Finance
The B.C. government has introduced Balanced Budget 2014, which includes forecast surpluses in all three years of the fiscal plan and modest investments in priority areas, Finance Minister Michael de Jong announced today.
B.C. is forecast to end the fiscal year 2013-14 with a surplus of $175 million, with progressively larger surpluses forecast in all three years of the fiscal plan:
- $184 million in 2014-15.
- $206 million in 2015-16.
- $451 million in 2016-17.
While the fiscal plan shows continued spending discipline, modest surpluses allow government to make choices and ensure new spending is put into priority areas. Within the balanced budget, government is providing additional funding of $415 million to benefit B.C. families, help make life more affordable, and help stimulate economic growth and job creation:
- Community Living B.C. receives incremental funding of $243 million over the three-year plan as government remains committed to maintaining existing services for adults with developmental disabilities and their families.
- An additional $15 million over three years for Ministry of Children and Family Development for children and youth with special needs.
- An additional $15 million over three years for increased RCMP policing costs and $6 million for legal aid-related services.
- Funding of $29 million over three years is provided to support the development of an LNG industry in B.C., including attracting investments to B.C. and supporting a stable environment for investment decisions; facilitating timely processing for regulatory and permitting requirements; and ensuring ongoing environmental protection, management and stewardship.
Government is working with employers, educators and communities to make sure British Columbians are first in line for the jobs of the future:
- The new NorKam Trades Centre of Excellence in Kamloops, scheduled for completion this fall, will offer courses in areas such as mining exploration, industrial skills and construction trades training.
- New trades-training facilities at Camosun College in Victoria will support an additional 370 students in the marine, metal and mechanical trades by 2016.
- New facilities at Okanagan College in Kelowna will more than double the size of the current trades-training complex by 2016
- A new campus for the Emily Carr University at Great Northern Way in Vancouver will include a state-of-the-art visual, media and design art facility, with the capacity for 1,800 students.
With Balanced Budget 2014, government has also introduced legislation to implement the new B.C. Early Childhood Tax Benefit. Starting in April 2015, the benefit will provide $146 million annually to approximately 180,000 families with children under the age of six (up to $55 a month per eligible child). About 90 per cent of B.C. families with young children will be eligible.
Many British Columbians buying their first home will pay less Property Transfer Tax, as the Province is increasing the threshold for the first-time homebuyers program to $475,000 from $425,000, an exemption that can save the purchaser up to $7,500 when buying their first home.
Budget 2014 confirms government's ongoing commitment to protect health care. The Ministry of Health budget will increase $2.5 billion over three years. Total health spending by function will reach $19.6 billion, or more than 42 per cent of all government expenses by 2016-17.
To help encourage healthy choices, taxes on tobacco will increase by 32 cents per pack, or $3.20 a carton, effective April 1, 2014. This increase is expected to generate an additional $50 million in annual revenue over the course of the fiscal plan. Government will dedicate a significant portion of these revenues to provide specified funding for cancer prevention and will work with the Canadian Cancer Society and other research partners to develop and implement a number of innovative cancer-prevention initiatives.
The Province continues to develop and implement all the elements of a competitive tax and policy environment to assist with LNG development in B.C. To this end, government intends to introduce income-tax legislation later this year applicable to the LNG industry.
The LNG Income Tax will be a two-tier tax with a tier-one tax rate of 1.5 per cent and a tier-two rate of up to seven per cent, with the final rates to be determined and confirmed in legislation. The LNG Income Tax will apply to income from liquefaction of natural gas at LNG facilities in British Columbia.
The B.C. LNG income tax structure and rates are subject to approval of the legislature. Government intends to have legislation ready for introduction by fall 2014, once the complex drafting process is complete. Regulations and additional legislation will follow in 2015.
The independent British Columbia Economic Forecast Council forecasts provincial real GDP growth to be 2.3 per cent in 2014, 2.7 per cent in 2015 and an average of 2.7 per cent over 2016-2018. Government's economic growth forecast is 2.0 per cent in 2014, 2.3 per cent in 2015 and 2.5 per cent in 2016 - a forecast that is prudent relative to the Economic Forecast Council.
The Economic Forecast Council's forecast for provincial real GDP growth takes on new significance with Balanced Budget 2014. Government's Economic Stability Mandate offers employees the opportunity to benefit from B.C.'s economic growth through the Economic Stability Dividend. Under this agreement, employees will receive a wage increase equal to half of any percentage-point gain in real GDP growth above the Economic Forecast Council's forecast published in the February budgets.
Taxpayer-supported capital spending on schools, hospitals and other infrastructure across the province over the next three years is expected to total $11 billion. This includes $1.5 billion to maintain, replace, renovate or expand K-12 facilities; $2.3 billion for capital spending by post-secondary institutions across B.C.; $2.6 billion on health-sector infrastructure; and $3.4 billion for transportation investments.
By eliminating the deficit, controlling capital spending and reducing the level of government's borrowing needs, Balanced Budget 2014 forecasts British Columbia's taxpayer-supported debt-to-GDP ratio will peak at 18.5 per cent in 2013-14 and decline to 17.8 per cent in 2016-17. The taxpayer-supported debt-to-GDP ratio is a key measure of debt affordability, and effectively managing this ratio helps maintain B.C.'s triple-A credit rating.
Quotes:
Minister of Finance Michael de Jong -
"B.C. has demonstrated that with hard work, due diligence and fiscal discipline, it is possible to achieve something that few other jurisdictions in Canada can claim to have today: a balanced budget. B.C. is now in the enviable position of having a balanced budget this year and in all three coming years of our fiscal plan."
"Private sector economists are forecasting B.C. to be among the strongest economies in the country over the next couple of years. This increasing economic growth is the result of the fiscal discipline we have demonstrated in the recent years, and it is beginning to generate the modest surpluses that allow us to continue to make investments that reflect the priorities of British Columbians."
"Our LNG income-tax-revenue framework strikes the right balance between the need to maximize the return to British Columbians, while also ensuring B.C. is an attractive and competitive place to develop LNG. The LNG revenue framework will deliver long-term benefits for British Columbia and provide industry with the certainty it requires to be successful."
Learn More:
For more details on Balanced Budget 2014, visit: www.bcbudget.ca
For online information and services, visit the Province's website: www.gov.bc.ca
Backgrounders follow.
Media Contact:
Jamie Edwardson
Communications Director
Ministry of Finance
250 356-2821
(flickr.com)
BACKGROUNDER 1
Fiscal Plan 2014-15 - 2016-17
Economic Outlook
In 2013, key economic indicators such as exports performed well, and housing starts outperformed expectations, while retail sales and employment grew at less than forecast levels.
The government forecasts the economy to grow by 2.0 per cent in 2014, 2.3 per cent in 2015 and 2.5 per cent in 2016.
Major risks to the economic outlook include the potential for weakness in the U.S. economic recovery and slowing Asian demand. Additional risks include the ongoing sovereign debt situation in Europe and a fluctuating Canadian dollar.
Revenue Outlook
Total government revenue is forecast at $44.8 billion in 2014-15, $46 billion in 2015-16 and $47.5 billion in 2016-17. Revenue is expected to average 2.6 per cent annual growth over the next three years.
Expense Outlook
Total expense over the three-year plan is forecast at $44.4 billion in 2014-15, $45.6 billion in 2015-16 and $46.7 billion in 2016-17 - an annual average increase of 2.2 per cent over the next three years.
Government is increasing program spending by $3 billion over the three-year fiscal plan (from $43.7 billion in 2013-14 to $46.7 billion by 2016-17).
Supports for individuals, families and community safety
Budget 2014 confirms an additional $350 million over the next three years to support families, individuals and community safety, including:
- An additional $243 million over three years for Community Living B.C. as government remains committed to maintaining existing services for adults with developmental disabilities and their families.
- An additional $15 million over three years for Ministry of Children and Family Development for children and youth with special needs.
- An additional $15 million over three years for increased RCMP policing costs
- $6 million for legal aid-related services.
Health care
Budget 2014 confirms government's ongoing commitment to protect health care. The Ministry of Health budget will increase $2.5 billion over three years. Total health spending by function will reach $19.6 billion, or more than 42 per cent of all government expenses by 2016-17. B.C. continues to achieve key health outcomes that lead the country while maintaining the second-lowest rate of health spending per capita among provinces.
K-12 and Post-Secondary Education
Provincial funding for the K-12 and post-secondary systems continues at Budget 2013 levels.
As many as 40,000 children are eligible every year for the B.C. Training and Education Savings Grant program, announced in Budget 2013. Children born on or after Jan. 1, 2007, are eligible for more than $1,200 for their RESP.
Economic development
Budget 2014 provides $29 million over three years to ensure the appropriate management of the province's LNG strategy to foster the successful development and growth of the industry.
Budget 2014 also provides $9 million over three years to support environmental assessments of resource development impacts of proposed LNG facilities and pipelines, and mining and other major projects.
Budget 2014 amends the Film and Television Production Regulation to include the Capital Regional District in the Distant Location Tax Credit. This applies to productions with principal photography beginning on or after Feb. 19, 2014.
Budget 2014 confirms $5 million over five years to help the Aerospace Association of Canada Pacific Division to grow the province's world-leading aerospace sector and help attract additional global aerospace and defence contractors to B.C.
Natural resources and the environment
Budget 2014 also provides $12 million in 2016-17 for silviculture, inventory, and forest and ecosystem health/restoration activities. This funding will increase silviculture activities in regions hit hard by the pine beetle epidemic.
Tax Measures
In order to achieve social policy and economic development objectives, government will initiate a number of tax policy measures in Budget 2014. By 2015-16, these and other tax measures introduced in Budget 2014, will provide up to $181 million in net benefits to taxpayers.
- B.C. Early Childhood Tax Benefit, effective April 1, 2015, as announced in the June Budget Update 2013.
- Extension of the Scientific Research and Experimental Development Tax Credit for an additional three years to Sept. 1, 2017.
- Increase to the threshold for exemption from property transfer tax under the First Time Home Buyers' Program for registrations on or after Feb. 19, 2014.
Capital spending
Taxpayer-supported capital spending on schools, hospitals, roads and other infrastructure over the next three years is expected to total $11 billion.
This includes $1.5 billion to maintain, replace, renovate or expand K-12 facilities; $2.3 billion for capital spending by post-secondary institutions across B.C.; $2.6 billion on health-sector infrastructure; and $3.4 billion for transportation investments.
Government is working with employers, educators and communities to make sure British Columbians are first in line for the jobs of the future:
The new NorKam Trades Centre of Excellence in Kamloops, scheduled for completion this fall, will offer courses in areas such as mining exploration, industrial skills and construction trades training.
New trades-training facilities at Camosun College in Victoria will support an additional 370 students in the marine, metal and mechanical trades by 2016.
New facilities at Okanagan College in Kelowna will more than double the size of the current trades-training complex by 2016
A new campus for the Emily Carr University at Great Northern Way in Vancouver will include a state-of-the-art visual, media and design art facility, with the capacity for 1,800 students.
Debt
The total provincial debt is forecast to be $ 64.7 billion in 2014-15, $66.9 billion in 2015-16 and $68.9 billion in 2016-17.
Taxpayer-supported debt is forecast to be $43.1 billion in 2014-15, $44.5 billion in 2015-16 and $45.5 billion in 2016-17.
By eliminating the deficit and reducing the government's need to borrow, Budget 2014 forecasts British Columbia's taxpayer-supported debt-to-GDP ratio will peak at 18.5 per cent in 2013-14 and decline to 17.8 per cent in 2016-17.
Taxpayer-supported interest costs continue to remain low, averaging 4.1 cents per dollar of revenue over the three-year fiscal plan.
Budget Outlook
Budget 2014 projects surpluses of $184 million in 2014-15, $206 million in 2015-16 and $451 million in 2016-17.
The fiscal plan includes contingencies of $300 million in 2014-15, $400 million in 2015-16 and $575 million in 2016-17 to help manage unexpected costs and priority initiatives, including the 2014 public sector compensation mandate and LNG development.
Learn More:
For more details on Balanced Budget 2014, visit: www.bcbudget.ca
For online information and services, visit the Province's website: www.gov.bc.ca
Media Contact:
Jamie Edwardson
Ministry of Finance
250 356-2821
BACKGROUNDER 2
Proposed LNG Income Tax
The proposed LNG taxation framework will deliver long-term benefits for British Columbia, provide industry with the certainty it requires to be successful, and provide a fair return for British Columbians. The tax regime is based on four core principles that ensure a fair, balanced approach:
A fair share for British Columbians:
Natural gas is a publicly owned non-renewable natural resource. British Columbians deserve an appropriate return.
Government will receive the revenues to invest in the priorities of British Columbians, including programs and services that benefit taxpayers, helping make family life more affordable, and reducing Provincial debt.
Competitiveness:
B.C. taxpayers, workers and companies will benefit from the jobs, investment, and economic activity that come with the establishment of this new industry.
The overall taxation framework including all taxes will be competitive with similar jurisdictions for this type of LNG investment.
B.C.'s advantage is based on more than just a competitive tax rate: a skilled workforce, proximity to markets, large natural gas reserves, and a cooler, northern temperature.
Predictability:
Provide proponents with a clear description of the fiscal regime prior to final investment decision.
The proposed tax is subject to approval of the legislature.
Level playing field:
All proponents will be subject to the same framework.
Government has consulted with industry to better understand LNG proponent business models, cost structures, and competitiveness issues. Government has considered this input in designing a tax model that keeps B.C. competitive with other comparable jurisdictions while ensuring a fair share of revenues for British Columbians.
Media Contact:
Jamie Edwardson
Communications Director
Ministry of Finance
250 356-2821
BACKGROUNDER 3
LNG Income Tax balances competitiveness, fair return
The Province continues to develop and implement all the elements of a competitive tax and policy environment to assist with LNG development in B.C. To this end, government intends to introduce legislation later this year to introduce an income tax applicable to the LNG industry.
The LNG Income Tax will be a two-tier tax with a tier-one tax rate of 1.5 per cent and a tier-two rate of up to seven per cent, with the final rates to be determined and confirmed in legislation. The LNG Income Tax will apply to income from liquefaction of natural gas at LNG facilities in British Columbia.
A description of how the two tiers operate is as follows:
- The tier-one tax rate of 1.5 per cent applies to an operator's net proceeds (revenue less expenses) after commercial production begins. The amount of the tier-one tax that has been paid can be deducted from the tier-two tax.
- Net income for purposes of the tier-two tax will be net proceeds less up to 100 per cent of the capital investment account (as described below). As such, the tier-two tax rate is not effective until the capital investment account is depleted.
The costs associated with constructing an LNG facility will form the basis of the capital investment account. An LNG facility is a plant that is built to liquefy natural gas. It typically includes gas purification and liquefaction systems, together with storage tanks and marine loading systems. An LNG facility may also include support functions for the liquefaction process, such as control rooms, material and equipment warehousing, maintenance shops and infrastructure facilities.
A review of the tier-two tax rate and specific tax features will continue until the legislation is introduced in the fall of 2014. Global and local economic conditions will be considered as government finalizes the key components of the LNG Income Tax to ensure B.C. remains competitive.
To illustrate how the proposed LNG Income Tax works, assume a new LNG plant in B.C. produces 12 million tonnes per year (MTPA) of LNG and earns constant profits over 10 years. Assume also that commercial production of LNG starts in year one and that the operator has fully deducted its capital account by the end of year four. The tier-one tax rate applies for the first three years. Starting in year four, the tier-two rate applies.
However, the amount of the tier-one tax paid in the first three years can be used as a credit against the tier-two tax in subsequent years. If the credit for tier-one tax paid is fully used in years four and five, the full tier-two tax will be in effect in year six and subsequent years.
The following types of income generated from the liquefaction of natural gas will be subject to the LNG Income Tax:
- Sale of liquefied natural gas;
- Rents and fees payable for the use of a LNG facility; and
- Fees for processing natural gas at a LNG facility.
The LNG Income Tax will apply to all LNG facilities in the province, regardless of whether the LNG is exported or for domestic use.
It is anticipated the key components of the legislation will be ready for introduction by fall 2014 (e.g. tax rates and specific features). Remaining legislative components, such as administration and enforcement, are planned to be ready for introduction in 2015.
The Province has consulted with industry in the development of the LNG Income Tax and believes that this will now help to provide added certainty for proponents as they work towards making final investment decisions.
Competitiveness
The B.C. government has reviewed the tax and royalty regimes of key competitor jurisdictions, namely Australia and the US. It has also consulted with proponents and received their perspectives. In this process, the government retained independent consultants to examine and assess the competitiveness of the B.C. framework, which includes the proposed B.C. LNG Income Tax, with comparable frameworks in those other jurisdictions.
The consultants concluded that the proposed framework, which includes the proposed B.C. LNG Income Tax, appears competitive relative to the existing frameworks in Australia and the five US states examined -Alaska, Georgia, Louisiana, Oregon and Texas.
B.C.'s LNG Income Tax regime is just one element that makes the province internationally competitive for new LNG investment. In addition to a low overall tax burden and a competitive royalty regime, B.C. has large reserves of natural gas located fairly close to proposed facilities; a skilled workforce; robust infrastructure; relatively short transport times to key Asia markets; and a cooler coastal temperature that saves energy and costs during the liquefaction process.
Learn More:
LNG 101: A Guide to British Columbia's Liquefied Natural Gas Sector: http://www.gov.bc.ca/mngd/doc/LNG101.pdf
For an update on B.C.'s LNG strategy, visit: http://www.gov.bc.ca/com/attachments/LNGreport_update2013_web130207.pdf
2013 Employment Impact Review: http://www.empr.gov.bc.ca/OG/Documents/Grant_Thornton_LNG_Employment_Impacts.pdf
VIDEO: B.C.'s Liquefied Natural Gas Opportunity: http://engage.gov.bc.ca/lnginbc/
Media Contact:
Jamie Edwardson
Ministry of Finance
250 356-2821
