Ability to Pay

Section 10(3)(a) of the Budget Transparency and Accountability Act requires that a quarterly report on the province's finances be made public on or before September 15th. That is particularly important this year because the legislature will be called for an early sitting around that time in order to debate ministerial budgets, something not done before the election, and to pass an interim supply bill to give government authority to spend until those estimates are approved. The quarterly report could inform the fall legislature and also give public sector bargainers more information on government's ability to pay. As reported by Sean Holman in his Public Eye Online website, and repeated in the Vancouver Sun two days later, most public sector workers will be in contract negotiations by the end of June 2006. Almost 50,000 already have expired contracts, almost 113,000, including most of the health sector, have contracts that expire March 31, 2006, and almost 21,000 more, including university and ICBC staff, have contracts that expire June 30, 2006.

When the current budget was tabled in the legislature on February 15, 2005 a surplus of $220 million was forecast for the year ending March 31, 2006, $620 million if the forecast allowance is not needed. The first quarter report that is due next month is not audited but it needs to be as accurate as possible since bond rating agencies, economic forecasters and others rely on it. You can get some idea about the accuracy of the quarterly reports by comparing: 1) last year's first quarter report with the budget for 2004-05, 2) the third quarter report that was made public as part of the current budget, and 3) the audited financial statements (public accounts) which were made public on June 29, 2005. In February 2004 the 2004-05 budget forecast a surplus of $100 million, $200 million if the forecast allowance was not needed. In September 2004 the first quarter report revised that forecast to $865 million, $1.165 billion if the increased forecast allowance was not needed. In February 2005 the third quarter report for 2004-05 further revised the forecast and predicted a surplus of $1.440 billion, $1.740 billion if the forecast allowance was not needed. The audited statements released in June 2005 showed a surplus for the year ending March 31, 2005 of $2.575 billion, more than 12 times larger than what was predicted when the budget was tabled, more than double the forecast included in the first quarter report and 50% larger than the revised 2004-05 forecast included in the February 2005 budget shortly before the election.

The significant low-balling of the budget surplus is reminiscent of financial practices in Ottawa. How can government negotiators cry poverty and inability to pay when their union counterparts know that the forecasts consistently underestimate the surplus? Finance Minister Carole Taylor will want to send a message that the BC economy is doing well, but if she fully discloses any windfall in government revenue there will be almost 200,000 public sector workers who will demand a fair settlement based on that prosperity. Like her predecessors she will probably understate revenues, and negotiators who read the report will apply their own form of forecast allowance as an upward adjustment to guess the real figures.