British Columbia will need continued prudent fiscal management to weather global economic uncertainty and respond to challenging budget pressures to meet its commitment to eliminate the deficit in 2013-14, Finance Minister Kevin Falcon said with the release of the First Quarterly Report.

While B.C. has seen moderate improvement in some economic indicators through the first half of 2011, the Province is maintaining its prudent forecast of two per cent real GDP growth in 2011 and moderating its 2012 forecast to 2.3 per cent due to the worldwide deteriorating economic climate.

Revenues are forecast to increase by an average of just 2.8 per cent annually over the next two years, compared to the Budget 2011 projection of 3.3 per cent. Lower natural resource revenue and commercial Crown corporation income, partly offset by improvements in taxation and other revenue sources, mean cumulative losses projected at $537 million over the three years of the fiscal plan before the impacts of returning to the PST are factored in.

The decision to extinguish the HST and revert back to the PST is forecast to increase the cumulative losses to more than $2.3 billion by 2013-14, with further losses anticipated in the following year not covered by the current fiscal plan. This includes $1.6 billion in 2011-12 associated with reimbursing the federal HST transition funding and a more than $700 million loss from lower tax revenue and increased spending over the three years ending 2013-14.

The added costs and lower revenues mean the deficit is now forecast at nearly $2.8 billion in 2011-12 and $805 million in 2012-13. Government must reduce the deficit by $458 million in 2013-14 to balance the budget as required by law.

Government will continue to protect health care and education, while taking steps to control spending. All ministries, agencies and Crown corporations are looking at ways to reduce costs and manage their spending pressures.

The Province will consult with British Columbians on their priorities for Budget 2012. As part of this process, the all-party Select Standing Committee on Finance and Government Services will hold public meetings and seek input through the annual Budget consultations beginning in September.

For more details on the pre-budget consultations please visit: http://www.leg.bc.ca/budgetconsultations/

British Columbia’s 2011-12 First Quarterly Report is available online at: http://www.fin.gov.bc.ca/archive/Q_reports/qr11/Q1_11.pdf

Photos of the Release of the First Quarterly Report (flic.kr)

A backgrounder follows.

Contact:

Jamie Edwardson
Communications Manager
Ministry of Finance
250 356-9872

BACKGROUNDER

Sept. 8, 2011 Ministry of Finance

First Quarterly Report 2011-12

Economic Outlook

Despite a moderate improvement in some economic indicators through the first half of 2011, the Ministry of Finance forecast for B.C.'s real GDP growth in 2011 is unchanged from Budget 2011. Risks include fluctuating commodity prices, further appreciation of the Canadian dollar, and continued weakness in the US and global economies.

While private forecasters project B.C.'s real GDP to grow by 2.8 per cent in 2011 and 2012, the Ministry of Finance is taking a more prudent approach in its forecasts and projecting growth of 2.0 per cent and 2.3 per cent respectively for the same years.

Revenue

Revenue losses for the year total $744 million however this includes the return of the third instalment ($580 million) of the federal HST transition payments received in July 2011. The remaining projected revenue loss of $164 million for 2011-12 is primarily due to lower revenues from natural resources, a reduction in net income from Crown corporations and miscellaneous sources partially offset by higher revenue from income taxes and property transfer taxes.

Expense

Spending is projected to total $43 billion in 2011-12 - a $1.1-billion increase that includes a projected $1 billion liability for the reimbursement of HST transition funding received from the federal government in previous fiscal years. Excluding the reimbursement, total spending is projected to increase by $90 million.

Deficit

Under the updated fiscal plan that includes returning to the PST the deficit is now forecast at nearly $2.8 billion in 2011-12 and $805 million in 2012-13. The revised plan also projects a deficit gap of $458 million in 2013-14 due to the added costs and lower revenues associated with returning to the PST.

Debt

As a result of the more than $2.3 billion in additional debt from reverting back to the PST, total provincial debt is expected to reach $62.3 billion by the end of 2013-14. Excluding the impact of any measures to close the $458 million deficit gap in 2013-14, this will see the taxpayer-supported debt to GDP ratio increase to reach 18.4 per cent in the same timeframe.

Contact:

Jamie Edwardson
Communications Manager
Ministry of Finance
250 356-9872