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November 28, 2012

Second Quarter Bad News

It is beginning to look a lot like BC might have a structural deficit, yet when releasing his Second Quarterly Report, Finance Minister Mike de Jong would have us believe the 2013-14 budget will be balanced. We haven't heard the term structural deficit thrown around since Gordon Campbell came to power in 2001, declared there was a structural deficit and then proceeded to cut some taxes while raising others.

In fiscal year 2000-2001 total government revenue was $29.69 billion; in 2012-13 it is expected to be $43.10 billion. That's an average annual growth of 3.1%, but the Second Quarterly Report for 2012-13 showed total revenue increasing by only 1.9% from last year. When the current fiscal plan was tabled, government assumed revenue would increase to $44.60 billion in 2013-14, but if it continues to grow at 1.9%, revenue for 2013-14 will suffer a shortfall of $1.1 billion. It is hard to believe that de Jong can balance the pre-election budget with issues like that!

Between fiscal year 2000-2001 and 2012-13, revenue from the MSP tax increased from $894 million to $2.05 billion (128%). Gambling revenue increased from $554 million to $1.12 billion (101%). Revenue from post-secondary education fees increased from $440 million to $1.24 billion in 2010-11 (figures aren't available for this year, but that's an increase of 180% over 10 years).

It's not just regressive taxes that showed big gains over the last twelve years. Transfers from the federal government increased from $3.3 billion in 2000-2001 to $7.3 billion in 2012-13 (121%). Federal transfers are largely for health and social services ($5.6 billion this year), but that growth is coming to a halt with the new formula Prime Minister Harper unilaterally imposed.

Growth in some other sources of revenue is slow or negative. In 2000-2001 natural resource revenue totaled $3.96 billion, consisting mainly of forest revenue at $1.34 billion and natural gas revenue at $1.25 billion. In 2012-13, total natural resource revenue is estimated to be only $2.56 billion, with $546 million from forestry and $157 million from natural gas. This year total natural resource revenue is expected to be only 65% of what it was in 2000-2001.

Revenue from the personal income tax was $5.96 billion in 2000-2001; in 2012-13 it is expected to be $6.90 billion, only 16% greater as a result of twelve years of tax shifts and changes.

It doesn't look like the government's deficit will disappear through good luck with growth or higher resource prices and cutting core services is politically unacceptable. In the short run, deficits can continue, as they have for the past four years, but short of a miraculous change, a serious discussion will have to take place about spending controls combined with alternative ways to increase revenue.

Data used for this article comes from the government's DataBC Dataset "Revenue by Source, 1999-2000 to 2010-11", the 2012-13 budget, and the Second Quarterly Report for 2012-13.