British Columbia's finance minister is backing away from a firm government pledge to balance the budget in time for the next election.
Kevin Falcon delivered his second quarterly financial report Monday saying revenues have decreased by $303-million and the government is now projecting a year-end deficit above $3-billion.
He said deteriorating international economies and declining B.C. corporate income tax revenues and lower commodity prices, especially natural gas, are hitting B.C.'s bottom line.
When asked if he could still meet his government's balanced budget pledge, Mr. Falcon responded: “It depends.
“I'll know by mid-January. The track is very concerning. Balancing in 2013-14, as of today, is still possible.”
But he added: “I am not going to say we can balance. I'm just not going to be irresponsible about saying ‘Damn the torpedoes, it's going to be balanced 2013-14, no matter what' because that may turn out to be a very irresponsible statement if things deteriorate beyond what they are now.”
The deficit for this year is now projected to be $3.1-billion, compared to $2.8-billion projected at the end of the last quarter.
Opposition New Democrat finance critic Mr. Bruce Ralston said he's not surprised Mr. Falcon appears to be backtracking on his promise to balance the books in two years.
He said if he examines Liberal budgets from 2001 when the Liberals first formed government to 2013, they will have tabled seven deficit budgets.
“There's certainly a rhetorical flourish about deficit cutting, but their record has not been that great,” Mr. Ralston said.
Mr. Falcon outlined several risks to the province's financial outlook, including the European debt crisis, the global credit crunch, slower demand for B.C. exports, volatile commodity and energy prices and higher than expected demand for government services.
He said B.C.'s low level of debt – $36.5-billion, its debt-to-gross domestic-product level of 17.2 per cent and the province's triple-A credit rating are positive financial factors working in the province's favour.
“I'm still relatively optimistic,” Mr. Falcon said. “But we are not immune to the forces that are roiling around the world.”
B.C.'s independent Economic Forecast Council recently downgraded the province's economic growth forecast. The group of economic experts now forecasts B.C.'s economy to grow by 2.2 per cent this year, down from its earlier forecast of 2.7 per cent.
The Finance Ministry's economic growth forecast for this year is 2 per cent.
When the budget for the year was presented last February, the government included a $350-million forecast allowance and a $603-million contingency fund, a buffer against dropping revenues.
Mr. Falcon said in September that the province's finances would be hard hit after the defeat of the harmonized sales tax referendum.
Still, he remained steadfast in his pledge to balance the books in the next two years.
British Columbians voted in a referendum this past summer to drop the 12-per-cent HST and return to the former system where most goods are taxed with a 7-per-cent provincial sales tax and a 5-per-cent federal goods and services tax.
Finance officials concluded the decision by voters to drop the HST will have a three-year cumulative effect of $2.3-billion on the budget.
As well, the province has to repay the $1.6-billion Ottawa forwarded to help with transition costs to the much-maligned tax.
Mr. Falcon said the government is still forecasting an 18-month transition period for the province to return to the former PST/GST system. “It is clear it is going to be 18 months,” he said, pointing to a 100-page binder of HST transition rules. “We are going as quickly as we can.”
Mr. Falcon, who referred to the PST as a stupid tax last week in the legislature, said he wants the transition period to end as soon as possible, but he wants to ensure it is done properly.
“Personally, this is the most frustrating, challenging file I've ever had to deal with,” he said.
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