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August 7, 2011

Uncertain Economic Times

The second global stock market meltdown in three years and the historic downgrading of US credit by Standard & Poor’s probably will have far greater economic impact on British Columbia than whatever happens with the HST. Despite claims by its proponents, investment is determined by many factors, including exchange rates, interest rates, commodity prices, and consumer and investor confidence. Many of those externalities are cause for concern and all are more important than the HST.

In our little corner of the world, Statistics Canada released the July Labour Force Survey the same day balloting closed for the HST referendum. The survey is interesting because it showed the change in BC employment a year after the introduction of the hated tax. When July 2011 is compared to July 2010, employment in BC increased by only 0.3% compared to 1.5% for Canada; full-time employment increased by only 0.5% compared to 2.6% for Canada.

Employment is one of several indicators that has gone flat or worse for the BC economy. Annual growth rates for retail trade, as measured by Statistics Canada, have been below the Canadian average since August 2010. As of May 2011, the most recent available data, BC had annual growth of 1.4% compared to Canada’s 4.0%.

The Budget Transparency and Accountability Act requires that the first quarterly report be made public on or before September 15th. It must include projections of revenue and expenses to the end of the fiscal year, March 31, 2012. While it is increasingly unlikely that Christy Clark will call a provincial election for this fall, even if she does, the first quarterly financial report must still be released by September 15th. What it contains will colour the debate over provincial finances, election or not.

There is unfortunate similarity between the situation faced by former Finance Minister Colin Hansen when he released his first quarterly report on September 12, 2008 and the situation now faced by Finance Minister Kevin Falcon. The September 2008 report covered the first three months of the fiscal year which ended March 31, 2009, on which the public accounts weren’t available until July 2009 – two months after the election and just days before the infamous July 22 HST announcement. The 2008 first quarterly report forecast a surplus for 2008-09 of $1.02 billion, $1.77 billion before the forecast allowance. When Public Accounts were released on July 9, 2009, they showed a surplus of only $0.078 billion.

If an election is called before the scheduled date of May 14, 2013 (Constitution Act, Section 23), the Official Opposition, the media and the voting public will not have the benefit of reliable information on the state of the province’s economy and its finances. How much the quality of the available information will improve by May 2013 is arguable, but by waiting until the scheduled date we would have more on the global economic situation and we would have the audited financial results for fiscal year 2011-12.

BC is fortunate to have many qualified staff working in the Ministry of Finance, but even with a stable of magicians, no one could produce reliable forecasts in today’s uncertain world. The next election should not degenerate into the kind of competing numbers game we have seen over the HST. None of the numbers will be sufficiently reliable so as to be able to hold any political party to account. Decisions will have to be made on which party people trust to act in their best interests in uncertain times.