B.C. heads for $2.8B deficit

The B.C. government is forecasting its biggest annual deficit ever — $2.8 billion — Finance Minister Colin Hansen announced Tuesday in the legislature as he tabled his first budget update since the May election.

Despite that shortfall, Hansen said funding for health care, education and social services will all increase, while both personal and small-business taxes will be cut to the lowest levels in Canada.

As a result of falling government revenue, spending in all other ministries will be cut by an estimated $500 million over the next three years and the government will run a deficit for the next four years before returning to a surplus position in 2013, Hansen said.

The deficit was the result of falling revenue from personal and corporate taxes and natural resources, brought on by the global economic collapse, and the need to protect and increase funding to social programs, Hansen told the legislature.

Health care, education funding to increase

Despite the massive deficit, government spending in the 2009/10 September update is largely characterized by tinkering rather than sweeping changes to most provincial spending, commentators who saw advance copies said.

Funding for health care is forecast to rise $2.4 billion this year, and a total of 18 per cent over the next three years, said Hansen.

The increases in heath-care spending will be paid for in part by a hike in Medical Service Plan premiums of up to $3 per month for single people and $6 a month for families. But about 180,000 low-income earners who are eligible for premium assistance will see their fees eliminated or reduced, Hansen said.

The government will also boost funding for social assistance by $420 million in anticipation of more people losing their jobs as the recession continues to batter B.C.'s export-dependent economy.

Overall funding for education at all levels will rise by over $400 million, to $10.9 billion, including $150 million to roll out full-day kindergarten for five-year-olds in 2009 and 2010, and about $400 million in extra funding for postsecondary institutions.

But funding for elementary and secondary schools will remain relatively flat.

Hansen defends HST

The personal tax credit will also be increased to $11,000 from $9,373, giving B.C. the lowest provincial personal tax rate in Canada for those earning under $118,000, while the small-business tax threshold will also be raised from $400,000 to $500,000, cutting an estimated $20 million from their share of the tax bill.

The government also plans to eliminate the small-business tax entirely by 2012.

Hansen defended introduction of the controversial harmonized sales tax, saying that in two or three years most consumer items will be priced lower than they would have been. He also said taxpayers will get some relief from the coming HST when it is introduced in July 2010 with a tax credit for low-income earners and rebates on residential fuel bills.

HST rebates will also be offered to municipalities, charities, non-profits and new housing, said Hansen.

2010 Winter Olympics spending is forecast to hit $136 million this fiscal year, for a total of $765 million in direct and indirect spending over the life of the Games project, but critics have noted those estimates don't include costs for the upgrades to associated highways, public transit lines and the new convention centre.

"Here in British Columbia, we have seen a precipitous decline in government revenues — coupled with the impacts of what could be the worst forest-fire season on record," said Hansen, who noted the government expects to spend a record total of $409 million fighting over 2,700 forest fires this year.

First B.C. deficit since 2003

The deficit is the first the B.C. government has run since 2003/04, after which it passed a law saying it could only run surpluses, which it did for four straight years, from 2004 until last year.

But that law was suspended twice this year by the B.C. Liberals, first in February to allow the government to run deficits for two straight years, and then again in August to let it run deficits for four straight years.

This year's budget estimates were based on a forecast decline of 2.9 per cent in the province's gross domestic product this year, but an increase of 1.9 per cent next year, which Hansen called prudently lower than the government-appointed Economic Forecast Council's estimate.

Several ministries have seen their 2009 budgets cut significantly since the government tabled its first budget for 2009/10 in February, including the Environment Ministry, whose budget was reduced by roughly $40 million, and the Agricultural Ministry, cut by about $76 million.

The B.C. NDP and others have widely criticized the government for failing to release realistic budget estimates before the May 2009 election, when it promised it would only run a $500-million deficit, despite the worldwide recession.

The new forecast is for total government revenue to hit $37.6 billion, while expenses are forecast to hit $40.1 billion, combined with a forecast allowance of $250 million to give the estimated deficit of $2.78 billion.

The debt-to-GDP ratio is forecast to rise from a long-term low of 13 per cent last year to a high of 18 per cent in 2011 before starting to decline.

Hansen compared the B.C. deficit with Alberta's forecast deficit of $6.7 billion, noting that wildly fluctuating natural gas and oil prices make forecasting government revenue very difficult.

The last time the government ran such a large deficit was in 2002/03 when it hit $2.6 billion, the year after B.C. Liberals were first elected in 2001.