Major Forecast Errors in BC's Budgets

Public Accounts is the name given to the government's official financial statements. Finance Minister Carole Taylor has many reasons to be pleased with the 2005-2006 Public Accounts released July 17th, covering the fiscal year which ended March 31, 2006. As usual, the accounts showed revenue in excess of budget and expenses under budget. Since surpluses automatically pay down debt, Taylor was also able to announce debt reduction.

Revenue was $1.471 billion higher (4.4%) than forecast in the 2005-06 budget; only $167 million of that forecasting error was due to higher natural gas royalties. In other words, the $710 million in negotiating incentive payments for contracts settled prior to March 31, 2006 (with more to come for the teachers who settled in this fiscal year) was not paid out of one time windfall profits, as has been the myth. This year (ending March 31, 2007) natural gas royalties are budgeted to be $722 million higher than last year's budget. If natural gas prices remain at current levels, all of this year's $167 million excess plus at least half the budgeted increase will disappear. Personal income tax revenue, however, came in $565 million higher than originally budgeted. Half of that forecasting error was attributed to revenue from the previous year and half to growth in the current year. The province is always at the mercy of Ottawa in determining the actual amount of income taxes collected, with both positive and negative adjustments in the hundreds of millions sometimes occurring several years after the fact. This year income tax revenue is budgeted to be $645 million higher than last year; it now appears that figure will be added to a higher base which should easily offset the loss in natural gas royalties. It appears that Taylor was not spending one-time windfall money, but has the resources it would have taken to increase base pay rather than use one-time signing bonuses. She has the money necessary to properly address the issue in community care of using an arbitrary standard to cutoff needy clients when they reach age 19 - not to mention the ability to rectify a long list of other neglect in social services.

Prime Minister Harper has been able to capitalize on his predecessor's bad habit of chronically underestimating surpluses. There is a time when it is as bad to consistently be wrong on the surplus side as it is to be wrong on the other side. Whether you prefer to call it over-taxation or neglect of social services, it indicates unacceptably high errors. For the three fiscal years ended March 31, 2002, 2003 and 2004, the Campbell government underestimated revenue by less than 2%. In 2005 the error was 8.4%; in 2006 it was 4.4%. When she tables the First Quarter Financial Report in September, Taylor needs to fix a credibility problem. When she introduces a budget in February 2007, she needs to help British Columbians who have not shared in the province's prosperity.