SAVINGS FOR A RAINY DAY, OR THE NEXT ELECTION?
Budget surplus handy for Liberals seeking their fifth term next May
A beaming Finance Minister Mike de Jong released the most positive update on provincial finances in many years Thursday, just in time for the coming election.
Revenues up this year and the next two. Spending room increased by hundreds of millions of dollars. Bottom line pointing to big surpluses over the three years.
And debt, measured as a percentage of economic output, declining to the point where de Jong says that within two years B.C. will have a better debt-to-GDP ratio than New Democratic Party-governed Alberta.
It was all more than a bit “self-serving,” as de Jong conceded to reporters, but no less convenient for a government seeking a fifth term of office come May 2017.
“A nice position to be in,” as de Jong said. But a challenging one as well, given pent-up expectations and wish lists that readily exceed the financial capacity of even the most well-padded budget surplus.
In an effort to reduce the amount of unallocated cash in the budget, de Jong has already locked up a significant portion of the projected surpluses for the financial year ending next March 31.
He dedicated $1 billion to debt retirement and deposited a further $400 million into the Prosperity Fund, established earlier this year as a “legacy” to pay for debt reduction and/or improvements in health, education and other programs in future years.
Then there’s the $500 million set aside for “new housing affordability initiatives.” Details to come next week, but the Liberals say the money will be spent straightaway with a view to having an expedited impact on the market.
The finance minister cancelled a scheduled four per cent increase in medical service plan premiums, the first step in reforming a tax that Premier Christy Clark herself has described as “antiquated, unfair and Byzantine.”
On the capital side, the updated financial plan includes a further $170 mil- lion for new schools in New Westminster and Surrey, and $180 million for projects in advanced education and health care.
B.C. Hydro was greenlighted to go ahead with $170 million worth of repairs and maintenance to address concerns about erosion at the aging W.A.C. Bennett dam.
Still, that left a large chunk of unallocated dollars over the next three years.
The quarterly report listed $2.4 billion in projected surpluses, $1.45 billion in contingencies, $1.35 billion in forecast allowances and $800 million for unspecified spending measures “subject to approval” by the legislature next time it sits.
Figure $6 billion in total, spread over the rest of this year and the next two.
There will be plenty of calls on those dollars over the next few months. A governmentappointed commission on improving provincial tax competitiveness is scheduled to report out at the end of the month and the legislature finance committee is touring the province to solicit spending proposals from the public. The government is already mulling some ambitious spending proposals on the social side. De Jong hinted Thursday there will be some sort of redress for the disabled in the February budget.
But he also warned that B.C. needs to maintain a significant margin of budgetary safety given the volatility of provincial revenues. Midway through the last decade, the Liberals recorded back-toback surpluses of $4 billion and $3 billion, only to close the books on a $2 billion deficit two years later.
While B.C. continues to lead the country in economic growth and job creation, “the direction is down with most of our customers,” noted de Jong, citing declining forecasts for the U.S., Japan, the eurozone and most of the rest of Canada. Nor is every economic indicator encouraging in B.C. He confessed to being “worried” about exports and commodity prices in a province heavily dependent on both.
Natural gas royalties are almost nonexistent, drop- ping to $2 million in the first quarter. Incredible to recall that in the glory days of the last decade, they hit $2 billion in a single year.
Forest revenue is on track to hit $900 million. But softwood lumber exports are likely to be subjected to another punitive duty in the U.S. before long. The current standstill agreement expires next month and Canada has been unable to secure a new deal, despite the best efforts of the country’s international trade minister, Chrystia Freeland.
Much of the current surge in revenues came from personal income taxes, notably folks with incomes of $250,000 or more. The number of filers in that bracket was up by 15 per cent and the total income reported by them was up by a quarter.
The other big jump was from the property transfer tax, including the recent 15 per cent surcharge on foreign buyers of residential property in Metro Vancouver.
But de Jong is “nervous” about drawing too many conclusions from preliminary results of the surcharge, or, indeed, from other godsends on the revenue side.
“We have seen governments in this province and in this country and elsewhere find themselves in great difficulty by assuming revenues that were generated one year will continue to be generated at the same rate in perpetuity,” he emphasized.
“We’re in this position, the envy of the country, really, because we’ve taken a balanced approach and haven’t gone on spending sprees.”
Still for all the caution, the hedging, the amounts necessarily tucked under the couch cushions, the minister and his colleagues won’t lack for discretionary dollars when putting together next February’s pre-election budget.
We’re in this position, the envy of the country, really, because we’ve taken a balanced approach and haven’t gone on spending sprees. B.C. FINANCE MINISTER MIKE DE JONG