At first glance, B.C. Finance Minister Selina Robinson’s latest three-year fiscal plan looks fairly bleak, as it projects massive budget deficits for the life of it.
Almost $5.5 billion in the coming year and more than $7.6 billion over the following two years.
A closer look at the numbers and projections, however, shows things may not be quite as bad as the government is predicting.
For one thing, government revenue projections are incredibly pessimistic and do not reflect at all how well the economy has performed in the current fiscal year. The budget predicts overall revenues will actually shrink by almost $1.7 billion in the next fiscal year.
However, in the fiscal year ending March 31, the provincial economy exceeded all expectations and allowed Robinson to push the deficit down to $483 million from the original estimate of $9.7 billion.
The unanticipated amount of economic activity swelled government coffers by almost $10 billion more than had been forecast. Taxation revenue was up more than $6 billion and natural resource revenue was up almost $2 billion, to name just two areas.
While some of those revenues were one-shot occurrences (such as ICBC’s $1.9 billion contribution to the bottom line, most of it a one-time windfall in its investment portfolio), there seems to be little reason to think other revenue streams will contract quite as much as forecast.
For example, the budget forecasts personal income taxes to decline almost $800 million at a time when the employment rate keeps rising. It projects a drop of $750 million in property transfer tax revenue, at a time when the housing market remains red-hot with no sign of it cooling off any time soon (indeed, that tax came in a whopping $1.275 billion higher than forecast this current year).
If revenue growth in the coming year is even less than half of what we have seen in the current year, Robinson could come much closer to balancing next year’s budget.
Then there is the spending side. Another huge ($1 billion) forecast allowance is embedded in the budget which, if not needed, could further push the budget closer to the balanced level.
The forecast allowance in the current year (also $1 billion) appears not to have been needed at this point, which could eventually push the current $483 million deficit into a slight surplus when all the bills are paid.
Having pointed out some areas of potential optimism, there remains some uncertainty that could undo any effort of moving more quickly to a balanced budget.
A really bad year of extreme weather, plus the expected higher-than-usual compensation requests from public sector unions (most of whose contracts expire March 31) could combine to exceed the nearly $5 billion set aside for contingency spending.
The Russia attack on Ukraine potentially poses an enormous threat to any government’s fiscal plan, and this B.C. plan was put together before that attack began. A lengthy confrontation could adversely affect commodity and energy prices and ripple through the world economy.
Finally, inflation is starting to become a significant area of concern once again. That, plus the expectation that interest rates will start to rise, could have adverse effects on B.C. government finances.
It is almost always smart for a finance minister to build more pessimism than optimism in a budget and fiscal plan, and Robinson has wisely followed that approach.
Still, there are ample reasons to think things are not quite as bleak on the fiscal front as they appear.
Keith Baldrey is chief political reporter for Global BC.