AN EXTRA $2.7 BILLION
Big surplus for province
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 essentially 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 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.
“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 new NDP administration, which took power June 29 and is under pressure from its supporters to follow through on billions of dollars of expensive campaign promises like eliminating bridge tolls on the Port Mann and Golden Ears bridges and implementing $10-aday child care.
There appears to be significant money in the treasury for the NDP to play with, but the new government could find itself overextended if the economy cools after annual spending commitments have been made for things like welfare increases. James said she was “very cautious” about the surplus.
The NDP, like the previous Liberal government, is depending heavily upon the continued tax windfall of home sales to keep the budget afloat. In the last election, the NDP 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.
“We need to build a long-term sustainable economic plan for British Columbia,” James said.
“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, on that as an indicator. We need to look long term: That’s a better benefit to British Columbians.”
Tax revenue from property sales was $2 billion last year (including $102 million from Metro Vancouver’s foreign buyers’ tax), coming close to the $2.3 billion the government receives annually in property taxes.
“Some of this revenue strength is reflecting non-sustainable surges in particular revenue line items. Obviously prior-year tax adjustments are one-offs and I agree the higher property transfer tax revenue is not something we can bank on going forward,” Finlayson said.
“This $2.7-billion operating surplus on a $50-billion budget is good news, but could disappear very quickly and my prediction is it will. This is sort of the high-water mark from a surplus point of view and we do expect the economy to slow down — not to go into recession or anything, but growth will cool off a bit.”
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 promises.
“We’re going to look particularly for sustainability,” Bond said. “You can spend this pretty quickly. We’ve certainly seen that from past performances when the NDP were in government previously.”
A major risk to the province’s financial situation remains the Insurance Corp. of B.C., which lost $612 million. Losses rise to $913 million over a 15-month period. A recent report warned the ICBC was at risk of becoming insolvent, or motorists would see 30 per cent rate hikes, unless structural changes were made to B.C.’s public auto insurance system.
Tuesday’s numbers fall roughly in line with the $2.8-billion surplus figure former finance minister Mike de Jong rushed out before the Liberals were toppled by the NDP- Green alliance last month.
The auditor general’s office said it had three reservations about accounting used in the budget, continuing a multi-year fight over deferral accounts and self-sustaining debt that has now stretched into the NDP administration.