hydro-electric power, the partnerships being developed on the east side of Lake Winnipeg and a thriving mining industry are key areas that will help drive future economic successes that benefit northern communities.

70 A18 / Economic Review and Outlook BUDGET 2013 Hydro In July, the Wuskwatim generating station on the Burntwood River officially opened. The 200 megawatt generating station was built through a unique equity partnership between Manitoba Hydro and Nisichawayasihk Cree First Nation community, which included training, employment and economic development for First Nations communities and northern residents. Since 2000, Manitoba Hydro has increased the number of Aboriginal employees and now 42 per cent of its northern employees are Aboriginal. Between 2008 and 2012, Manitoba Hydro entered into contracts worth over $200 million with Aboriginal and northern companies. Planning is continuing to develop the proposed 695 megawatt Keeyask station and the 1,485 megawatt Conawapa dam. Over the next five years, Manitoba Hydro is expected to invest $18 billion or more in capital spending, and recruit between 2,500 and 3,000 new employees. Contracts with local businesses, jobs, training and equity partnership will directly benefit individual northerners and support a thriving economy. East Side Road Initiative In March 2013, a fourth bridge was officially opened on the east side of Lake Winnipeg over the Red Sucker River. The bridge will be part of the permanent road system currently under construction, and extend the length of time local residents and commercial truck drivers can use the winter road network. The development of the east side road system will link isolated communities and provide training in construction, skilled labour and heavy equipment operations for local communities. Skills training and local investment were part of the $5 million Red Sucker River bridge project, which was undertaken under a community benefits agreement employing approximately 28 local residents. Community benefit agreements worth a total of $64 million are in place with 13 east side First Nations to ensure local residents benefit from job training and economic opportunities related to the construction of the all-weather road networks. Additional new bridges were recently opened to coincide with this year s winter road season at Loon and Longbody Creeks on the all-season road between PR 304 and Bloodvein First Nation. Bloodvein First Nation will be the first remote community connected to the permanent road network since 1979 when construction of this section of the all-weather road is completed in Last year, the Wanipigow River bridge was opened to coincide with the start of the 2012 winter road season.