Flaherty gives Clark a chance to avoid deep cuts to balance budget in short term

Federal Finance Minister Jim Flaherty offered Christy Clark a big break this week, if she’s prepared to grab it.
Flaherty conceded the Conservatives can’t deliver on their promise to balance the federal budget by the 2014 fiscal year.
It’s more likely to take until 2016, he said, although the budget could be balanced a year earlier if the Harper government finds some $4 billion in annual spending to cut.
That revised plan is good news for Canadians. The pledge to end deficits by 2014, despite the continuing economic slowdown, was always dubious. Clinging to it would have meant damaging spending cuts or tax increases at a time when the economy is already faltering.
But Clark and the B.C. government are still committed to returning to surpluses by the 2013/14 fiscal year — a year earlier than the original federal plan, and perhaps two years ahead of Flaherty’s revised projection.
The provincial government has no credible plan to get there. The last budget, in February, was a stopgap. Gordon Campbell had been forced out. The Liberals didn’t have a leader.
So the budget plugged in some numbers to let the Liberals claim there was a plan to eliminate the deficit, even though they made no real sense.
The budget increased health spending 6.2 per cent this year. But somehow, miraculously, the government proposes to cut that to three per cent increases in each of the next two years.
Most ministries — 13 of the 16 — are dealing with budget cuts this year, and freezes for the next two years.
That’s not a realistic plan, even with a continuing wage freeze.
The government faces increasing costs across the board, as well as a number of specific, costly pressure. Community Living B.C. needs an extra $65 million a year. The federal government’s “tough-on-crime” legislation will cost hundreds of millions a year in court and jail costs. Education Minister George Abbott is promising new programs in schools.
The budget was also based on the continued higher tax revenue from the HST, which voters tossed out in the referendum.
In the September budget update, after the first three months, of the fiscal year, Finance Minister Kevin Falcon acknowledged that the plan no longer worked. The budget projected — optimistically — a surplus of $152 million in 2013/14.
Falcon said that reworking the numbers without the HST produced a projected deficit of $610 million for the same year.
If the government sticks to its plan — and its budget law — it would have to find $458 million in cuts, or revenue increases, to eke out a barely balanced budget, he said.
And cuts, remember, would be to budgets that are already inadequate to maintain core services.
That’s not the only problem. The government was reasonably conservative in its revenue forecasts, which might have created the potential for extra money. But the world economic situation has worsened. U.S. markets for B.C. exports remain weak, the growth in exports to Asia has slowed significantly and Europe is in disarray.
Sticking to the budget plan would require deep cuts to already underfunded ministries, or tax increases. Either would damage the economy. The prudent course would be to accept that the global economic problems justify a deficits for a few more years.
The timing makes this all tricky. The first surplus budget is supposed to be introduced in February 2013, three months before the next election. Many voters will likely recall the 2009 pre-election budget, and the forecast $495-million deficit that ballooned to $1.8 billion. The NDP and Conservatives will argue that any budget forecasts from the Liberals aren’t to be trusted.
And Clark has a problem in provincial Conservative leader John Cummins. His goal is to outflank the Liberals on the right, and he’ll be on the attack if Clark decides to abandon the current plan to balance the budget.
Flaherty’s announcement this week could help the Liberals deal with those attacks. If the Harper Conservatives consider it prudent to take more time to balanced budgets, why shouldn’t the B.C. Liberals take the same course?
Footnote: If the government is going to abandon the current plan to eliminate the deficit by 2013, they will likely be an indication later this month when Falcon presents the second quarter update on the first six months of the current fiscal year.