Tim O’Neill gave the B.C. government what it was hoping for Monday – an endorsement by one of the country’s top financial forecasters that its budget numbers are solid. The question now is whether validation from the Bank of Montreal’s former chief economist will help embattled Premier Christy Clark persuade a skeptical public that the budget her government presents Tuesday can be believed.
After all, that was the whole point of this exercise. The Liberals knew that a promise to balance the books in what is a critical pre-election budget would be met with widespread cynicism. Few have forgotten how former Liberal premier Gordon Campbell had boasted in the budget tabled just before the 2009 election that his government had contained the deficit to $495-million – a fiscal miracle, we were led to believe, given the widespread damage caused by The Great Recession.
A fiscal fairy tale as it turned out. The Liberals were off by more than $1.5-billion. It was the first of what turned out to be four consecutive deficits.
But the Liberals know that if they have any hope of winning this election, they need to persuade voters that despite an uneven record managing the province’s books, they are still better than the NDP. That is why tabling a balanced budget became such a priority for Ms. Clark. And that is why getting a respected, outside opinion on their numbers was absolutely crucial.
“The conclusion reached is that economic and revenue expectations are generally well-founded,” Mr. O’Neill wrote in his report.
The economist made one fairly significant recommendation: that the natural-gas price used for the revenue forecast be lowered. Despite the $65-million hit that entailed, the government obliged.
Otherwise, Mr. O’Neill was fairly praiseworthy about a budget preparation protocol that is, he said, rigorous and mostly cautious. And he’s right. The people who work in B.C.’s finance ministry are some of the smartest people around. And government also relies on advice from several outside agencies such as the Economic Forecast Council of B.C. – a group of the province’s top economists – in coming up with its numbers.
Mostly, the government has got into trouble when revenue projections from the resource sector have crumbled. The government would argue that its estimates from this sector always err on the side of caution. Others would say the government has repeatedly missed warning signs that should have prompted it to revise its revenue forecasts from the resource sector downward – especially around natural-gas prices.
It’s interesting that this is the one area that Mr. O’Neill zeroed in on. And was the one area in which the government had to retreat in terms of the numbers it was prepared to use. This is the same sector, it is noted, on which Ms. Clark is staking the economic future of the province. The sector that is supposed to fill the coffers of the proposed Prosperity Fund that would be used to pay off the province’s accumulated debt by 2028.
But as Mr. O’Neill rightly noted, natural-gas revenues have been overprojected in five of the past eight years. And the average size of those variances against other resource sectors is significant – $584-million versus $205-million for forests, for instance. “This is a key reason for my suggesting that the forecast for natural-gas revenues by shaded down further in the upcoming budget,” he said.
Of course, Mr. O’Neill’s report guarantees nothing. He did not look at the other side of the ledger: spending. Granted, this is something far easier for government to control. Mr. O’Neill also did not talk about the potential hit the treasury could take thanks to an ever-softening housing market and a stagnant retail sector.
Nor do we know what size the contingency fund will be in this budget. In the past, the government has socked away several hundred million to access in the event of unexpected emergencies or revenue declines. It’s anticipated that the fund found in Tuesday’s budget will be much more modest in nature. That could present problems.
Still, Mr. O’Neill gave the Liberals what they wanted, a much-needed stamp of approval. Then again, they wouldn’t have allowed him to present a report that excoriated their budget plans. To have any credibility, the government was going to have to address virtually every recommendation its economist-for-hire made, no matter how costly. The Liberals got off the hook relatively easy.
Whether it’s enough to restore the Liberals’ reputation as top-flight fiscal managers is doubtful, however. Over the past decade, they’ve gone roughly $6-billion over budget, according to the C.D. Howe Institute. They’ve run deficits when they said they wouldn’t. In the process, they gave up that ace in the hole that was always available to use against the NDP come election time.
One report doesn’t give them that card back.