Once booming, B.C. to post $3-billion shortfall

Rod Mickleburgh

Vancouver — From Thursday's Globe and Mail Last updated on Thursday, Aug. 20, 2009 02:55AM EDT

British Columbia, not so long ago a Canadian leader in job creation and booming economic returns, is finding itself far from immune to recessionary winds.

What was once projected to be a modest $495-million government deficit for the year is now ballooning into the billions, B.C. Finance Minister Colin Hansen signalled Wednesday, as he prepared to bring down an updated budget at the beginning of September.

Painting a bleak picture of the province's finances, Mr. Hansen told reporters in Victoria yesterday that projected revenues have plunged more than $2-billion in recent months, at the same time as social welfare and forest fire fighting costs are on a dramatic rise.

“We are living in a different world today,” said the Finance Minister, referring to the ongoing recession, which has hit resource-rich B.C. harder than many other provinces, and the need to update his 2009-10 budget, presented in February. “Things have changed dramatically for the province.”

B.C. is not the only province to have earlier budget estimates sand-bagged by collapsing revenue. Alberta's deficit, set at $4.7-billion in April, has risen to nearly $7-billion and is likely to go higher. Nova Scotia's fiscal gap is expected to swell more than tenfold, to $716-million in the coming year from the $51-million projected for this year.

In Victoria, disclosing the extent of the fall-off in government revenue for the first time, Mr. Hansen said corporate and personal income taxes are down a billion dollars from earlier projections.

Anticipated income from natural gas production is down by “almost $500-million in the last three months alone,” the Minister added.

A similar erosion of half a billion dollars has hit revenue from other natural resources, while projected provincial sales tax returns are off by $200-million, according to Mr. Hansen. “And that's just the revenue side.”

He referred specifically to only two increases in government spending, but one of them was the startling news that the cost of combatting the province's unprecedented outbreak of forest fires this summer is now projected to soar past $400-million, the largest amount in B.C. history. The government's original budget for the task was $62-million.

As well, social welfare spending is up by about $100-million over projections, Mr. Hansen said.

All told, the negative hit to government finances amounts to $2.7-billion. Coupled with the already anticipated deficit of $495-million from the Finance Minister's earlier budget, the province may end up with a shortfall for the year of more than $3-billion, its highest in seven years.

As recently as the late stages of the provincial election campaign in May, Premier Gordon Campbell was still insisting the deficit would remain at $495-million, despite the recession.

NDP finance critic Bruce Ralston scoffed at Mr. Hansen's assertion that much of the gloomy budgetary news has become apparent only in the past few months.

“We said at the time that the Premier's read-my-lips declaration about the budget during the election was false, and it will be proven to be completely false when the Minister tables his budget Sept. 1,” Mr. Ralston said. “Revenue has been steadily diminishing for the past year. The trend could not have been clearer.

“I've been chasing Mr. Hansen to come clean with British Columbians about the situation since mid-October of last year. All he's doing now is lowering expectations ahead of the budget. There's been a deliberate dearth of information till now, so everything can come out at once.”

Jock Finlayson of the Business Council of B.C. said he's been predicting a provincial deficit in the neighbourhood of $2-billion since June. “Now it's likely to be close to $3 billion … It looks like B.C. could be under water for a fairly significant amount.”

He said the downward pressure on all provincial revenue sources except federal transfer payments has been evident for some time. “I'm actually not surprised by [Mr. Hansen's] figures. The province has little control over revenue, and they are looking at billions of dollars not coming in. Of course, B.C. is not unique in that.”

The province's finances could be helped by a $1.6-billion commitment from the federal government in “transition costs” for making its controversial switch to a harmonized sales tax. However, it is not clear how Mr. Hansen intends to roll that money in – as a lump sum, or staged over several years.

The Finance Minister did not rule out spending cuts, but vowed that expenditures would be maintained in vital areas such as health care, education and social services.

“But when you start looking at the whole range of discretionary grants that the province has been able to afford in recent years, we are simply not going to be able to afford to do everything [that we've done before].”