September 15, 2005

Corporate Gifts in Mini-Budget

It took only 130 days for corporate British Columbia to see an 1810% annual return from the $7.9 million they donated to the Campbell Liberals for the May election. In her September 14th mini-budget, Finance Minister Carole Taylor announced that the corporate tax income rate would be cut from 13.5% to 12.0%. Documents released by the Ministry of Finance at the time of her speech show the cost of that cut, on an annual basis, to be $143 million. That's not the "Christmas in July" that characterized the July 2001 budget, but it's not a bad return each and every year for the foreseeable future.

The high tech tax cut which the Premier announced over the summer was fleshed out by Taylor. The Ministry of Finance estimates it will cost $20 million per year starting January 1, 2006.

The enormous generosity shown the corporate sector helps put announcements for seniors in perspective. Taylor's budget speech began by saying the seniors' supplement would be restored. That was one of the first programs cut by the Campbell government, a cut that help characterize the government as mean to seniors. The seniors' supplement is only available to the lowest income seniors, those in receipt of the guaranteed income supplement (GIS). The $50 a month GIS top up will be restored. Taylor said that would cost $50 million over three years; governments like to inflate spending announcements by totaling the cost over several years. On a full year basis Ministry documents show the cost to be $20 million (14% of what corporations got). Taylor also announced a $17 million per year increase to the SAFER program (shelter aid for elderly renters).

Taylor announced $150 million over the next two years for what she described as new health care money for seniors. The details in the speech and the accompanying documents make it look as if the "new" money is required to fulfill the old promise of 5,000 long term care beds by the extended deadline of 2008.

Taylor included First Nations when she announced $100 million for a "First Nations New Relationship Fund". Budget documents show the $100 million will be fully expensed to the current fiscal year, but the speech provided no details about the fund. That is a small down payment on what it will cost to eliminate inequalities within 10 years and to settle land claims.

Taylor's mini-budget was accompanied by the release of the First Quarterly Report. The 620 million surplus, before the forecast allowance, that was estimated in February, was revised to $1,600 million. Those who follow economic news and read the budget carefully know that Taylor is vastly underestimating the surplus. Her estimate is higher than the February budget because of $824 million more in taxation revenue, $488 million more in resource revenue, and $131 million more in federal transfers as well as lesser adjustments. $282 million of the increase in estimated tax revenue is from personal income taxes, sales tax revenue is $100 million higher and property transfer taxes are $190 million higher, corporate income taxes are $140 million less than estimated in February (partly due to the tax cut). Taylor's estimate for natural resource revenue is based on the assumption that natural gas prices will average $5.71 ($Cdn/gigajoule, plant inlet) between April 1, 2005 and March 31, 2006. On September 14th the US Energy Information Administration's website said that the price at Henry Hub averaged $11.05 per MMBtu last week. Adjusting for currency, place of delivery and differences in units of measurement, that is equivalent to $10.72 ($Cdn/gigajoule, plant inlet), 188% higher than assumed by Taylor for the fiscal year average. If the price remains that high, Taylor's bottom line will reap a windfall of $1.5 billion, putting the surplus at $3.1 billion before the forecast allowance. Who needs a forecast allowance when the revenues are consistently understated by billions?

Opposition Finance Critic, Jenny Kwan, followed Taylor in speaking order and reminded the government that it has a long way to go to fix the damage done by its cuts over the past four years. She will be joined by a full Opposition caucus of 33 members in looking at every line in the budget for every ministry in the days ahead.