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Canwest News Service
Finance Minister Colin Hansen kicked off the latest update on the provincial economy Friday with his version of the old good news/bad news joke.
"The analogy that I think of is that it's like falling into a lake," Hansen told reporters. "There's a point at which you stop going down, but you still can't breathe until you get to the surface."
Gee, that's a reassuring image, minister. B.C. has fallen into a deep forbidden lake, economically speaking. Tell us more.
"I think we're at the point where we're not going any deeper into the depths of that lake," he added.
So to recap: the good news is that we've stopped sinking and there do not appear to be any giant crocodiles or other nasties in the lake. The bad news is that we need to claw our way back to the surface, lungs bursting, before we drown.
As disturbing analogies go, there was no improving on it. Still, some of the details of Hansen's presentation, covering the second quarter of the financial year (July-September) were discouraging as well.
The finance ministry thought it had lowballed forest revenues, lumber prices and U.S. exports at the outset of the budget year. Yet shipments are running one billion board feet below the supposedly cautious projection, at prices 20 per cent lower than anticipated.
"We didn't think forest revenues could get any lower," Hansen conceded. Then they did. Down almost 50 per cent from ministry expectations, including a drop of $70 million in the latest quarter.
Natural gas revenues have tended to make up the difference in past years. But the resource is selling for about 50 per cent below the budget projection, for another $100 million whack out of revenues.
Personal income taxes, corporate taxes, and sales tax revenue all slumped in the second quarter as well. Combined, the shortfalls in tax and resource revenues, tallied in excess of half a billion dollars. The makings of another dismal quarter, were it not for more encouraging news on other fronts.
Property sales were up, boosting returns from the property purchase tax. There was a cash windfall from the sale of oil and gas exploration rights. Mineral royalties, investment income, and federal transfer payments all came in higher than budgeted.
The government reaped $100 million in savings, mostly from the cost squeeze on health authorities, post-secondary institutions, and service delivery agencies. It raided the couch cushions — the so-called "forecast allowance" — for another $125 million. Those pluses cancelled out the negatives, allowing Hansen to announce no net change in the bottom line from the first-quarter update on Sept. 1.
Which is to say that he's still projecting a deficit of $2.8 billion, almost six times larger than the supposed "maximum" that Premier Gordon Campbell cited during the spring election campaign.
Hansen still has about half a billion dollars tucked away in forecast allowances and contingencies against the possibility of further revenue shocks or unexpected requirements to spend.
He's also banking on $750 million as the first instalment from Ottawa in transition funding for harmonizing the provincial sales tax with its federal counterpart.
Neither the tax nor the funding has yet been approved by the federal government, though the enabling motion is expected to be submitted to Parliament next week. Hansen joined Premier Campbell on Friday in calling on all federal parties to approve the motion in the name of respect for "provincial autonomy."
The parliamentary motion will clear the way for a 13-per-cent HST in Ontario as well as one at 12 per cent in B.C., effective next July 1.
Details, including term, conditions, exemptions, and the like are set out in a Comprehensive Integrated Tax Coordination Agreement (CITCA — or "sit-sa") between the two levels of government.
The Ontario version, which runs through 65 clauses and several lengthy annexes, has been a public document since it was signed on Nov. 9. The Liberals have yet to release a made-for-B.C. version.
I asked Hansen whether British Columbians would be able to see a copy of the full agreement before Parliament votes to implement it. He assured me that it would be made public before then, though he declined to say exactly when.
While Hansen treats the HST transition funding as a virtual certainty, he conceded there are other threats to the bottom line.
A double-dip recession in the United States is the biggest. Other risks include a continuing high dollar (it is already 10 per cent higher than this year's forecast), worsening commodity prices, and a reversal in the rising trend in property sales.
Still B.C., for all of its anxieties, is expected to lead the country in economic recovery next year, thanks to the Olympics. To the degree that stimulus spending can help, the province is doling out more than $7 billion on capital projects. The provincial deficit, for all its heft in dollar terms, is smaller proportionally than those in most other Canadian jurisdictions.
So, to return to Hansen's analogy, the province may be struggling for some time to come, but it should surface sooner than most.
vpalmer@shawlink.ca
