It was only a year ago that the B.C. government had so little credibility in its balanced budget promises that it had to hire an independent economist to verify the fiscal forecasts that would carry the Liberals into the May 2013 election campaign.
On Tuesday, as Finance Minister Mike de Jong faced reporters about his 2014 budget plan, he relished the fact that he wasn’t facing the same skepticism about his balance sheet.
“I remember just a year ago, people – not all of them necessary hostile – saying ‘this notion you guys have of balancing the budget is wishful thinking, it can’t be done’.”
The doubters were not being unreasonable – this is a government that passed a balanced budget law but then ushered in four successive deficits.
To buy back some credibility, economist Tim O’Neill, former chief economist for the Bank of Montreal, was hired on the eve of Budget 2013 to stress-test the assumptions around revenue. His analysis wasn’t entirely flattering: Just a week before sending that budget to the printers, Mr. de Jong was told his natural gas revenues were unjustifiably inflated. That left him scrambling to recalculate the numbers on his precarious surplus budget, trimming roughly $65-million from the revenues he had pencilled in.
But it was a calculated risk because the Liberals desperately needed outside validation. As they prepared for an election campaign in the spring of 2013 where they intended to sell themselves to voters as the best stewards of the budget, revenue shortfalls were showing the projected deficit from $968-million to almost $1.5-billion.
A year later, Mr. de Jong is correct that the doubts about whether B.C. is truly in the black have faded. B.C.’s balance sheet for the year just ending won’t be confirmed until July, but the latest figures point to a surplus of $175-million. The budget for 2014 shows another, equally narrow, surplus of $184-million.
But the doubts have faded not because those figures are assured. In fact there are still things that can go wrong: For example the government could lose its appeal of a recent Supreme Court decision on education staffing, and may have to cough up $1-billion to meet the requirements of the judgment.
But the lack of confidence in the budget assumptions has been replaced with a new challenge. Mr. de Jong is facing skepticism about the Liberals’ future assumptions about liquefied natural gas.
In the 2013 election campaign, the Liberals promised to create a Prosperity Fund by 2017 that would pay off the province’s debt and then, after that, perhaps bankroll tax cuts.
It was a commitment that Mr. de Jong had to back-pedal from in his budget presentation on Tuesday.
When will the fund start collecting revenue? He would not say.
Asked about when he expects the provincial debt will be retired, Mr. de Jong hedged again. “Tackling a debt that has accumulated for many decades is something you do one step at a time,” he said. In fact, the provincial debt is forecast to climb substantially over the next three years.
“The larger revenues we expect from this new (LNG) endeavour won’t present themselves in the next three years, may not present themselves in the next five years. But we are building the foundation upon which that can take place.”
The government has predicted it will see three LNG facilities on line by 2020. It has yet to secure even one final investment decision, and many questions remain for proponents about the investment landscape in B.C. Mr. de Jong says the skeptics should rest easy, that the LNG industry will take root in B.C.
Like their commitment to balanced budgets, however, the Liberals need more concrete proof to put doubts to rest.
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