Finance Minister Mike de Jong tabled the BC Liberal’s pre-election budget that anticipates small surpluses in each of the next three years. While the theme of the budget is Investing in Families, it is instead an austerity budget emphasizing the need for government to live within its means. There are few new spending measures, some tax increases and a stronger emphasis on controlling spending than past budgets.

Understanding that the BC Liberal track record of delivering on its pre-election budget promises is blemished, Minister de Jong brought in an independent third-party economist to comment on revenue assumptions. Dr. Tim O’Neill, former chief economist for BMO, suggested changes that reduced government revenue causing government to scramble for additional expenditure savings.

Revenue + Expenditures

Budget balance has been achieved through a mix of revenue and expenditure changes.

On the revenue side, major changes include an increase of the general corporate tax rate from 10 per cent to 11 per cent, personal income tax increases for families earning over $150,000 a year, and tobacco tax increases. These and other targeted tax measures are expected to generate an additional $1.2B in revenue over the next three years, over and above the $1.7B in revenue increases that are expected from economic growth.

On the expenditure side, Minister de Jong plans to slow the rate of overall government spending to 1.5 per cent over the next three years, down from last years’ reduction to two per cent. The savings will come mostly from discretionary spending reviews that government hopes will result in savings of $1.1B, half of which will be re-invested in education and health care.

New Announcements

Notable new announcements include the following:
– A Training + Education Savings Grant for children under six. Government will deposit $1,200 in the Registered Education Savings Plan of eligible children under six starting this year.
– A BC Early Childhood Tax benefit.  Starting April 2015, eligible families will receive up to $600 per year for each child under six.
– $76M to create new child care spaces and improve the quality of existing services; Other new spending measures include:
– $60M for the sport and legacy fund
– $52M in additional funding for RCMP policing costs targeting organized crime and gang activity
– $18M in additional funding for the BC Creative Futures to increase youth participation rates in the arts
– $13M in additional funding for renovations of Single Room Occupancy hotels in Vancouver’s Downtown Eastside
– $5M in additional funding for enhanced services to address problem gambling
– $12M in additional funding for medical school expansion
– $20M in carbon tax relief for commercial greenhouse growers
– $1M investment in the existing school fruit and vegetable nutritional program
– A public registered pension plan for people to pool their retirement savings with a regulated pension program Health Spending

While funding for health services will increase, the average growth of 2.6 per cent is the lowest in a generation.  Funding for Health Authorities will continue to increase as will the amount of funding which is performance based.  Measures are also being pursued to reduce growth of funding for physicians, pharmaceuticals and laboratory services.

To increase revenue, Medical Service Plan premiums will increase by about four percent in January 2014.

Education Spending 

The K-12 education budget will increase at a reduced rate of 0.7 per cent this year, 0.4 per cent next year and be flat in the last year of the fiscal plan. The budget for post-secondary education drops 0.2 per cent this year, 0.9 per cent next year and 1.3 per cent the following year as government works with the sector to find administrative savings through shared service initiatives.

Capital spending on schools, hospitals and other infrastructure will total $10.4B over the next three years but the rate of infrastructure investments has slowed considerably.

Government has announced its intention to sell surplus assets and hopes it will result in $625M of revenue over the next two years, down from $706M in intended sales identified in last years’ budget. Government’s ability to deliver on its balanced budget promise is dependent on these sales.

Energy + Natural Resources 

As expected, the province is introducing a three per cent minimum royalty for all natural gas wells that qualify for the Deep Well Royalty Credit Program. They are also ending the Summer Drilling Credit Program.

A notable omission from the budget is the BC Prosperity Fund, recently announced in last week’s Throne Speech. It is not mentioned in the speech or any budget  documents.

The Agricultural Land Commission will receive an extra $4M in funding over three years to improve its ability to process applications. This should reduce the backlog of ALR applications and speed up development.

The carbon tax rates will not be increased, but instead will remain at $30 per tonne of CO2. The carbon tax base will not be expanded to industrial processes.

The budget also continued the government’s narrative of trumpeting opportunities from liquefied natural gas and reiterated the possibility that BC may adopt a new tax and royalty regime that reflects the higher rates other jurisdictions charge, such as Australia.

Transportation Investments 

Government investments in transportation are decelerating faster than anticipated. This year’s budget cuts $174M in provincial transportation investments over the next two years compared to last year’s forecast. The Gateway Program will be particularly hard-hit with a 70 per cent funding cut over the next two years.

Operational funding tells a better story for transportation development. The overall funding for port and airport development will increase 22 per cent in the coming fiscal year, rising to $7.7M.

Stakeholder + Opposition Reaction 

Business leaders lauded the budget for returning to balance, but both John Winter from the BC Chamber of Commerce and Greg D’Avignon from the BC Business Council lamented the return to the PST and its impact on the competitiveness of the BC tax system.

Jim Sinclair, President of the BC Federation of Labour, argued that in fact the budget relies on a “fire-sale” of government assets and deep cuts to government employment and spending to balance the budget. Other labour leaders echoed those concerns.

NDP Finance Critic, Bruce Ralston also criticized the budget for claiming future revenue that is unlikely to be realized for years, failing to mention the HST and relying on asset sales to forecast balance and said that the budget record of the governing party calls into question the veracity of its budget numbers.

 

The complete 2013 Budget is available here: http://www.bcbudget.gov.bc.ca/2013/default.htm