Province posts $2.7b surplus, but is it sustainable?
VICTORIA — The massive provincial surplus inherited by B.C.’s New Democrats may look impressive at first glance, but economists say it could disappear quickly as the economy settles and the new government follows through on its ambitious spending promises.
B.C. ended the fiscal year on March 31 with a $2.7-billion surplus, Finance Minister Carole James announced Tuesday. That’s a huge spike from the $264-million surplus the previous Liberal government had budgeted in February 2016, mainly due to an increase in tax revenue.
“That’s a surplus that doesn’t reflect the reality for many British Columbians,” said James, who was presenting the last year of financial results from the former Liberal government. “It’s really tough for many people to see the benefit of a surplus this size when they are struggling every day to manage.”
Some of the underlying revenue remains highly volatile.
The government earned $853 million more than expected due to a one-time federal adjustment in income taxes, as well as $493 million more than budgeted from tax revenue on properties sold within the hot housing market. Together, that’s almost half the surplus built upon an unstable foundation.
“This surplus could disappear almost in the blink of an eye,” said Jock Finlayson, executive vice-president of the B.C. Business Council. “The economy will probably slow, not because of the government but because it’s growing over potential.”
That presents a dilemma for the NDP administration, which took power June 29 and is under pressure to follow through on billions of dollars of campaign promises like eliminating bridge tolls on the Port Mann and Golden Ears bridges and implementing $10 a day child care.
There appears to be significant money in the treasury for the NDP to play with, but the new government could also over-stretch itself by building in annual spending commitments for things like welfare increases if the economic situation cools. James said she was “very cautious” about the surplus.
As well, the NDP, like the previous Liberal government, is now depending heavily upon the continued tax windfall of home sales to keep the budget afloat. But in the last election, the NDP also scored major electoral victories in Metro Vancouver by promising to make housing more affordable, and cool rising prices, which would ultimately chip away at the money the government now needs to fund its programs.
“Basing your economic plan on these kind of surpluses, or the ups and downs that happen with a speculative real estate market, isn’t good economic planning or good long-term planning.”
James said she intends to lead a “shift” from “the previous government’s direction where it seems to be a sole focus on surplus.”
Tax revenue from property sales was $2 billion last year (including $102 million from Metro Vancouver’s foreign buyer tax), coming close to the $2.3 billion government receives annually in actual property taxes.
Liberal finance critic Shirley Bond said the figures are a validation of her previous government’s fiscal plan, and now the NDP need to make clear how they are going to pay for their many campaign promises.
“We’re going to look particularly for sustainability,” said Bond.
A major risk to the province’s finances remains the Insurance Corp. of B.C., which lost $612 million. A recent report warned ICBC was at risk of becoming insolvent, or motorists getting hit with 30 per cent rate hikes, unless major structural changes were made.