Friday, February 20, 2009

Budget looks more hopeful than credible

The more time I spend with the government's numbers, the more improbable the budget looks.
The plan - especially in years two and three - looks to rely heavily on optimism. The claim that budgets will be balanced by the 2011 fiscal year, after small two deficits, is shaky at best.
Unless, that is, the government is prepared to do some heavy slashing and burning in programs and services.
It's a touchy subject for both main parties. In 1996, the NDP tabled a budget that claimed two successive surpluses - in the fiscal year just about to end and the new budget year.
The claims were false, based largely on unrealistic revenue forecasts. A lot of Liberals believe the NDP stole that election. It still rankles.
Now, on the eve of another election, the Liberals are projecting a skinny surplus this year and two years of small deficits before a legislated return to balanced budgets.
The surplus this year should be attainable. There are less than two months until the March 31 fiscal year-end and a big contingency fund.
And the government might be able to hit its projected $495-million deficit in the coming year.
But there are questions even about that.
Finance Minister Colin Hansen has abandoned one of the symbols of Liberal prudence. Budgets have included "forecast allowances" of about $800 million - a cushion against surprises.
There is no forecast allowance for the next three years. If something goes wrong, spending must be cut or deficits will rise.
And spending cuts would be difficult.
The three-year-plan sees overall expenses rising by about two per cent on average.
But that's mostly health spending. Strip away health and education, and government spending is to be cut almost four per cent this year, three per cent next and then frozen at the lower level in the third year, resulting in a barely balanced budget.
Which, as you run options through a spreadsheet, might seem perfectly possible.
But the Environment Ministry, for example, faces a five-per-cent budget cut this year, and then another one per cent cut in each of the next two years. By 2011, the ministry responsible for environmental protection and climate change action, will have seven per cent less resources than it does today.
Attorney General Wally Oppal has been batted around in the legislature in the days since the budget.
With good reason. His budget calls for cuts to prosecutors and court services, at a time when gangs are doing their best to act out Scarface on Vancouver streets. The 767 people working on prosecution services are to be cut to 661 over the next three years.
Pressed in a scrum, the lightly prepared Oppal said the budget numbers for the last two years of the three-year plan were flexible. If the ministry needed more money, it would spend it.
But that means either cuts somewhere else or a deficit instead of the promised balanced budget in 2011.
And there really isn't anywhere else to cut. The Ministry of Children and Families gets increase of one per cent, one per cent and zero. It plans to cut almost 200 positions in child and family development work.
There's less money for housing, forests, tourism, at a time when needs are acute.
The budget documents even highlight the problems.
The finance deputy minister notes that the budget includes $250 million more in spending cuts by 2011/12 that have yet to be identified.
It's weird, really. Instead of deficits of $495 million and $245 million, big risks and harsh cuts, the government could have gone with $1.2-billion deficits each year and put off a balanced budget for an extra year.
The debt increase wouldn't have been significant, especially if the government's prediction of a quick return to growth is accurate.
And services and the Liberals' credibility would have both been protected.
Footnote: Politically, the budget makes no sense. If Stephen Harper has embraced five years of deficits, surely three years in B.C. would be acceptable. And why raise the spectre of a hidden agenda of cuts to programs and services?


Marc said...

If you look close, the $1.9 B in cost savings is not well explained. About half the amount in year one is accounted for, but the remainder for the year is not. Nor is anything there that explains years two and three.

So it is actually even grimmer ...

Oh, and add in the share of BC Olympics security, too.

Anonymous said...

Politically, the budget makes no sense. If Stephen Harper has embraced five years of deficits, surely three years in B.C. would be acceptable

Methinks you underestimate the ideologically driven stupidity of the base of the BC Liberals and their pals at CanWest (hopefully to be laid to rest in the next few weeks). In other words, they are even stupider than the base of the Harper Conservatives.

Dawn Steele said...

At a time when interest rates are hovering near zero, the costs of governments borrowing to finance decifits are next to nothing - the BC Liberals don't seem to realize that we are no longer in the 1980s, when soaring interest payments on deficits were crowding out the capacity to fund other government services.

And when you also factor in the costs of lost government revenues, should government fail to provide sufficient stimulus to avert a major economic slump in the Province, the reluctance to present the kind of serious stimulus budgets that we're seeing in Ottawa and Washington seems downright perverse.

Do these dinosaurs really not get it???

Anonymous said...

How else are the BC Liberals going to maintain tax cuts for their wealthy friends and supporters? And besides, this deficit will be a Liberal deficit, not an NDP deficit, so shut up!

Anonymous said...

I am amazed at some of the comments here. It’s almost as if some of you would rather the BC Liberals borrowed all kinds of money we don’t have just to buy votes for the upcoming election.

The fact that they DID NOT do this speaks volumes. I always love how the NDP and supporters think spending tons of money we don’t have will somehow solve the world’s problems.

One thing we do know is that successive NDP governments have proven they are good at creating debt; but we never hear how they plan to pay it off. That dirty work always get left for the other side to take care of.

Stephanie said...

In case you haven't noticed, debt under the Liberal regime has increased from $30 billion to nearly $50 billion and that doesn't include any of their (our) P3 obligations. Don't try and tell me the NDP are worse money managers than the Campbell gang.