With the harmonized sales tax (HST) nixed and global economic fears on the rise, challenges to the B.C.’s public finances are mounting.
The province just released a revised three-year fiscal plan that anticipates $458 million in cuts to eliminate the deficit in 2013-14, adjusting for a weaker economy and the costs of reverting to a PST/GST regime.
The adjusted plan lowers the province’s revenue growth expectations to 2.8% annually over the next two years compared with budget 2011’s 3.3% projection.
Even before the PST transition is factored in, the province is now anticipating lower revenue from Crown corporations and natural resources. The result is a projected cumulative loss of $537 million over the plan’s three years.
“They have a tough financial elephant to push up the stairs here,” said Jordan Bateman, B.C. director for the Canadian Taxpayers Federation (CTF), who commended the province for sticking to its balanced-budget commitment.
“[But] we would have felt a whole lot better if the quarterly report had a zero [bottom line] instead of a minus-$500 million.”
Bateman said the CTF is encouraging the government to get back to its core spending priorities by eliminating some legacy programs brought in by former premier Gordon Campbell, such as the Pacific Carbon Trust.
“The problem for this government is that they’ve almost doubled spending in 10 years, and when you’re growing like that, you need everything to keep going right in order to balance the budget.”
Bateman said that while the government weathered the first recession, it’s now facing the “second punch” of the HST loss and, potentially, a double-dip recession as a third.
“So they’re going to now have to really roll up their sleeves and make some cuts in order to get things to where they need to go.”
Jock Finlayson is executive vice-president of policy for the Business Council of BC and a past president of both the Association of Professional Economists of BC and the Ottawa Economics Association.
He said the biggest challenge ahead for B.C.’s public finances, as the province reverts to PST/GST, won’t be the near-term $1.6 billion hit of returning federal transition money but the longer term revenue lost from moving to a worse tax regime.
Finlayson said the less efficient PST will reduce Victoria’s revenue by between $300 million and $400 million annually – and that number will increase as the economy grows. Beyond that, he said, the province’s productivity will suffer under the PST.
“The level of productivity and productivity growth will be lower than it would have been if we’d kept the HST because the HST is a better tax in terms of encouraging business investment into the capital stock.”
The transition, he said, will increase the cost of doing business in B.C. by about $2 billion a year.
“When you throw all those different pieces into the equation, it’s a fairly major hit to the province’s long-term public finances,” he said. “It’s not catastrophic, but it’s certainly going to be felt.”
Finlayson said it’s too soon to say what effect the government’s handling of the HST and its current public finances will have on its political support from Vancouver’s business community. But he pointed out that there will be lasting economic consequences from the loss of the HST, “and those consequences will be preponderantly negative.” •
