February 17, 2009

Budget Non-Confidence

The Campbell government's 2009-2010 budget is significant for the qualifying note provided by Deputy Minister Chris Trumpy who wrote: "The Port Mann Bridge has not been included in the fiscal plan as final agreement has not been reached with the Connect BC Development Group, and accounting treatment has not been finalized." Trumpy also wrote: "The Province is assumed to reach an agreement with the federal government over the funding of Olympic security part of which will require a one-time payment to the federal government before the end of 2008/09." The Port Mann Bridge is estimated to cost over $3 billion and Olympic security costs are expected to approach $1 billion, with the province picking up half of that tab. That means over $3.5 billion in key spending is not included in Campbell's fiscal plan, not counting the $250 million in savings Trumpy mentions as not having an identified source. With no contingencies for settling new collective agreements that expire before the end of the 2009-2010 fiscal year, what's missing from the budget may exceed any new announcements.

The budget speech sounded like the Throne Speech in regurgitating old news. Finance Minister Hansen went on at length about the 10 point plan announced by Campbell in October. The news in the budget was reserved for programs that will take effect in 2011: increase in the industrial property tax credit, increase in the low income climate action tax credit, $200 northern and rural homeowner grant and a school property tax reduction on farmland. It is very unusual for a budget to announce programs that won't start for two years. Hansen said he expects the economy to start to recover in 2010. Why would the Campbell government delay new economic incentives for two years? Perhaps those announcements are all about the election and have nothing to do with restoring confidence in B.C.'s economy.

The government is forecasting a $50 million surplus for the fiscal year that ends on March 31, 2009. That is on total revenues of $38.5 billion and expenses that almost match, so the projected surplus is just over one tenth of one percent. If you think the government will come that close to zero with no error, you might want to finance the Port Mann Bridge with your personal bank account (not that you won't anyway). With revenues collapsing, it is most likely that there will be a deficit for 2008-2009, but we won't know the truth until after the May 12th election when the audited financial statements are made available in late June.

The detailed ministry estimates show the budget for temporary income assistance increasing from $332.6 million this year to $387.7 million next year, an increase of 16.6%. That is an indication of B.C. going into a recession (not of a more generous welfare policy), but it may be a significant underestimate. The most recent statistics released by the ministry show claims for temporary assistance by employable clients up by 30% in December 2008 relative to December 2007. We will have to wait until a "real" budget is presented after the election before finding out whether B.C. will see a repeat of 2002, when social services bore a disproportionate share of savage cuts.

Don't be fooled by the budget's reference to accelerated capital spending. As Trumpy noted, the portion of public sector capital spending that wasn't already planned amounts to $2 billion. Spread over 3 years that is just one third of one percent of GDP - not much stimulus there.

We are all in this boat together so we must hope that the optimism built into the budget comes to pass, but we would be foolish to risk our personal fortunes investing on the assumptions contained in the budget. Be prepared to hear a lot of nonsense between now and May 12th, followed by sudden discoveries of new information that calls for a revision in plans shortly thereafter.