The Manitoba government is forecasting a smaller deficit, hinting at more tax cuts, and eyeing new financial aid to help people deal with the rising cost of living.

A fiscal update from the Progressive Conservative government Tuesday forecasts a deficit of $193 million for the fiscal year that ends in March. That's down from the $548 million predicted in last spring's budget and the $202 million forecast in the last fiscal update in September.

Income and sales taxes are coming in well above projected levels, months after the province lifted COVID-19 restrictions on businesses and the economy rebounded. The other major factor is a turnaround at Manitoba Hydro, which lost money last year but is now looking at a big profit due to wet weather, higher water levels and more export sales.

The fiscal picture may brighten further next year, as the province is expecting equalization payments from the federal government to jump by more than a half-billion dollars. The jump is due largely to high resource prices in provinces to the west.

Finance Minister Cameron Friesen said the extra fiscal room could lead to more spending on health care. He also said there may be more measures to help people fight inflation.

"I would not rule out additional steps by this government in the new year to continue to respond on affordability," Friesen said.

Friesen did not offer specifics and would not say if the new measures would be similar to cheques the government issued in August. The government sent cheques starting at $250 to Manitoba families with children at home and a household income of less than $175,000. Other cheques worth $300 went to seniors with less than $40,000 in annual family income,

Friesen also said there may be room to offer new tax breaks. The government set up a working group earlier this year to look at the province's tax competitiveness with its findings expected to be revealed in the spring budget.

Manitoba has been recording deficits since 2009, with the exception of a small $5-million surplus in 2019. The government has promised to balance the budget by 2028. Friesen said the province is running ahead of its targets.

The Opposition New Democrats said money needs to go to hospitals that are struggling to deal with a surge in respiratory illnesses and address a shortage of nurses and doctors.

"I think like most Manitobans, when I hear that there's more resources at the provincial level than expected, I'd like to see some investments in health care," NDP Leader Wab Kinew said.

Kinew also said he supports the idea of some type of help for people struggling with rising rent, insurance and utilities, but did not offer specifics.

While the incoming equalization money is more than double this year's deficit, Friesen would not commit to a balanced budget next year. He cited the predictions by some economists of a recession in Canada in 2023.

"We do not know what this is going to mean six months from now in terms of personal income tax, corporate income tax and PST (provincial sales tax)."

This report by The Canadian Press was first published Dec. 20, 2022