November 21, 2008

Second Quarter Credibility

Perhaps it is a coincidence that Finance Minister Colin Hansen moved his Second Quarter Report, up from Friday November 28 to Monday November 24th, the same day the infamous raid-on-the -legislature case is scheduled to go before the court (Bill Tieleman's blog spot is the best place for following that case). News of Hansen's move to advance his announcement came on the day the TSX dropped another 765 points, thereby damaging pension plans, endowment funds, charities and retirement savings. Cynics might think that the Campbell government is trying to drown one bad news story with another. Optimists might think that the government is truly committed to being open and wants to get the latest economic news out while there are four days left in its abbreviated five day fall legislative session.

On November 18th, Alberta announced that its revenues are down $6.7 billion from its first quarter report. It based its second quarter forecast on the assumption of oil at $93.50. That has to be an average over the year, but oil is now trading at under $50.00 with almost half the fiscal year yet to go. Unless there is a turnaround, Alberta will have to announce further reductions in revenue, and possibly a barely balanced budget. Can B.C. be far behind? Oil and gas revenues have protected the B.C. treasury from the collapse of the forest industry, but falling oil and gas prices will eat deeply into those revenues. The Harper government has already discovered the "D" word and is using the G20 meeting to help prepare Canadians for a federal deficit. Canada is losing its share of the take from Alberta's oil fields.

If Finance Minister Hansen is going to have any credibility with his Second Quarter Report, he'll have to admit that a deficit is likely in 2009-2010. Failure to make that admission will put the Campbell government in the position it held in 2001 when it promised not to tear up contracts, only to do so within months of being elected. If the Campbell government doesn't admit that B.C. is likely to run a deficit in 2009-2010, then it's credibility isn't worth the price of a falling share in nearly bankrupt GM.