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This Budget Is Toxic Fudge

BC's government is in denial about the economic realities we face.

By Will McMartin 18 Feb 2009 |

Tyee contributing editor Will McMartin is a veteran political analyst in British Columbia.

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A sugary slice of denial for BC.

In a province where phoney-baloney budgets and fiscal manipulation are as common as rain, BC Liberal Finance Minister Colin Hansen's 2009/10 plan is as misleading and deceptive as any we've ever seen.

The global economy, as every British Columbian over the age of three knows by now, has collapsed. Job losses are rising at an ever-increasing rate; retail sales and housing starts have plunged and commodity prices tanked; and many of the world's largest financial institutions have imploded. Federal governments of every ideological stripe, as well as U.S. states and Canadian provinces, have or are wracking up gigantic fiscal shortfalls.

Yet, Hansen wants British Columbians to believe that for the fiscal year just ending, 2008/09, Victoria will incur a surplus of $50 million. Next year, the province is expected to record a deficit, but a rather puny one of just $495 million.

In other words, over a two-year period when the world economy is tanking and Victoria's spending will total nearly $78 BILLION, Gordon Campbell, Colin Hansen and the BC Liberals expect us to believe that the total deficit will be just $445 million -- or about half of one per cent of planned spending.

Every other jurisdiction in the rest of the world is having a near-death fiscal experience; B.C. has got a minor rash.

It's the same old pre-election, budgetary sleight-of-hand British Columbians have seen many times in the past, but of a scale and breadth never seen before. 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.

Bleak expectations...

The 2009/10 budget and fiscal plan certainly acknowledges that the global economy has fallen sharply into a fear-inducing recession. The following are direct quotes from the "Economic Review and Outlook" found on pages 75-93 of the government's fiscal plan:

...and rosy projections

Given those gloomy observations, one might have expected that Victoria's revenues are susceptible to erosion in the year ahead. In fact, it seems like a near-certainty, given that the finance department anticipates the provincial economy to contract by 0.9 per cent.

Strangely, Hansen's budget predicts that most of the government's revenue streams will record a significant improvement over the next 12 months.

Let's start with his projection for BC Lottery Corporation profits. Across the province, like elsewhere in Canada, casino and bingo-hall operators have announced employee lay-offs. In difficult economic times, unsurprisingly, fewer people seem willing to wager their hard-earned cash. And for those who do, they wager less, and less often.

Yet Hansen claims that the lottery corporation's net income -- which all flows to the province's bottom-line -- will jump to a record-breaking $1.154 billion next year. That's an increase of $53 million, or 4.8 per cent, compared to the revised forecast for last year.

The same sort of revenue optimism can be found with the government's Liquor Distribution Branch revenues. LDB profits are expected to soar to $896 million, an increase of $29 million, or 3.3 per cent over the current year's revised forecast.

Hansen, it seems, expects British Columbians -- many of whom are scared to death over losing their jobs and homes -- to boost both their gaming and alcoholic activities in 2009. Party on, Colin!

Hydro to power the government?

Another Crown corporation expected to bring in loads of new dough is BC Hydro. Hansen claims the government will receive a dividend of $452 million from Hydro next year -- an increase of $95 million, or 26.6 per cent. It seems like an unbelievably optimistic number, given the dozens of pulp-mills, sawmills and mines that have shut-down or reduced their operations in recent weeks and months.

Even more astounding are the government's "investment income" revenues. Nearly every British Columbian -- like investors elsewhere around the world -- has seen his or her investment or retirement portfolios decimated recently as equity markets plunge ever lower.

But Hansen's budget asserts that Victoria's investment revenues over the coming year will grow by $79 million, a 9.4 per cent increase. (How many British Columbians expect to see a gain of nearly 10 per cent in their investment earnings over the next 12 months?)

Sales tax will... climb?

One can find such examples throughout the budget documents. Personal income tax? Even as the B.C.'s unemployment rate registers whopping job losses -- more than 60,000 full-time positions eliminated in January alone -- the Campbell Liberals see personal income tax revenue next year climbing upward by $343 million.

Let's not forget the dire economic warnings by the finance department. "Falling confidence among consumers suggests that they will put off major retail purchases for the time being," the fiscal plan states, "and that B.C.'s retail sector is unlikely to resume the strong growth of recent years in 2009."

But as consumer confidence wanes, Hansen sees B.C.'s sales tax revenues rising by an extra $89 million in the year ahead. It's the same with property taxes (up $41 million), insurance premium taxes (high by $10 million) and fuel taxes (growing by $2 million).

In fact, in of all the government's taxation sources, Hansen anticipates a decline in revenues from just four: corporate income tax, corporation capital tax, tobacco tax and property transfer tax.

Overall, Hansen claims that the provincial treasury will receive an additional $357 million next year compared to the revised forecast for the current year.

The only rational explanation for this fantastical result is that, contrary to all available and empirical evidence, Gordon Campbell, Colin Hansen and the BC Liberals believe that the worst of the current global economic downturn is behind us! We're through the rough patch, and things only can improve from here on out.

Or, at least until the May 12 provincial general election is over.

Mysterious health savings

Like the revenue side of the provincial ledger, the expenditure side, too, has impossible-to-believe numbers.

Take Health, where Hansen believes the BC Liberals can somehow find "further efficiencies" of $125 million in the next fiscal year, and then another $250 million in the year after. In that latter year, of course, the BC Liberals promise to "balance" the provincial budget, and as Hansen's fiscal plan makes clear, finding $250 million in savings is crucial to attaining that goal.

Where will those savings be found? No one knows.

But there are a few clues as to how difficult it might be. The budget and fiscal plan also reveals that already B.C.'s regional health authorities have identified "annual spending pressures" of 3.5 per cent in their provincial transfers. How those diametrically opposite objectives -- managing upward pressures and obtaining downward efficiencies -- will be achieved is a mystery yet to be solved.

Spending plans for two of the next-largest social service departments, Housing and Social Development, and Children and Family Development are equally suspect.

Income Assistance expenditures are expected -- not surprisingly, given the economic downturn -- to rise by $60.8 million, but closer examination shows that nearly all of that amount is for 'temporary assistance.' Meanwhile, disability and supplementary assistance get a combined lift of just $5.6 million, or about one-half of one per cent.

And even as more families are distressed by deteriorating economic conditions, the Ministry of Children and Family Development gets a budget lift of just $14 million, or about one per cent.

Are these numbers realistic?

Union wage increases? Never mind

And while Hansen's fiscal plan acknowledges that numerous collective labour agreements between Victoria and public sector unions are set to expire at the end of 2009/10, the budget provides no provision for salary or benefit increases. It looms as one of the biggest impediments for the BC Liberals getting to their balanced budget in 2011/12, but this year's fiscal plan offers no clue as to how the issue will be resolved.

Finally, it is impossible to ascertain in Hansen's budget how much B.C. taxpayers will spend in the coming fiscal year on the 2010 Olympics (or afterward), both for the much-discussed security component, and the operational contingencies. A few million dollars or several hundreds of millions -- who knows? If Campbell or Hansen have any idea as to the final tab, they're not saying, and neither is this year's budget.

A billion dollars off, at least

All in all, instead of the $495 million that the BC Liberals acknowledge as the shortfall for the coming fiscal period, a more-accurate budgetary-deficit would be from $1 billion to $1.5 billion.

And that would be prior to the Forecast Allowance, a provision found in every provincial budget over the last decade -- except this year. At a time of historic economic uncertainty, Campbell and Hansen arbitrarily removed one of the touted "levels of prudence" found in each B.C. budget since the turn of the century.

Over the last few years, the Forecast Allowance has ranged from $750 million to $850 million. Add that to what is probably the actual budgetary shortfall, and you get a total projected deficit of about $2 billion, or even more.

But this is B.C., and we have an election fast-approaching. And so the Campbell government pushes-up revenues, tamps-down expenditures, and removes the Forecast Allowance from budgetary planning. Voila! The deficit is one-quarter or one-fifth its actual size.

Another fudge-it budget, you say? It's worse than that. This fictional fairy-tale might better be described as Toxic Fudge.

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