The BC Liberal government will be looking for additional cost savings to address lower-than-expected revenues so far this year.
In his post-election budget released June 27, Finance Minister Mike de Jong noted slower economic growth has cut into tax revenues this year.
The government is expecting $221 million less tax revenue than it had forecast in its February pre-election budget. That stems from weaker revenue from personal and corporate income tax, sales taxes, property transfer taxes and the carbon tax. These declines coincide with the slowdown in the economy so far this year with poor job growth, sluggish consumer spending and a residential real-estate market going through a correction.
However, de Jong said that some of these revenue declines will be offset with stronger-than-expected national resource income. The government is now forecasting a 29% increase in natural gas royalties to $397 million from $282 million as the average price of natural gas has recovered faster than anticipated. In February, the government had forecast average prices to $1.85 per gigajoule. It is now forecasting an average of $2.25 per gigajoule, which is closer to the lower end of the updated $2.06 and $2.80 range from external forecasters.
Without additional changes to the budget, the government’s surplus would drop to $73 million from the $197 million it forecast in February. To widen the surplus, the government will be taking $50 million from its forecast allowance in the budget.
There were no new spending initiatives announced beyond what was presented in February. The government will also look for an additional $30 million in savings from ministry spending for the rest of the fiscal year.
Although government travel spending and salaries are areas the ministry will look to for spending cuts, de Jong said the review will be broad.
“There’s no $30 million answer,” said de Jong. “The auditor general has had an issue with the Pacific Carbon Trust. That may be an area where we can deliver on the environmental objective in a slightly different way or with a different delivery model that affects savings for government and others. But there’s no single area that I’m going to point to.”
The government had among the most conservative forecasts for economic growth, budgeting in February for B.C.’s economy to grow 1.6% in 2013. That was far below the 2.1% average from its economic forecast council.
The government has further reduced its economic expectations, budgeting for only 1.4% growth as many key segments of the economy have fared more poorly than expected.
For the year, the government has downgraded its forecasts for many of its key metrics:
- retail sales growth of 1.8%, down from 3.5% in February;
- employment growth of 0.7%, down from 1.1%;
- personal income growth of 3.1%, down from 3.4%;
- corporate profit growth of 3.8%, down from 4.2%; and
- consumer spending growth of 3.1%, down from 3.9%.
Housing starts are also expected to be slower than expected, falling 13.3% instead of the 10.1% forecast in February.
Slower economic growth is going to make it harder for the government to fulfil its goal of improving the affordability of its debt. Taxpayer supported debt to GDP is expected to rise to 18.4% this year instead of 18.2% and rise further to 18.5% instead of 18.3% in 2014 before dropping in 2015.
“You know we place a measure of importance of the triple-A credit rating we’ve achieved and are anxious to demonstrate we are worthy of preserving that,” said de Jong. “Realizing that target becomes very important for us.”
