Friday, November 28, 2008

Global crisis, but B.C.'s got some breathing room

So what does the big financial crisis mean for the B.C. government - tax increases, spending cuts, deficits?
None of the above, at least for this year and next.
But the budget that will come down in 2010 - the first for the new government to be elected in May - might pose some problems.
It's a mark of the ludicrous conservatism of the Liberals' budgeting that despite the worst economic woes in almost 80 years - and unplanned tax cuts - the surplus this year will still be larger than the government projected.
Tax revenues will be below budget by some $423 million, Finance Minister Colin Hansen said as he released the latest quarterly report. But $350 million of that is because of the cuts Premier Gordon Campbell announced last month in response to the slowdown.
And despite all the turmoil, all other revenue is expected to be up four per cent over the budget forecast. A manager in the private sector would get into trouble for that sort of sandbagging.
Next year is also probably OK. The Liberals, to their considerable credit, provide three-year financial plans. The budgeted revenue figure for 2009/10 is $39.9 billion. There are certainly some risks, but revenue for this year is now expected to be $38.9; a 2.6-per-cent increase next year is within reach
And the plans provide for an overall 2.5 per cent spending increase - and a 5.9 per cent increase in health spending the health budget for this year. There was also a $1.1-billion cushion built into the budget forecast.
All in, the Liberals should be able to table a pre-election budget without significant spending cuts, tax increases or a deficit. By the 2010 budget, things look tighter. Next year, remember, the projection is for a 2.6-per-cent revenue increase. But the budget calls for a four-per-cent revenue jump in the following year. That might be a stretch.
On the spending side, there is a four-per-cent increase for health, education and advanced education. That's tight, given the pressures for more spending. Still, the budget includes $1.1 billion in contingencies and cushions.
There's room for the government to shuffle things around and stay in the black, but it could be tight.
Of course, it's questionable whether we should be quite so fixed on deficits. B.C. has a law that bars deficit budgets (though doesn't have any effect if a government budgets for a surplus, but ends up with a deficit). The rationale is understandable. Spending more than you take in can become a bad habit; the NDP governments through the 1990s showed that. But Stephen Harper is prepared to run federal deficits for a year or two because of the current economic crisis, and he's hardly an ideological bedmate of Glen Clark's.
If things spiral downward, by 2010 or 2011 the provincial government might face some tough choices.
Without tax increases - never a great idea in a recession - serious spending cuts might be needed to avoid a deficit. Who really wants to tell a senior she can't get a hip replacement, or parents of a disabled child that therapy has to wait, because of an ideological opposition of deficits?
There is nothing wrong with borrowing some money in tough times, as long as you pay it back as quickly as possible. The alternative could be a longer recession and more losses for B.C families.
Deficits might not be necessary. But it will be interesting to see if either the Liberals or the New Democrats will acknowledge the possibility. The backdrop for all this is the economy as an issue in the coming election. A Mustel Group poll released this week found the Liberals and NDP effectively tied. It also showed the economy was named as the main issue facing the province by 40 per cent of respondents - a huge jump.
Footnote: A month after Gordon Campbell's pledge to curb any avoidable spending in response to the economic crunch, nothing has happened. Most noticeably, taxpayers are still paying for a massive ad blitz aimed largely at bolstering the Liberal's re-election hopes. British Columbians asked for the ads, Finance Minister Colin Hansen said this week.

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