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BC budget includes record $2.8 billion deficit, cuts, optimism

British Columbia will have a record deficit of $2.8 billion, according to a budget update Finance Minister Colin Hansen presented today. That's five times greater than the $495 million projected in February and insisted upon by Premier Gordon Campbell during the election campaign.

While Hansen said the re-write was necessary because of the deteriorating global economy and the unexpected severity of the recession in B.C., observers said as early as February that the government's numbers were unrealistic.

“This downturn we've seen in the last 12 months is hopefully a once in a lifetime experience,” said Hansen. “Hopefully we are through it, but I don't think anybody has that crystal ball.”

In March, 2008, the Tyee reported there were signs an economic slump was coming to B.C. but the government appeared to be doing little to prepare. In February the Tyee's Will McMartin called Hansen's budget “toxic fudge” as it overestimated revenues and underestimated expenses in several areas.

Hansen's post-election budget, presented to reporters and interest groups this morning, shows a drop of $1.2 billion in revenues and an $826 million rise in expenses from what Hansen shared in February.

February's budget overestimated the government's revenue in 2009-2010 from personal income taxes by $881 million, from corporate income taxes by $114 million, natural gas royalties by $492 million and other natural resources by $561 million.

It introduces a tax on the private sale of used vehicles which will raise $75 million in 2010-2011 and $101 million in 2011-2012. Medical Service Plan premium revenues are up $37 million since the February budget and are slated to increase by 18 percent over the next three years.

“We are moving to make sure the most critical services are protected,” said Hansen. The increase in MSP premiums is “necessary to keep health spending sustainable,” he said.

Liquor distribution branch revenue will go up thanks to increased markup. Prices will stay the same for alcohol at government liquor stores, despite the fact the budget reduces taxes on it.

Altogether the government has revised its revenue projections downwards by $1.2 billion.

At the same time, expenses are up $826 million from February's budget. The update includes an added $420 million more for income assistance over the next three years, $80 million this year for H1N1 flu preparation and $151 million to implement full-day kindergarten.

It also adds in a $250 million forecast allowance and an extra $115 million in contingency funding. The government's documents say including a forecast allowance is “prudent”. In past years the allowance has been in the range of $750 million, but in February, when the global economy was particularly volatile, the government allowed nothing for it.

The deficit is reduced somewhat thanks to the $1.6 billion transition payment the federal government will pay to B.C. as part of the adoption of the HST. $750 million of that will be applied to this year's bottom line with the rest spread over the following two years.

The government also took the update as an opportunity to revise ministry budgets, upping the allocation to Aboriginal Relations and Reconciliation by 35 percent from what was presented in February, Forests and Range by 43 percent and Healthy Living and Sport by 23 percent.

Cuts since February include a 19 percent hit to the Environment Ministry, 19 percent to Small Business, Technology and Economic Development, 25 percent to Agriculture and Lands and 41 percent to finance.

The budget documents show a projected decrease of 1,083 in the number of people working for the government over the next three years and make no allowance for possible wage increases. Most public sector unions have contracts that will expire in 2009-2010.

The budget documents also acknowledge that the province was already in recession in 2008. At the time government officials said B.C. was largely insulated from the global economic downturn.

“There's every indication we're seeing a bottoming out of this economic downturn,” Hansen said today. There's still a possibility there'll be a “double dip” and the economy will worsen, but the assumption in the budget for future years is the GDP will grow. “It's going to be a slow, gradual recovery.”

The update is based on the assumption that the real GDP will shrink by 2.9 percent in 2009, then grow by 1.9 percent in 2010 and 2.7 percent in each of 2011 and 2012.

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

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