Forecasts for 2017 B.C. budget hint at growth and surplus – but no LNG

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The budget presented this week in Victoria was not designed to grab headlines – this was a midterm, stand-pat affair that offered no sweet surprises for the vast majority of voters. Finance Minister Mike de Jong says it is pretty much his perfect election-year budget.

The fiscal plan tabled in the legislature on Tuesday includes three-year forecasts that offer some clues about what the 2017 budget – which happens to be the year of the next provincial election – would look like.

Right now that budget appears to include a small surplus, slow but steady economic growth and some modest room to help low-income British Columbians, but continued restraint in the public sector.

There are risks to those assumptions – outstanding court cases or unexpected shifts in commodity prices, for example, could upset the balance sheet. But the big unknown factor is liquefied natural gas, which was notably absent from this week's three-year plan.

By law, the government will open its Prosperity Fund on Jan. 1, 2017, so that the riches of LNG will begin to collect, as promised in the last provincial election.

Mr. de Jong has not booked any LNG income yet and he said Wednesday that even if an investor jumps in this year and commits to building an LNG plant in British Columbia, it is already too late to start to fill up the Prosperity Fund before the election campaign begins.

"First of all, you have to build the facility, and then the operator is entitled to deduct capital costs. So the real short-term benefit around LNG comes not from the LNG income tax, but from the incremental activity that takes place around the construction," Mr. de Jong told reporters on Wednesday.

As recently as last fall, members of the B.C. Liberal government were still optimistic that at least five LNG proposals will become reality, but the Finance Ministry has treated even construction activity as entirely theoretical. "We are not going to include, until such time as there is a final investment decision, the incremental benefits from LNG," he said.

"If there were a decision this year, they would begin to accrue almost instantaneously."

In the absence of the hoped-for windfall, Mr. de Jong said his dream election-year budget in 2017 would look much like the bland document he produced this week.

"The essence of this fiscal plan is a concerted, conscious effort by government on behalf of the people to build the economy, but take the proceeds that come with that and pay back the money we borrowed and provide benefits where we can to British Columbians who need it most."

However, this week's budget, though it did feature changes designed to help some of the province's most vulnerable citizens, also included what amounts to a tax break for high-income earners – something that doesn't sound like a populist measure in an election year.

The surtax on high-income earners was proposed by the B.C. NDP in the last election, and adopted by the Liberals as part of their pre-election budget in 2013. Now, that surtax is coming off at a cost to the treasury of about $235-million a year.

John Horgan, the New Democratic Party Leader, said that is the feature that British Columbians will remember about this budget.

"What people see and hear in this budget is that the rich got a break and they didn't," he said in an interview Wednesday. "I call that a clang from the government: At a time when they have been preaching to us that we need to tighten our belts, they gave away a quarter of a billion dollars to people who didn't need it. And people who are struggling resent that."

But that is the opportunity of a midterm budget – governments count on the electorate to forget any unpopular measures by the time election day comes around.