BC’s massive surplus and deteriorating credibility

The spirit of Paul Martin’s budgeting practices lives on at the BC Ministry of Finance. Today, Finance Minister Carole Taylor published the audited public accounts for 2006/07, with a jaw-dropping $4.1 billion surplus, the largest in provincial history. To put this in context, BC’s estimated GDP in 2006 was $179 billion, so the surplus amounts to 2.2% of GDP.

Back in February 2006, when this budget was tabled, the officially stated surplus was a mere $600 million, and $1.45 billion if a forecast allowance was included. The government thus missed its target by $2.5 to $3.5 billion, depending on which number you use, a figure which is frustrating for folks like me who have been calling for a strategy to fight abject poverty in BC, enhance public services and make the province more sustainable.

At budget time, it was clear to those who knew where to look that the official forecasts were just plain wrong. The budget, amid decent economic growth projections, called for a small drop in revenues. And other contingencies were buried inside the document. In post-budget reaction, I estimated that the final number would come in the $2-3 billion range. So I was wrong, but not by nearly as much as the government (and armed only with a spreadsheet and a calculator, rather than an army of bureaucrats).

Here is the press release we issued on budget day:

2006 BC Budget creates credibility deficit

February 21, 2006

(Vancouver) The Canadian Centre for Policy Alternatives says the provincial government is once again low-balling revenues, understating 2006/07’s projected surplus by about $1.5 billion.

“We need to have an honest budget debate,” says Marc Lee, the CCPA’s Senior Economist. “There are pressing needs in BC that this budget fails to address, yet if you look beneath the surface, the money is there. The government’s revenue forecasts don’t match their own expectations for economic growth, and they have built in huge contingency and forecast allowances that together hide billions of revenues over the next three years. The government is trying to keep expectations low and is short-changing British Columbians in the process.”

“The government deserves credit for not giving into pressure for major tax cuts and for making investments in a few important areas,” says Seth Klein, the CCPA’s BC Director. “However, all of the spending increases are well below what is the CCPA showed is possible in its BC Solutions Budget, released last week.”

“When we are honest about the true size of the surplus, we can make a real difference in peoples’ lives,” says Klein. “We could have a fully funded early learning and child care program — in contrast, this budget adds no new provincial money. We could increase welfare rates by 50%, so that a single person would see their daily living allowance rise from $6 to $9 — but this budget offered no increase to welfare rates. We could get serious about fixing the crisis at the Ministry of Children and Family Development and reinstate an independent Child, Youth and Family Advocate — yet this so-called children’s budget doesn’t go nearly far enough in spending on services for children and families.”

And we were on to them even before that, with the pre-budget release of our 2006 BC Solutions Budget, which was also a gendered budget. Here’s an excerpt from that press release:

Wanted: An honest budget debate

BC Solutions Budget shows money is available to improve lives of women, share benefits of economic growth

February 16, 2006

The provincial government has underestimated its revenues by $7.9 billion over the past four years and continues to low-ball projections. The government’s current “three-year fiscal plan” projects surpluses of just over $1 billion in the next two years. But more realistic estimates, using the Ministry of Finance’s own economic growth forecasts, show that the province can expect surpluses of $2.8 billion in 2006/07 and $3.9 billion in 2007/08.

At the time of the 2007 BC Solutions Budget, I had a revised central estimate of $3.3 billion for the 2006/07 surplus, but included one optimistic and two pessimistic scenarios. The surplus estimate in the optimistic scenario: $4.1 billion. But the biggest burn in all of this is that the media cheerily eat up the government’s spin.

Speaking of spin, the government’s release today put the “surprise” surplus like this:

LARGE SURPLUS BUILDS HOSPITALS, SCHOOLS AND ROADS

VICTORIA – The Province finished its fiscal year with a significant surplus, which helped fund a record investment in public infrastructure and lowered British Columbia’s debt, Finance Minister Carole Taylor announced with the release of the 2006/07 Public Accounts.

The audited financial statements show the Province of British Columbia ended the fiscal year with a surplus of $4.1 billion. The surplus, along with a drawdown of cash balances, allowed the Province to reduce debt by $1.0 billion and finance a record $3.4-billion investment in building and upgrading schools, universities, colleges, hospitals, roads and bridges to improve services and meet the needs of a growing economy.

This is a deceptive spin, and I doubt any media commentators will pick up on it. Here’s why: The operating side of the budget includes current expenditures, with revenues net of expenses yielding the surplus or deficit. To get to final debt numbers, spending in the capital budget (on infrastructure, schools, hospitals and other long-lived assets) is added. These capital expenditures are then expensed in the operating budget over the lifetime of the asset (called accrual accounting). So for the government to say it is using its surplus to build infrastructure, which was being built anyway, and is already accounted for in the operating budget, is a disingenuous spin to cover up an embarrassingly large surplus that should have been spent on program expenditures for schools, early learning, anti-poverty measures and so on, as part of the operating budget.