“ We expect revenues to decline and we are revising our deficit calculations as a result,” says Finance Minister Kevin Falcon, in releasing the second quarterly financial report for the B.C. government.
A word of caution should have been included in the report released earlier this week. Some of the most astute finance ministers in Canada routinely underestimate revenues and overestimate spending when making forecasts. Final results invariably come out better than projected.
It’s too early to say whether Kevin Falcon fits the profile. He was appointed Finance Minister last spring and has yet to deliver his first budget.
But he does appear to be playing with numbers by highlighting the drop in revenues over the past three months. He has been less than straightforward in describing the state of the province’s finances.
Mr. Falcon says government revenues dropped $303-million in the second quarter of the fiscal year that begins on April 1. The decrease was “mainly due to lower corporate income tax revenues, the impact of lower commodity prices on natural resources revenue, and reduced net income projections from commercial Crown corporations,” a Finance Ministry news release says.
A more complete account is laid out in the ministry’s financial forecast statement.
As indicated, revenue from corporate income tax was lower than projected in the second quarter, $111-million lower.
But in the first quarter, corporate income-tax revenues were $215-million higher. That means that, contrary to the impression left by Mr. Falcon, the province so far this year has picked up much more in corporate income tax than initially anticipated.
Also, although Mr. Falcon did not mention it, the government has exceeded projections so far this year on revenue from personal income tax ($55-million) and property transfer tax ($100-million).
On commodity prices, not surprisingly, the government has lost revenue as a result of lower international prices on natural resources. Natural-gas royalties were $32-million below forecast in the past three months, $66-million so far this year.
But the outlook improved in the second quarter for revenue from coal, metals and other minerals. The government took in $31-million higher than forecast in the second quarter of the fiscal year, although they are still in the red so far this year.
An unanticipated drop in revenue from Crown agencies was identified as the third reason for revising deficit calculations. At the Insurance Corporation of B.C., higher bodily injury and accident benefit claims, and lower investment income, led to an unanticipated drop of $149-million in the past three months and $290-million since April 1. The shift in ICBC finances accounts for almost half of the government’s unanticipated losses from Crown agencies in the past three months, overshadowing any other change in revenue.
However, the red ink may not be around much longer. ICBC this week announced plans to seek a rate increase.
Mr. Falcon did not pay much attention to the other side of the ledger, government spending. Since the beginning of the year, the government has spent $100-million over budget. With the restraint-minded B.C. Conservatives biting at their heels, the Liberal government will likely try to pare that down by the end of the year.
Mr. Falcon also failed to mention the impact of the HST on the deficit. Slightly more than half of the projected $3.1-billion deficit is due to the repayment of $1.6-billion to the federal government.
Regardless of what Mr. Falcon says about shifts in government revenues and spending cuts, current negotiations with Ottawa over how HST funding will be paid back will likely determine how high the deficit goes.