The B.C. Liberal government has spent months trying to bridge a credibility gap, but Tuesday’s budget will be the crucial test of whether all those taxpayer-funded pre-election ads that are flooding the airwaves have worked.
Finance Minister Mike de Jong’s budget needs to be plausibly in the black. If his government hopes to ride the fiscal plan into the spring election, it cannot offer fantasy revenue assumptions or hopelessly optimistic spending targets.
For added insurance, the government will kick off the week by releasing an independent economist’s report to verify the budget’s revenue assumptions. Tim O’Neill, former chief economist for the Bank of Montreal, was hired by the Premier’s Office to provide an outside opinion on the revenue forecasts. Those pesky forecasts – especially around resource revenues – have proved difficult to pin down. In the current fiscal year, revenue shortfalls have helped drive the projected deficit from $968-million to almost $1.5-billion at last count.
Mr. O’Neill’s recommendations to government, which will be made public on Monday, were “uncomfortable” and resulted in significant changes, a government source says. But it is a necessary step – this budget is all about believability.
And what a large gap Mr. de Jong seeks to close. He has pledged to bring in a balanced budget after his government has consistently missed its targets. Four consecutive deficits are now to be followed by three consecutive surpluses. Even the biggest supporters of his government will be skeptical about how that transformation is to happen.
He will be relying, in part, upon asset sales. The government has already put more than 100 “surplus” assets on the block with little transparency. This budget should shed more light on those transactions, including a hoped-for injection of $290-million for the sale of the province’s Little Mountain property in Vancouver.
Raising personal taxes on the eve of an election isn’t a recipe for victory. It is a better bet Mr. de Jong will discover some tax room on the business side. The previous budget plan included a potential increase to corporate tax rates in 2014, for the first time since the B.C. Liberals came to power in 2001. Moving that timetable up won’t be popular with the corporate set – especially as it loses its harmonized sales tax benefits on April 1. File that one under “difficult choices” that might help the Liberals stay in power.
In 1988, the Social Credit government created the Budget Stabilization Fund – which quickly became known as the B.S. fund – to help produce a surplus for an election year budget.
Mr. de Jong has no such fund at his disposal, it would seem. He might have eyed something like the Children’s Education Fund, a post-secondary fund for children born after 2006, that has now amassed roughly $286-million. But the government cannot count that as new revenue, so there is little relief to be found by siphoning it off.
Still, there is always the opportunity to control spending, right?
The C.D. Howe Institute released its Pinocchio Index report on Friday, demonstrating how governments across the country chronically fail to stick to their spending plans. The B.C. Liberal government is no exception, ranking in the middle of the pack: Over the past decade, it has gone roughly $6-billion over budget.
Mr. de Jong has imposed restraint measures including a hiring freeze in the civil service, a wage freeze for non-union employees across the public sector, and a clampdown on government travel. His “controlled spending” agenda will continue, but as the report shows, spending targets are best taken with a grain of salt.
This week’s budget will see precious little debate in the legislature before the politicians hit the campaign trail. The real budget won’t be passed into legislation until some time after the May 14 election. So Mr. de Jong can only hope voters will believe in his budget, because none of this will be verified until long after the ballots are counted.