Returning to the pre-HST system is a minor challenge to British Columbia's finances compared to the threats posed by financial troubles in Europe and the United States, the province's finance minister Kevin Falcon said today.

"The management of going back to the PST/GST is a challenge, it's a $2.3 billion challenge within our current fiscal plan, but that's manageable," Falcon said while releasing the province's first quarterly report for the 2011-2012 budget year.

"The larger issues that I've always been concerned about . . . was the issues and the events beyond our control," he said. "That is the international debt situation with governments that have been fiscally irresponsible for many, many years, that is coming back to roost. Not only in Europe but also in the United States."

Over the next three years it will cost the B.C. government $2.3 billion to follow voters' wishes and undo the conversion to the HST, according to the report. That comparison is based on last year's budget, not on a plan announced May 25 that would have cut the HST rate by 2 percent to 10 percent.

"That's a scenario that depended on a referendum result," said Falcon, responding to reporters questions about why the comparison wasn't made to the most recent plan. "Obviously that result didn't happen, so that scenario is just gone."

The report also projects a $537 million hit to the government's bottom line over the next three years even before the sales tax change. That includes drops in revenue of $624 million from Crown corporations and $379 million from natural resources, which are partially offset by increases in tax and other revenues.

By provincial law the government is required to balance the budget by the 2013-2014 fiscal year and Falcon said the province still intends to do that. Meeting the goal will mean there's little money to spend, including for public sector workers in contract discussions with the government.

"We really do need to reflect on the situation that's out there right now," said Falcon. "Everyone is going to have to do their bit going forward." Cabinet will make a decision this fall on whether that will mean zero percent wage increases for teachers and other government workers. A one percent increase in wages across the public sector would cost $200 million a year.

Falcon said he believes the public wants the government, which is beginning consultations for next year's budget, to be more streamilined. That was one of the messages of the HST referendum, he said. "They're asking us to do government with less resources and we're going to follow up on that direction."

Andrew MacLeod is The Tyee’s Legislative Bureau Chief in Victoria. Reach him here.