Falcon prescribes tough medicine for uncertain times

After years of expansion, the provincial government is heading for a big squeeze if Premier Christy Clark is able to follow the course laid down by her finance minister.

The first full budget from Finance Minister Kevin Falcon lays out what will be seen as a grim scenario by most ministries and the people and businesses that depend on their services. Most ministries are being flatlined over the next three years. Even health and education are being squeezed with rates of increases in their budgets that won’t keep up with inflation and increased demand for services.

Even so, the path back to a balanced budget for next year is perilous. Falcon has adopted what he hopes are prudent assumptions about economic growth – about 10 per cent below the consensus of private forecasters – in estimating revenue and forecast allowances and contingency funds on the spending side.

Falcon rightly claims that Liberal governments have a good record of meeting fiscal targets, with only one spectacular failure after the last provincial election. But in the uncertain global economic climate and with volatile commodity prices, it won’t take much of an ill wind to blow away his hopes of a return to a balanced budget after a string of deficits.

It will also take political courage to stick to this budget, which Falcon is selling as a necessary act of tough love at a time when other governments are being punished for their failures to keep spending in line with revenues.

The debt crisis in Europe is a persuasive backdrop for a restraint budget. Even so, as the reality of shrinking budgets year over year sinks home, pressure will mount for relief. Among the ministries being asked to cut back are children and family development, energy and mines, and aboriginal relations and reconciliation.

Falcon is even extending his restraint demands for spending outside of the direct control of government, with a call for administrative efficiencies from colleges and universities, enforced by a budget that will be $ 50 million less in three years than it is for the coming year.

These are extraordinary demands and call for a level of restraint not seen in more than a generation.

But these are also extraordinary times. The economic recovery since the global recession has been fragile at best. The underlying problems in the U. S., especially in the housing sector, are unresolved.

The story today is about successfully sticking to a balanced- budget plan; the stories that will be dribbling out are the stories driven by the cuts to come. Falcon and Clark are gambling their political futures on what we must hope will also follow, the benefits of sound fiscal management, which include the confidence of financial markets and investors.

Maintaining British Columbia’s credit rating keeps borrowing costs down and allows tax dollars to be spent on programs instead of interest payments. And investment brings jobs and over time produces tax revenues that will allow the government to restore services without creating an additional drag on the economy by raising taxes.

On balance, while some of it will be hard to swallow, Falcon’s budget is the right prescription for the times.

But in this volatile global economy, conditions can change very quickly. Moreover, the severe restraints imposed may produce unintended consequences in some ministries. Budgets are always a plan that over time can be changed. Even more than usual, the direction set in this budget for years two and three should not be considered as carved in stone. If conditions, change the government must be prepared to change with them.