British Columbia’s economy is picking up steam, with housing prices rebounding faster and higher than expecting, more people finding work and shoppers spending as if the recession never happened.
But the province’s better-than-expected economic performance will likely not mean much this year for the fiscally strapped provincial government, which is spending $1.7-billion more than it is taking in.
Government revenues usually lag behind an economic recovery, B.C. Finance Minister Colin Hansen said Thursday in a brief interview.
Financial losses over the past two years will reduce corporate and personal tax bills for awhile yet. The government will not start to see increased revenue from taxes “until the red ink has worked its way through,” Mr. Hansen said.
The provincial government has seen its natural-gas revenue drop significantly in recent months but other sources of revenue have increased, he also said. “On balance, we are on target,” Mr. Hansen said.
In an economic update released days before the introduction of the new 12-per-cent harmonized sales tax in B.C., BMO Capital Markets says the province’s gross domestic product will grow by 3.9 per cent this year, surpassed only by potash-rich Saskatchewan with a growth rate of 4.2 per cent. Six months ago, BMO economist Doug Porter had forecast a growth rate of 3.1 per cent.
“British Columbia was hit hard during the recession but the province is now firmly in recovery mode,” the BMO update says. “While the temporary boost from the 2010 Olympic Games has faded, strong domestic demand is driving a sustainable recovery.”
Mr. Porter said in an interview Thursday that the B.C. housing and job markets were hit the hardest in the country during the downturn. “[The housing and job markets were] arguably coiled like a spring with the most to bounce back. And that is what we are seeing,” he said. The province has also benefited from the strength of the recovery in Asia, he added.
The introduction of the HST may lead to “a re-ordering” of consumer and corporate spending, Mr. Porter also said. Consumers may shift away from services that will become subject to HST, such as gym memberships, to goods that were already taxed and will not become more expensive, such as home-gym equipment. Corporate spending may also change. For example, some companies may spend on machinery that will be cheaper once the provincial tax is eliminated.
Mr. Hansen, who says the HST will be a significant factor in the province’s economic growth over the next 10 years, anticipates the impact of the new tax this year will be mixed. “Some companies and consumers will see immediate benefits and for others, it is going to take time,” Mr. Hansen said.
