Friday, December 20, 2002

Balanced budget target looking dangerous
By Paul Willcocks
VICTORIA - It's time to get nervous about just how the Liberals are going to balance the budget by 2004/5.
They've still got a shot. But the latest economic news isn't encouraging, and the latest financial update from the government featured more bad news than good.
You may have missed that report, delivered by Finance Minister Gary Collins on the same day the Romanow report was released. That ensured the Liberals' quarterly financial report would be bumped off the front pages.
When the last quarterly report was released Collins was forecasting that the government would take in $220 million more revenue than it had budgeted, a gain that would reduce the deficit this year and make the job of getting to a balanced budget in two years easier.
Now he expects to fall short of budget by about $100 million, a $320-million swing. Tax revenue will be more than $600 million below the Liberals' expectations. (It will also, thanks to the tax cuts, be $2.4 billion less than when the Liberals took office.)
The news gets worse. The tax revenue problem reflects a $300-million shortfall last year, which meant this year's base was set too high.
And that means the Liberals already face a similar $300-million gap in their plan for next year, as government staff work towards a budget day that's less than two months away.
What's saved the government, strangely enough, is our status as a have-not province. Collins now expects B.C. to get $770 million from Ottawa in equalization payments, because our economic performance has been weak. The money wasn't included in the budget, so it's offsetting the unexpected tax shortfall.
The problem for future years is that the equalization payments aren't guaranteed just because isn't doing well. The complex formula weighs the relative economic performance of provinces, and divides the available money among the losers. If other provinces hit a slump, B.C. could lose its share even if the economy here hasn't improved much.
The Liberal budget predicted a record $4.4-billion deficit this year. Even with the bumps they'll beat that handily, thanks in part to a $750-million contingency allowance Collins included in this year's budget. But the deficit will still be over $3 billion.
And the time left to make that go away is very short.
The Liberals will introduce their next budget in February. and one year later, they have to come up with a balanced budget.
Their current plan calls for government revenues to jump 5.6 per cent next year and five per cent the year after.
Maybe. But the finance minister's economic forecast panel reported last week, and predicted general economic growth next year - including inflation - of only 4.6 per cent.
Sometimes the revenue problems can be offset by spending cuts. If your hours get cut at work, you find a way to reduce your grocery spending.
But that's not really an option for the Liberals. All the complaints about spending cuts you're hearing come in a year in which the government has actually increased spending slightly. The real cuts come in the next two years, when the Liberals are looking to chop $1.2 billion.
The Liberals really need some economic good news. Each one-per-cent increase in GDP, the measure of economic activity, brings in about $250 million to government. When the economy is growing, more people are working and investing and buying things, and the province takes in more taxes and fees and royalties.
And while the gap is closing, the government's own advisors are predicting growth will lag the Canadian average for next year and 2004.
It all leaves the government in a spot. The revenue targets are no longer conservative or comfortable; any cushion is gone. And the spending cuts ahead are already fierce.
Unless the economy surprise with its performance, the Liberals will face some very hard decisions if they keep to their promise to introduce a balanced budget 14 months from now.
Paul Willcocks can be reached at

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