Total revenue projected to increase 2.9 per cent annually
Troy Media – by Central 1 Credit Union
The budget deficit of the provincial government of British Columbia is projected at $2.5 billion in the current fiscal year, declining to $968 million in fiscal 2012 – 2013 with a small surplus emerging in 2013 until 2014 and during the following year.
According to the B.C. Budget released last week, conservative revenue projections and modest expense growth should return the province’s fiscal position to a surplus in fiscal year 2013 to 2014. Revenue surprises will be on the upside and a surplus may emerge one year earlier.
The large deficit in the current fiscal year is largely due to the HST repayment. Debt projections will likely prove too high by a considerable margin. The provincial government’s fiscal position will be viewed favourably by bond rating agencies and business while some others will be disappointed there is not more spending on public services.
The forecast allowance, expense and capital contingencies provide about a $600 million buffer each year. Total provincial debt rises each year and is projected to reach $66.4 billion or 27.8 per cent of GDP in 2014/15.
The budget for 2012 uses conservative economic growth projections for B.C. through to 2016, with nominal GDP growing under 5.0 per cent per year, personal income at around 4 per cent, job growth less than 1.5 per cent, and the unemployment rate declining slowly to 7.1 per cent in 2016.
Total revenue is projected to increase 2.9 per cent annually, with taxation revenue increasing 3.5 per cent, natural resource 7.3 per cent, other revenue 3.5 per cent, commercial crown corporation 1.8 per cent but federal government revenue contracting 0.7 per cent.
Projected natural resource revenue rises sharply in 2013-14 and 2014-15, largely on higher natural gas prices assisted by increasing production volume. Revenue from forests increases each year at a modest pace on constant harvest volumes but higher prices.
Sales tax revenue declines in 2013-14 when the shift back to the PST from the HST occurs. Another revenue decline is in the Property transfer tax during 2012-13.
Operating expense increases 2.5 per cent in 2012/13, 0.8 per cent in 2013/14, and 2.1 per cent in 2014/15 for an average annual increase of 1.8 per cent.
Spending on health services grows 3.3 per cent annually, transportation rises 3.8 per cent, and education grows 1.0 per cent in the three-year fiscal plan.
Debt servicing costs rise at the fastest pace on higher debt and interest rates.
Lower spending is projected for social services at -0.9 per cent annually and for resources and economic development at -0.2 per cent. In both instances, large drops will occur in 2013/14 following substantial increases in the prior fiscal year. The drop in social services spending is entirely due to the elimination of the HST credit for low and modest income persons. The government booked the HST transition repayment of $1.6 billion in 2011/12, which lifted total expenses 8.1 per cent compared to 4.2 per cent for operating expense.
Total expense in 2011/12 is estimated at $44.4 billion compared to $42.8 billion in operating expense.
Spending in the coming fiscal year will match inflation but not inflation and population growth. For the three-year fiscal plan as a whole, annual spending adjusted for inflation and population growth will decline.
This government will likely achieve its spending targets as it has in previous years and the contingencies amounts provide a buffer for any unexpected developments. With one quarter left in the current fiscal year, the government is on track to meet its budget.
The government introduced some new tax measures. The more notable ones are:
- First-time home buyer tax credit: Effective February 21, 2012 to March 31, 2013, a refundable income tax credit for first-time home buyers who purchase a newly constructed home. The credit will be calculated as 5 per cent of the purchase price of the home up to a maximum credit of $10,000 or on the first $200,000 of the purchase price. The credit will be phased out at a rate of 20 per cent of net income in excess of $150,000 for single individuals and at a rate of 10 per cent of family net income in excess of $150,000 for couples. Estimated cost is $24 million.
- Seniors home renovation tax credit: Effective April 1, 2012, a $1,000 refundable personal income tax credit will be available for eligible expenditures to assist with the cost of permanent home renovations that provide individuals age 65 and over with increased independence: estimated cost – $27 million per year.
- Children’s fitness and arts credit: A non-refundable tax credit of $500 each for fitness and arts per child per year for eligible sports or arts programs: estimated cost – $9 million per year.
- BC Training tax credits extended: An additional three years to the end of 2014 as per a previous announcement: estimated cost – $31 million per year.
- Jet Fuel used in international flights exempted: Effective April 1, 2012, exempt jet fuel used in all international cargo and passenger flights: estimated cost – $12 million annually.
- Transition to the PST from the HST: This involves several changes to the Income Tax Act and the Sales Tax, ranging from eliminating HST credits, re-implementing the B.C. Sales Tax Credit, reversing basic personal amount tax credit enhancement, eliminating the HST, and re-implementing the PST.
- New housing rebate threshold increase: Until the PST is re-implemented, the HST applies to sales of new housing and to assist in the transition, the B.C. HST New Housing Rebate threshold will be increased from $525,000 to $850,000 for eligible new housing where the HST is payable on or after April 1, 2012. The maximum rebate available to purchasers will increase from $26,250 to $42,500. Estimated cost is $60 million.
Eliminating the B.C. HST Credit will cost taxpayers an estimated $315 million in 2013/14 and reversing the basic personal amount tax credit enhancement another $195 million.
However, removal of the HST will save taxpayers $6.3 billion yearly while the re-instated PST will extract $5.8 billion for a net tax saving of about $500 million annually. Reverting back to the PST will have a negative Impact on B.C. exporters, investment spending, and employment levels resulting in lower economic and income growth and less revenue for the government.
The first-time buyer tax credit and the higher threshold for the HST rebate will have a positive impact on the housing market and housing construction. The seniors home renovation credit gives a minor boost to renovation spending.
Spending will decline each year to 2014/15 at an average annual rate of 5.2 per cent with a large 15 per cent drop in 2013/14. However, spending on transportation infrastructure and power generation by BC Hydro will be rising. No contingencies allocation was made beyond 2011/12.
Actual capital spending came in well below Budget 2011 estimates for the prior and current fiscal years by $800 million and $100 million, respectively. This pushed more spending into 2012/13 than previously planned by about $1 billion.
There is a reasonable chance that capital spending in 2012/13 will come in below the projected $7.1 billion and the shortfall spill-over into 2013/14.
Taxpayer-supported debt is projected to increase 25.6 per cent or $8.9 billion to $43.7 billion in 2014/15. The large 11.4 per cent or $4.0 billion jump in 2012/13 is driven by a 20.8 per cent or $1.6 billion increase in general direct operating debt and a 9.2 per cent or $800 million increase in transportation-related debt. Taxpayer-supported debt will rise at a diminishing pace in the remaining fiscal years.
Total provincial debt, which includes commercial Crown corporations and agencies self-supported debt, will grow 30.1 per cent or $15.4 billion to $66.4 billion in 2014/15. Total debt rises 13.0 per cent in 2012/13, 8.9 per cent in 2013/14, and 5.8 per cent in 2014/15.
In relation to the size of the economy, the taxpayer-supported debt-to-GDP ratio will increase to 18.3 per cent in 2014/15 from 16.4 per cent in 2011/12. Total provincial debt-to-GDP will rise to 27.8 per cent in 2014/15 from 24.1 per cent in 2011/12.
The interest bite, or cents per revenue dollar, to service the debt will rise to 4.7 cents in 2014/15 from 4.4 cents in 2011/12 due to a combination of more debt and higher interest rates.
Total interest or debt servicing costs rise to $2.8 billion in 2014/15 from $2.3 billion in 2011/12.
Debt levels are rising mainly due to capital spending. There is a good chance that debt will be lower than projected since actual revenue will likely beat projections and there are a number of prudence factors built into the fiscal plan which will result in lower deficits and provincial government directing operating debt.
The same situation emerged last year in Budget 2011 when the deficit came in $1.4 billion lower and government direct operating debt was $1 billion lower.
In addition, the remaining taxpayer supported debt came in $500 million lower while self-supported debt was $450 million lower on less than projected capital spending.
In total, debt was $2.1 billion below budget in 2010/11. Estimates for 2011/12 are $2.5 billion lower in Budget 2012 compared to Budget 2011 and would be another $1.6 billion lower if not for the HST reversal.
The sharp projected run-up in debt for 2012/13 and beyond will likely not come to pass and total debt could be closer to $55 billion in 2012/13 and $60 billion in 2014/15. Debt-to-GDP ratios will rise to about 25 per cent in 2014/15 rather than the projected 27.8 per cent in Budget 2012. The province’s debt load will remain well below the national average and most provinces.
Category: British Columbia