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BC budget overly optimistic: economist

The NDP came to question period today armed with an economist's report that concluded the 2009-2010 budget released last week grossly underestimated the likely deficit.

“A deficit of $1 to $1.5 billion or 0.6 percent of GDP in 2009/10 is the more likely outcome due to revenue shortfalls,” said the Central 1 Credit Union report.

That's two to three times the $495 million deficit in the budget documents Finance Minister Colin Hansen presented Feb. 17.

Helmut Pastrick is the credit union's chief economist and an author of the report. He also sits on the 12-member Economic Forecast Council that advises the government.

Asked about the difference between the deficit he predicts and the budget's prediction, Pastrick said, “You'd have to ask them. I just look at the numbers, and that's what I found.”

The seven-page report argues that the budget's assumption of a 0.9 percent drop in Gross Domestic Product is overly optimistic and revenues will likely be lower than predicted. “Revenue in 2009/10 is not likely to be realized, particularly in the personal income, social service, and property transfer lines.”

The report notes that the government dropped the forecast allowance from the budget. Last year the allowance was $750 million.

"During an economic recession with many possible downside risks and high uncertainty, the need for a budget cushion is greater than during a normal or strong economic growth phase," the report said. "The buffer in Budget 2009 is among the smallest in recent years and is especially small when situated in the weakest economy in many years."

Pastrick said he did not, however, add a forecast allowance onto his deficit projection. Doing so would push his prediction to between $1.75 and $2.25 billion.

“This budget is based on sand,” said NDP leader Carole James in question period. “The experts don't believe the government's numbers, why should the public?”

The economic forecast was averaged from the predictions of independent advisers, responded Hansen, and the budget was written by professional civil servants. It is not a deliberate misrepresentation, he said. “In this government we do not do that.”

Pastrick said it is hard to make predictions with economic conditions deteriorating rapidly. “Events continue to overtake these assumptions,” he said. “Forecasters and policy makers are in catch up mode.”

The government will have to bring forward updated budget figures with its quarterly reports, he said.

Of course the first quarterly report for the 2009-2010 budget won't come forward until September, several months after the May 12 election.

The Tyee's Will McMartin last week dissected the budget and concluded "Expenditures have been artificially dampened, revenues boosted heavenward and a fiscal shock-absorber eliminated, all to create the illusion of a fiscal shortfall that is probably just one-quarter to one-fifth of its actual size."

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

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