2009_Budget_Fiscal_Plan

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Unformatted text preview: Budget and Fiscal Plan 2009/10 – 2011/12 February 17, 2009 National Library of Canada Cataloguing in Publication Data British Columbia. Budget and fiscal plan. –- 2002/03/2004/05Annual Also available on the Internet. Continues: British Columbia. Ministry of Finance and Corporate Relations. Budget ... reports. ISSN 1207-5841 ISSN 1705-6071 = Budget and fiscal plan — British Columbia. 1. Budget — British Columbia — Periodicals. 2. British Columbia — Appropriations and expenditures — Periodicals. I. British Columbia. Ministry of Finance. II. Title. HJ12.B742 352.48’09711’05 C2003-960048-3 TABLE OF CONTENTS Budget and Fiscal Plan 2009/10 – 2011/12 February 17, 2009 Attestation by the Secretary to Treasury Board Summary ..................................................................................................................................................... 1 Part 1: Three-Year Fiscal Plan Introduction ......................................................................................................................................... 7 Revenue ............................................................................................................................................... 13 Changes since the first Quarterly Report ..................................................................................... 13 Budget 2009 Plan ............................................................................................................................17 Consolidated Revenue Fund Spending .............................................................................................. 22 Protecting Health Care and Education ............................................................................................23 Sustaining Social Services ................................................................................................................26 Supporting Communities and the Environment ............................................................................27 2010 Olympic and Paralympic Winter Games ...............................................................................29 Administrative and Other Savings ..................................................................................................30 Public Service Transformation Fund ...............................................................................................31 Service Delivery Agencies .................................................................................................................. 31 Further Efficiencies ............................................................................................................................. 32 Full-Time Equivalents .......................................................................................................................... 32 Capital Spending ................................................................................................................................. 33 Projects over $50 million .................................................................................................................38 Provincial Debt ................................................................................................................................... 40 Risks to the Fiscal Plan ....................................................................................................................... 43 Tables: 1.1 Three-Year Fiscal Plan – Operating Statement ................................................................... 7 1.2 Three-Year Fiscal Plan Update – Changes from Budget 2008 .......................................... 8 1.3 Revenue by Source .............................................................................................................. 10 1.4 Expense by Ministry, Program and Agency ........................................................................ 11 1.5 Major Factors Underlying Revenue ..................................................................................... 17 1.6 Personal Income Tax Revenue ............................................................................................ 18 1.7 Corporate Income Tax Revenue .......................................................................................... 19 1.8 Social Service Tax Revenue ................................................................................................. 19 1.9 Health and Social Transfers ................................................................................................. 21 1.10 Sustaining Social Services .................................................................................................... 26 1.11 Supporting Communities and the Environment ................................................................. 28 1.12 Olympics Funding ............................................................................................................... 29 1.13 Managing Down Expenses ................................................................................................. 30 1.14 Administrative Spending – Change from 2008/09 ................................................................31 1.15 Full-Time Equivalents (FTEs) – Changes from Budget 2008 ...............................................32 1.16 Capital Spending ....................................................................................................................34 1.17 Provincial Transportation Investments ..................................................................................35 1.18 Capital Expenditure Projects Greater Than $50 million ........................................................39 1.19 Provincial Debt Summary ......................................................................................................40 1.20 Reconciliation of Summary Results to Provincial Debt Changes .................................... 42 1.21 Provincial Financing .......................................................................................................... 43 1.22 Key Fiscal Sensitivities ...................................................................................................... 44 1.23 Notional Allocations to Contingencies ............................................................................. 46 Budget and Fiscal Plan – 2009/10 to 2011/12 ii Table of Contents Topic Boxes: Presentation of Provincial Government Debt ................................................................................50 The Port Mann Bridge / Highway 1 Project ................................................................................ 52 British Columbia’s Strong Foundation ............................................................................................53 Part 2: Tax Measures Tax Measures – Supplementary Information ........................................................................................64 October 22 and November 1, 2008 Measures ................................................................................64 Budget 2009 Measures ................................................................................................................. 66 Tables: 2.1 Summary of Tax Measures ................................................................................................... 63 2.2 British Columbia Personal Income Tax Cut – Impact on Taxpayers ................................ 65 2.3 Commission Rates ................................................................................................................ 65 Topic Box: Revenue Neutral Carbon Tax ..........................................................................................................72 Part 3: British Columbia Economic Review and Outlook Summary .................................................................................................................................................75 Recent Developments ............................................................................................................................76 The Outlook for the External Environment .........................................................................................78 United States .....................................................................................................................................78 Canada ..............................................................................................................................................81 Other Economies ..............................................................................................................................83 Financial Markets ...................................................................................................................................84 Interest Rates ....................................................................................................................................84 Exchange Rate .................................................................................................................................86 The British Columbia Economic Outlook ............................................................................................87 Labour Market ..................................................................................................................................88 Domestic Demand ...........................................................................................................................88 Business and Government ..............................................................................................................90 External Trade and Commodity Markets ........................................................................................91 Inflation .............................................................................................................................................92 Risks to the Economic Outlook ............................................................................................................93 Tables: 3.1 British Columbia Economic Indicators .................................................................................76 3.2 Ministry of Finance Economic Forecast: Key Assumptions ................................................84 3.3 Private Sector Canadian Three Month Treasury Bill Interest Rate Forecasts ......................85 3.4 Private Sector Canadian 10-year Government Bond Interest Rate Forecasts .....................85 3.5 Private Sector Exchange Rate Forecasts ...............................................................................86 3.6 British Columbia Economic Outlook ....................................................................................87 3.7 Ministry of Finance Economic Forecast: Key Economic Indicators ....................................87 3.8 British Columbia Economic Review ......................................................................................94 3.9.1 Gross Domestic Product: British Columbia ..........................................................................95 3.9.2 Components of Nominal Income and Expenditure ..............................................................96 3.9.3 Labour Market Indicators ......................................................................................................96 3.9.4 Major Economic Assumptions ..............................................................................................97 Topic Box: The Economic Forecast Council, 2009 ...........................................................................................98 Economic Downturns in BC since 1980 .......................................................................................104 Budget and Fiscal Plan – 2009/10 to 2011/12 Table of Contents iii Part 4: 2008/09 Revised Financial Forecast (Third Quarterly Report) 2008/09 Fiscal Year in Review ............................................................................................................107 Changes since the Second Quarterly Report .....................................................................................109 2008/09 Priority Spending .............................................................................................................109 2008/09 Notional Contingencies Allocations ...............................................................................111 Capital Spending and Provincial Debt ................................................................................................112 Tables: 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 Budget 2008 and Quarterly Updates ..................................................................................107 2008/09 Forecast Update ......................................................................................................108 2008/09 Priority Initiatives (Operating) ..............................................................................110 2008/09 Priority Initiatives (Capital) ...................................................................................111 2008/09 Notional Allocations to Contingencies ..................................................................112 2008/09 Capital Spending Update ......................................................................................112 2008/09 Provincial Debt Update ..........................................................................................113 2008/09 Operating Statement ...............................................................................................114 2008/09 Revenue by Source ................................................................................................114 2008/09 Expense by Function .............................................................................................115 2008/09 Expense by Ministry, Program and Agency ..........................................................116 2008/09 Capital Spending .....................................................................................................117 2008/09 Provincial Debt .......................................................................................................118 2008/09 Statement of Financial Position .............................................................................119 Appendices ............................................................................................................................................ 121 Budget and Fiscal Plan – 2009/10 to 2011/12 February 17, 2009 As required by Section 7(d) of the Budget Transparency and Accountability Act (BTAA), and Section 4a(v) 4(a)(v) of the Carbon Tax Act, I am confirming that the Budget and Fiscal Plan contains the following elements: The fiscal and economic forecasts for 2009/10 and the next two years, which are detailed in Parts 1 and 3 of the Budget and Fiscal Plan. All material economic, demographic, taxation, accounting policy and other assumptions underlying the 2009/10 economic, revenue, expenditure, surplus and debt forecasts are also disclosed. In particular: The capital plan includes $2 billion for accelerated infrastructure projects, based on the assumption that the federal government will contribute $1 billion from federal infrastructure programs announced in the January 27 federal budget; The Port Mann Bridge has not been included in the fiscal plan as final agreement has not been reached with the Connect BC Development Group, and accounting treatment has not been finalized. The implications are discussed further in the topic box on the Port Mann Bridge found on page 52 of the Budget and Fiscal Plan; The Province is assumed to reach an agreement with the federal government over the funding of Olympic security part of which will require a one-time payment to the federal government before the end of 2008/09; Unlike recent years, there are no forecast allowances included in the fiscal plan and government will be managing risks to the fiscal plan through expenditure management and use of the contingency vote; Most of the wage agreements reached in the last round of public sector negotiations expire by the end of 2009/10. No funding is included in the fiscal plan for the next round; and Further savings of $250 million are to be identified and achieved by 2011/12. The report on the advice received from the Minister's Economic Forecast Council, which was last updated on January 9, on the economic growth outlook for British Columbia, including the range of forecasts for 2009 and 2010. The major areas of risk to the plan known at this time are disclosed in the risks section in Part 1 starting at page 43 of the Budget and Fiscal Plan, and in the material assumptions tables in the Appendix. A carbon tax report for 2008/09 and a carbon tax plan for 2009/10 to 2011/12 and corresponding material assumptions. These can be are found in the Revenue Neutral Carbon Tax topic box at the end of Part 2: Tax Measures (page 72). Three-year aggregate financial plans for health authorities, school districts, and universities and colleges have been compiled by the Ministries of Health Services, Education, and Advanced Education and Labour Market Development based on funding included in respective ministry budgets. Individual plans for health authorities and post-secondary institutions, including strategies for managing spending pressures, will be subsequently developed and reflected in the updated fiscal plan in the first Quarterly Report. The accounting policies followed in the Budget and Fiscal Plan comply, in all material respects, with generally accepted accounting principles (GAAP) for senior governments. I would like to thank staff in government ministries and agencies for their contribution to this document. During a time of significant uncertainty, I would like to especially recognize the commitment of staff in the Ministry of Finance, whose teamwork and skills were put to the test this year and whose passion was essential to the timely and professional completion of this budget. Chris Trumpy Deputy Minister and Secretary to Treasury Board Ministry of Finance Office of the Deputy Minister Mailing Address: PO Box 9417 Stn Prov Govt Victoria BC V8W 9V1 www.gov.bc.ca/fin Location Address: Room 109 617 Government Street Victoria BC Summary: BUDGET AND FISCAL PLAN – 2009/10 to 2011/12 2008/09 Updated Budget Forecast ($ millions) Revenue ……………………………………………………… Expense …………….....…....………………..……………… Surplus (Deficit) before forecast allowance ………… Forecast allowance …………………………………………… Surplus (Deficit) …………………………………………… Capital spending: Taxpayer-supported capital spending …………………… Total capital spending ……………………………………… Provincial Debt: Government direct operating debt ………………………… Taxpayer-supported debt ………………………………… Total debt …………………………………………………… Government direct operating debt-to-GDP ratio ………… Taxpayer-supported debt-to-GDP ratio ………………… Total debt-to GDP ratio …………………………………… 38,490 (37,690) Budget Estimate 2009/10 38,455 (38,405) Plan 2010/11 38,812 (39,307) 39,795 (40,040) Plan 2011/12 41,182 (41,182) 800 (750) 50 - (495) - (245) - - 50 50 (495) (245) - 3,859 5,766 4,133 5,951 4,746 6,945 4,650 7,155 3,382 5,924 7,408 27,741 37,741 6,437 27,692 37,487 6,847 30,213 40,471 7,104 32,392 44,203 7,074 34,078 47,215 3.7% 14.0% 19.0% 3.2% 13.8% 18.7% 3.5% 15.2% 20.4% 3.4% 15.7% 21.4% 3.3% 15.8% 21.8% Protecting Public Services Budget 2009 projects deficits of $495 million in 2009/10 and $245 million in 2010/11, returning to a balanced budget by 2011/12. The fiscal plan is based on the Ministry of Finance economic forecast that projects real economic growth of minus 0.9 per cent for 2009, recovering to 2.4 per cent in 2010 and 2.6 per cent in 2011. The economic outlook is a significant reversal of expectations at the time of the 2008/09 first Quarterly Report, particularly in 2009. Labour Market Development Agreement that provides training for British Columbians seeking employment, resulting in a net decrease in revenue of $5.8 billion. 3-Year cumulative change in revenue since the first Quarterly Report $ billions Total cumulative change: -$6.6B 0.2 0.3 Federal Contributions* Commercial Crowns (0.3) Government’s economic forecast lowered from the first Quarterly Report (2.8) (4.0) Annual real GDP growth forecast, per cent First Quarterly Report (Sep 2008) 4.0 Budget 2009 (Jan 2009) 2.9 3.0 2.0 2.8 2.4 2.3 2.6 1.7 Taxation 1.0 0.0 2008 Other * Excludes $870 million in funding for the LMDA transfer 1.0 -1.0 Natural Resources -0.9 2009 2010 2011 The economic downturn resulted in a reduction of $6.6 billion in revenue over the fiscal plan period since the September Budget Consultation Paper. This loss will be partially offset by $870 million in federal funding that comes with transfer of responsibilities under the Overall, spending is projected to increase by $2.8 billion over the fiscal plan period. This includes spending associated with the Labour Market Development Agreement. Excluding the agreement, projected spending represents an average annual growth of 2.2 per cent. By achieving $1.9 billion of savings, government is able to maintain services during the economic downturn while providing additional spending in key areas. Budget and Fiscal Plan – 2009/10 to 2011/12 2 Summary Domestic Economy Contracts BC’s economic forecast for 2009 reflects the sharp US and global economic slowdown, moderating domestic demand, as well as instability in global financial and commodity markets. In the medium term, BC’s economy is expected to return closer to historical levels of growth, due primarily to an anticipated recovery of US demand (particularly in the housing sector) and a gradual rise in commodity prices. Forecast Ministry of Finance 4.0 The capital plan includes $2 billion for accelerated infrastructure projects and assumes federal contributions of $1.0 billion, from infrastructure stimulus funds announced in the federal budget on January 27, 2009. Construction investments of $10.6 billion are also included in the Province’s capital plan (i.e. excluding information technology projects, land purchases, and vehicle purchases). BC’s economy to rebound in 2010 BC Real GDP Per cent change Infrastructure spending on transit, roads, schools, hospitals, post secondary facilities, electrical generation, transmission and distribution projects and other capital assets totals $20 billion over the three year period of the fiscal plan. Economic Forecast Council 2.8 3.0 2.4 2.6 2.6 2.6 2.6 2.6 2.6 2.0 1.0 1.3 An additional $1.4 billion in local infrastructure projects is being built in partnership with local governments and the federal government. 1.0 These investments are estimated to generate 88,000 direct construction jobs over the next three years. 0.0 0.0 -1.0 -0.9 -2.0 2008 e 2009 2010 2011 2012 2013 Healthcare funding increases e: estimate Note: the EFC provided an average forecast for 2011 to 2013 on January 9, 2009 6.2% $15,821 ($ millions) Indicators of economic performance through most of 2008 confirm that British Columbia’s economy slowed considerably in the latter half of the year. On the domestic side, monthly retail sales and housing starts declined significantly since July. The employment situation has also weakened in recent months, with the unemployment rate climbing by 1.6 per cent from July to January. On the trade side, the value of manufacturing shipments fell steadily through most of 2008 due mainly to reduced demand for BC’s forest products from the troubled US economy. However, total exports from BC increased year-to-date to November 2008, driven by high energy prices pushing up the value of energy exports. Infrastructure Program Budget 2009 continues government’s commitment to an infrastructure spending plan that includes the acceleration of a number of new projects in order to keep British Columbians working and help stimulate the economy. 5.7% $14,901 Budget 2008 Base 5.7% $14,095 $25 $920 $1,572 $1,572 2010/11 Budget 2009 increase $945 3-year total increase: $4,830 Total previous increases $3,885 2011/12 $741 $13,329* 2008/09 2009/10 * Before $120 million Supplementary Estimates Protecting Healthcare and Education Budget 2009 confirms government’s commitment to health care and provides an additional $920 million for the Ministry of Health Services and health authorities in 2011/12, for an annual 6 per cent increase in funding for the third year of the fiscal plan. This funding is in addition to $3.9 billion over 3 years allocated previously in Budget 2008. Budget 2009 maintains operating grant funding to school districts at previously announced funding levels. Despite enrolment declines over the next 3 years, the total budget for K-12 education continues to increase, resulting in higher levels of per pupil funding at the school district level. Budget and Fiscal Plan – 2009/10 to 2011/12 3 Summary provide additional support to individuals and families who experience difficulty in paying for their basic living necessities and will require income assistance. Per pupil funding rises while student enrolment drops Enrolment (FTEs) Per Pupil Funding $8,500 600,000 Funding Increasing 590,000 $8,000 580,000 Sustaining Social Services $7,500 570,000 ($ millions) $7,000 560,000 Enrolment Declining 550,000 Acquisition of social housing ………………………… Children and Families – Supporting families and children in care …………… – Child care subsidies ………………………………… – Supporting children with special needs …………… $6,000 530,000 FTE per pupil $ $5,500 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 Budget 2009 also increases access to postsecondary education and training throughout the province by providing $244 million over three years in new operating funding, including $228 million to post-secondary institutions and $16 million to support immigrant workers over three years. Post-secondary funding increases 39 per cent increase in funding since 2001/02 $1,924 $ millions $1,794 $1,707 $1,573 $1,494 $1,383 $1,407 $1,401 $1,420 1 110 73 Total …………………………………………………… 540,000 30 Subtotal ……………………………………………… Supporting adults with developmental disabilities … Income assistance for individuals and families in need ………………………………………………… Policing and victim support …………………………… $6,500 520,000 4-year Total 1 381 47 25 38 110 58 See page 26 for further information. Supporting Communities and the Environment Budget 2009 provides $479 million over four years, to support economic activity in communities throughout the province during the economic downturn, maintain BC as a leader in environmental protection and funds initiatives to support local government priorities and provide greater flexibility to address immediate needs including community safety. Supporting Communities and the Environment ($ millions) 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 Supporting Communities 2009/10 – Improving access for shale gas development …………………… – Improvements for rural resource roads …………………………. – Community economic development ………………………… ...... – Towns for Tomorrow: cost shared community infrastructure … – Local transportation projects to accelerate job creation ……… – Bulkley-Nechako / Kitimat-Stikine Regional District grants …… – Internet connectivity for rural communities ……………………… – Peace River Regional District infrastructure …………………… – Local government priorities, including community safety ……… Budget 2009 ensures that programs and services that enhance the quality of life for British Columbians in need are protected, and provides $381 million over four years to: maintain previous funding commitments that implement new and expanded measures to help break the cycle of homelessness and support low income seniors and families; 6 20 30 50 20 3 5 9 151 Subtotal ………………………………………………...…………… Sustaining Social Services 294 Targeted Measures – Michael Smith Foundation for health research ………… – Provincial Transit Plan additional operating funding …………… Subtotal ……………………………………………………………… 15 59 74 Continued Environmental Leadership support priority programs and services for families and communities to care for and protect vulnerable children and youth; support programs and services to adults with developmental disabilities and their families, including continued access to community living services such as respite care, residential placements and life skills training; and 4-Year Total 1 – Carbon tax rebates for local government ………………………… – Extending the ICE fund for green technology advancements … – Planning for Capital Regional District water treatment facility … – Trees for Tomorrow : planting trees in public places …………… – BC portion of the Hydrogen Highway …………………………… Subtotal ………………………………………………...…………… 111 Total …………………………………………………………………… 1 15 75 2 479 See page 28 for further information. Budget and Fiscal Plan – 2009/10 to 2011/12 11 8 4 Summary Tax Measures Return to Balanced Budgets by 2011/12 On October 22, 2008, government announced economic stimulus measures including the accelerated personal income tax cuts and small business tax relief. The 3 per cent reduction in the rates for the two lowest income tax brackets, combined with the 2 per cent reduction in Budget 2008, provides a $211 million reduction in 2008 taxes for British Columbians to help stimulate the economy. Government maintains its practice of strong fiscal management by requiring the budget to be balanced by the third year of the fiscal plan. In addition, the exemption to the balanced budget legislation requires government to use any future year end surpluses to eliminate direct operating debt, prohibiting Supplementary Estimates until the direct operating debt is eliminated. Government also introduced a temporary property tax deferment program for homeowners who are experiencing financial hardship due to current economic conditions. BC will return to balanced budgets in 2011/12 Surplus / (deficit) $ millions Balanced budget by 2011/12 $4,056 $2,575 Administrative Efficiencies Government is managing down expenses in order to protect health care, education and social service programs. Significant savings in administrative and other discretionary spending will be achieved, and some government programs will be streamlined. Budget 2009 reallocates $1.9 billion in administrative and other savings over 3 years to health care, education and social service programs as well as to support other priority programs that provide public services. 2008/09 2009/10 Estimates Estimates Expense category: – Boards, commissions and courts (fees and expenses) ………………… – Public servant travel ………………… – Professional services ……………… – Office and business expenses ……… – Informational advertising and publications ………………………… – Operating equipment and vehicles… – Transfers – grants (discretionary) … Total savings ………………………… $2,886 Two years of deficits $50 ($1,233) ($495) ($245) ($1,339) ($3,169) 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 Debt Remains Affordable Administrative Spending – Change from 2008/09 ($ millions) $3,060 $ Change % Change 11 74 769 116 10 58 592 106 (1) (16) (177) (10) -5% -22% -23% -8% 30 135 826 7 123 768 (23) (12) (58) -76% -9% -7% 1,961 1,664 (297) Significant progress has been made in reducing the taxpayer supported debt burden over the past five years. The taxpayer-supported debt to GDP ratio has declined from 21.3 per cent in 2002/03 to 13.8 per cent by 2008/09, a 35 per cent reduction. Due to significant infrastructure investments and weaker economic growth, the taxpayer-supported debt to GDP ratio is forecast to increase from 13.8 per cent in 2008/09 to 15.8 per cent in 2011/12. Debt remains affordable, despite the global economic downturn. -15% Taxpayer-supported debt burden remains low Government has also established a Transformation Fund within the Public Service Agency. The fund will be used to strategically invest in priority job streams and targeted recruitment, and to fund opportunities where the approach to work can be re-tooled to deliver quality services to citizens with fewer staff. In addition, government will continue to review its operations to achieve a further $250 million in annual efficiencies by the end of 2011/12. per cent 21.3% 20.6% 20.8% 20.0% 20.2% 20.3% 3-year moving average debt to GDP ratio Forecast 20.6% 18.3% 18.2% 16.1% 15.7% Annual debt to GDP ratio 01/02 02/03 03/04 04/05 05/06 Budget and Fiscal Plan – 2009/10 to 2011/12 15.6% 14.0% 14.2% 15.8% 15.2% 14.7% 16.1% 14.9% 14.3% 13.8% 13.8% 06/07 07/08 08/09 09/10 10/11 11/12 Summary 5 The outcome of litigation, arbitrations, and negotiations with third parties. Risks to the Fiscal Plan The main risks to the government fiscal plan on the economic side include a protracted period of low economic growth in the US, reduced global demand for BC’s exports, continuing turmoil in global financial markets, and further weakening of domestic demand. Other risks include exchange rate movements or changes in natural gas, lumber or other commodity markets, as well as service demand pressures on the expenditure side. No funding is included in the fiscal plan for the next round of public sector wage negotiations. As the agreement has not been finalized, the fiscal implications of the Port Mann Bridge/ Highway 1 project, which will be funded from tolls, are not included in Budget 2009. Other major risks to the fiscal plan stem from changes in factors that government does not directly control. These include: Assumptions underlying revenue and Crown corporation and agency forecasts such as economic factors, commodity prices and weather conditions. Utilization rates for government services such as health care, children and family services, and income assistance. Potential changes to federal transfer allocations, cost-sharing agreements with the federal government and impacts on the provincial income tax bases arising from federal tax policy and budget changes. The impact of the recent federal income tax reductions on the economy was not anticipated when the economic forecast was finalized. The fiscal plan includes contingencies of $385 million in 2009/10, $300 million in 2010/11 and $250 million in 2011/12 to help ensure the fiscal targets are met. Conclusion In summary, Budget 2009: provides a $2.0 billion accelerated infrastructure program to keep people at work in the construction sector over the next three years; protects public services and provides additional funding for health care, education and social services; reduces administrative and other costs and returns to balanced budgets by 2011/12; and keeps debt affordable. Budget and Fiscal Plan – 2009/10 to 2011/12 Part 1: THREE-YEAR FISCAL PLAN Table 1.1 Three-Year Fiscal Plan – Operating Statement 2008/09 Updated Budget Forecast ($ millions) Budget Estimate 2009/10 Plan 2010/11 Plan 2011/12 38,490 (37,690) 38,812 (39,307) 39,795 (40,040) 41,182 (41,182) Taxpayer-supported programs and agencies: Revenue ………………………………………………………… Expense …………….....…....………………..………………… Surplus (deficit) before forecast allowance ………………… Forecast allowance ……………………………………………… Surplus (deficit) ………………………………………………… 38,455 (38,405) 800 (750) 50 - (495) - (245) - - 50 50 (495) (245) - Introduction Budget 2009 reflects government’s response to the recent unprecedented drop in provincial revenues resulting from the global economic downturn. Despite economic stimulus measures and a comprehensive review of government operations to achieve administrative cost savings, revenue weakness has required the government to suspend its balanced budget legislation for a period of two years in order to protect vital health care, education and social services. Budget 2009 projects deficits of $495 million in 2009/10 and $245 million in 2010/11. Nonetheless, government maintains its practice of strong fiscal management by requiring the budget to be balanced by the third year of the fiscal plan. In addition, the exemption to the balanced budget legislation requires government to use any future year end surpluses to eliminate direct operating debt, prohibiting Supplementary Estimates until the direct operating debt is eliminated. The fiscal plan is based on the Ministry of Finance economic forecast that projects real economic growth of minus 0.9 per cent for 2009, recovering to 2.4 per cent in 2010 and 2.6 per cent in 2011. The Ministry of Finance’s outlook for 2009 is significantly lower than the outlook provided by the Economic Forecast Council. This greater-than-normal level of prudence recognizes the potential for further forecast downgrades by the private sector due to continuing economic and financial turmoil in global markets. The economic outlook is a significant reversal of expectations at the time of the 2008/09 first Quarterly Report, particularly in 2009. Full details of the economic forecast are found in Part 3: British Columbia Economic Review and Outlook. The economic downturn resulted in a reduction of $6.6 billion in revenue over the fiscal plan period since the September Budget Consultation Paper. This loss was partially offset by $870 million in federal funding that comes with transfer of responsibilities under the Labour Market Development Agreement that provides training for British Columbians seeking employment, resulting in a net decrease in revenue of $5.8 billion as shown in Table 1.2. Government is managing down expenses in order to protect health care, education and social service programs. Significant savings in administrative and other discretionary spending will be achieved, and some government programs will be streamlined. Budget 2009 reallocates $1.9 billion in administrative and other savings over 3 years to health care, education and social service programs as well as to support other priority programs that provide public services. Budget and Fiscal Plan – 2009/10 to 2011/12 8 Three-Year Fiscal Plan Table 1.2 Three-Year Fiscal Plan Update – Changes from Budget 2008 ($ millions) 2008/09 Budget 2008 Fiscal Plan Surplus (February 19, 2008) ………………………… 50 Budget 2009 Consultation Paper – available revenue ……………………… 970 Updated fiscal plan before revenue changes and spending initiatives …… 1,020 Revenue changes: Personal income tax: Personal income tax – prior year adjustment ............................................ (94) Personal income tax .................................................................................. (285) Corporate income tax .................................................................................... 311 Social service tax .......................................................................................... (234) Carbon tax ..................................................................................................... (38) Property tax ................................................................................................... (24) Property transfer tax ...................................................................................... (165) Other tax sources .......................................................................................... 4 Forests .......................................................................................................... (103) Natural gas royalties ...................................................................................... (356) Other energy, metals and minerals ............................................................... (214) Other fees and licenses ................................................................................. (101) Investment earnings ……………………………………………………………… (76) Health and social transfers ……………………………………………………… 49 Labour Market Development Agreement ……………………………………… 48 Other federal transfers …………………………………………………………… (24) Other taxpayer-supported revenue ……………………………………………… (55) Commercial Crown agencies operating results: BC Hydro – mainly increase in allowed return on equity ........................... (4) Liquor Distribution Branch – mainly increased product sales .................... 13 ICBC – mainly lower claims costs and operating efficiencies partially offset by lower premium and investment revenue .................................. 131 BC Railway Company – mainly delay in surplus property sales ................ (25) 4 Other commercial Crown agencies changes ............................................. Total revenue changes ……………………………………………………… (1,238) 750 Forecast allowance updates ……………………………………………………… 2009/10 2010/11 2011/12 150 1,015 150 385 150 1,500 1,165 535 1,650 (363) (122) (363) (85) (73) (175) (20) (226) (553) (433) (13) (40) 61 290 59 (88) (325) (244) (421) (126) (122) (100) (47) (158) (346) (363) (66) (25) 6 290 67 (112) (116) (363) (460) (175) (183) (70) (43) (269) (145) (301) (73) 63 (34) 290 70 (23) 41 33 37 44 43 58 13 (5) 9 (2,053) 1 21 4 (1,985) 38 (1) (19) (1,713) 675 675 675 120 30 213 48 125 (23) 22 22 (123) 48 482 25 71 119 104 50 (589) 290 (5) (64) 36 66 179 282 86 127 63 25 (650) 290 (100) (400) (5) 109 50 (125) (530) 920 87 105 99 (631) 290 (150) (400) 160 63 390 (71) (250) 612 50 (495) (245) Less : expense increases (decreases): Strategic priorities: Healthcare (Chart 1.13) ............................................................................. Post-secondary education ......................................................................... Sustaining social services (Table 1.10) ..................................................... Supporting communities and the environment (Table 1.11) ...................... Public service transformation ………………………………………………… Administrative and other savings................................................................... Labour Market Development Agreement ……………………………………… Adjust contingencies …………………………………………………………… Remove allocation for future wage increases …………………………………… Debt servicing (including MOPD) .................................................................. Additional expense recovered from external sources ………………………… Impact of transportation investment plan and infrastructure spending ……… Ministry year-end savings redirected to priorities ……………………………… Other spending changes ………………………………………………………… Further efficiencies ………………………………………………………………… Total expense increases (decreases) ……………………………………… Budget 2009 Updated Fiscal Plan Surplus (Deficit) …………………………… Budget and Fiscal Plan – 2009/10 to 2011/12 - 9 Three-Year Fiscal Plan Chart 1.1 Revenue and spending trends $ billions 43 $41.2 41 $40.0 $39.8 Revenue $38.5 39 $39.3 $38.5 $39.8 $38.4 37 $38.8 $36.0 $36.9 35 $33.4 33 $34.4 $30.7 $30.5 $30.4 31 Spending $30.6 29 $29.2 27 $32.9 $28.2 Forecast/plan $27.8 25 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 Overall, spending is projected to increase by $2.8 billion over the fiscal plan period. This includes spending associated with the Labour Market Development Agreement. Excluding the agreement, projected spending represents an average annual growth of 2.2 per cent, slightly higher than inflation. This will enable government to maintain services during the economic downturn while providing additional spending in key areas. In 2008/09, ministry savings and a reduced forecast allowance have enabled government to allocate $622 million to priority initiatives, primarily to address the impact of the economic downturn. Government intends to introduce Supplementary Estimates to obtain the necessary legislative appropriations to fund these initiatives. (See Part 4: 2008/09 Revised Financial Forecast (third Quarterly Report) for further details). Budget 2009 continues government’s commitment to an infrastructure spending plan that includes the acceleration of a number of new projects in order to keep British Columbians working and help stimulate the economy. Infrastructure spending on transit, roads, schools, hospitals, post secondary facilities, electrical generation, transmission and distribution projects and other capital assets totals $20 billion over the three year period of the fiscal plan. The capital plan includes $2 billion for accelerated infrastructure projects and assumes federal contributions of $1.0 billion from infrastructure stimulus funds announced in the federal budget on January 27, 2009. More information on the three-year capital spending plan is found on page 33. Since peaking in 2003/04, government has made significant progress in reducing taxpayer-supported debt, including the operating debt. Taxpayer-supported debt has declined from $30.0 billion in 2003/04 to $27.7 billion by 2008/09. Operating debt has been reduced by 59 per cent from a peak of $15.7 billion in 2003/04 to $6.4 billion in 2008/09. These reductions allow government the flexibility to address the current economic challenges, while keeping debt affordable. Budget and Fiscal Plan – 2009/10 to 2011/12 10 Three-Year Fiscal Plan Table 1.3 Revenue by Source 2008/09 Revised Forecast Budget Estimate 2009/10 6,700 1,343 5,284 957 338 705 1,861 1,020 601 18,809 6,219 2,037 4,998 912 300 713 1,840 735 610 18,364 6,562 1,529 5,087 914 546 687 1,881 685 594 18,485 6,942 1,072 5,299 920 754 687 1,936 720 553 18,883 7,366 923 5,533 928 968 687 1,967 750 570 19,692 1,165 952 1,606 3,723 1,376 587 2,048 4,011 1,014 609 2,007 3,630 1,156 707 2,046 3,909 1,281 700 2,030 4,011 1,571 2,505 884 2,509 7,469 1,577 2,430 839 2,474 7,320 1,591 2,518 918 2,475 7,502 1,613 2,501 1,005 2,503 7,622 1,635 2,519 1,095 2,562 7,811 4,794 1,015 5,809 4,693 1,223 5,916 4,910 1,460 6,370 5,110 1,408 6,518 5,316 1,396 6,712 358 854 1,101 272 95 2,680 357 867 1,101 459 60 2,844 452 896 1,154 260 63 2,825 493 918 1,198 192 62 2,863 542 938 1,228 217 31 2,956 Total revenue …………………………………………………………… 38,490 38,455 38,812 39,795 41,182 ($ millions) Budget Taxation revenue Personal income ……………………………………………………… Corporate income …………………………………………………… Social service ………………………………………………………… Fuel …………………………………………………………………… Carbon ………………………………………………………………… Tobacco ……………………………………………………………… Property ……………………………………………………………… Property transfer …………………………………………………… Other 1 ………………………………………………………………… Natural resource revenue Natural gas royalties ………………………………………………… Forests ………………………………………………………………… Other resource 2 ……………………………………………………… Other revenue Medical Services Plan premiums …………………………………… Other fees 3 …………………………………………………………… Investment earnings ………………………………………………… Miscellaneous 4 ……………………………………………………… Contributions from the federal government Health and social transfers ………………………………………… Other federal contributions 5 ………………………………………… Plan 2010/11 Plan 2011/12 Commercial Crown corporation net income BC Hydro ……………………………………………………………… Liquor Distribution Branch …………………………………………… BC Lotteries (net of payments to federal government) …………… ICBC 6 ………………………………………………………………… Other …………………………………………………………………… 1 Corporation capital, insurance premium and hotel room taxes. 2 Columbia River Treaty, other energy and minerals, water rental and other resources. 3 Post-secondary, healthcare-related, motor vehicle, and other fees. 4 Includes asset dispositions, reimbursements for health care and other services provided to external agencies, and other recoveries. 5 Includes contributions for health, education, community development, housing and social service programs, and transportation projects. 6 The 2008/09 amounts represent ICBC's projected earnings during government's fiscal year. On ICBC's fiscal year basis (December), the outlook for 2008 is: (budget) – $272 million; (forecast) – $498 million. For 2009/10 to 2011/12, the fiscal year and calendar year projections are assumed to be the same. Budget and Fiscal Plan – 2009/10 to 2011/12 11 Three-Year Fiscal Plan Table 1.4 Expense by Ministry, Program and Agency 2008/09 Budget1 Revised Forecast Budget Estimate 2009/10 Plan 2010/11 Plan 2011/12 14 14 12 12 11 62 2,075 289 546 1,389 238 5,117 73 263 234 806 13,329 72 2,602 102 624 67 353 771 62 2,056 249 546 1,389 238 5,115 72 251 231 770 13,329 66 2,602 102 624 67 349 771 51 2,260 298 556 1,403 197 5,179 73 239 153 768 14,095 71 2,641 78 647 85 55 766 47 2,262 232 549 1,414 182 5,215 50 237 116 692 14,901 71 2,651 73 630 79 51 790 46 2,237 230 534 1,414 234 5,231 55 234 104 696 15,821 72 2,617 64 625 79 51 844 Total ministries and Office of the Premier ………… 29,026 28,903 29,627 30,254 31,199 Management of public funds and debt ……………………………… 1,262 Contingencies ……………………………………………...………… 342 Funding for capital expenditures …………………………………… 972 137 Legislative and other appropriations ……………………………… 1,212 342 899 137 1,200 385 1,323 165 1,292 300 1,347 127 1,330 250 1,017 125 Subtotal ………………………………………………… ($ millions) Office of the Premier ………………………………………………… Aboriginal Relations and Reconciliation …………………………… Advanced Education and Labour Market Development ………… Agriculture and Lands ………………………………………………… Attorney General ……………………………………………………… Children and Family Development ………………………………… Community Development …………………………………………… Education ……………………………………………………………… Energy, Mines and Petroleum Resources ………………………… Environment ………………………………………………………… Finance ………………………………………………………………… Forests and Range …………………………………………………… Health Services ……………………………………………………… Healthy Living and Sport …………………………………………… Housing and Social Development ………………………………… Labour and Citizens' Services ……………………………………… Public Safety and Solicitor General ………………………………… Small Business, Technology and Economic Development ……… Tourism, Culture and the Arts ……………………………………… Transportation and Infrastructure …………………………………… Priority spending initiatives ………………………………………… 31,739 - 31,493 622 32,700 - 33,320 - 33,921 - Consolidated revenue fund total expense ………………..……… 31,739 32,115 32,700 33,320 33,921 Expenses recovered from external entities ……………………… 1,892 2,193 2,402 2,385 2,450 School districts ………………………………………………………… 301 268 273 296 329 Post-secondary institutions ………………………………………… Health authorities and hospital societies …………………………… Other service delivery agencies …………………………………… 2,185 427 1,146 4,059 2,174 520 1,135 4,097 2,176 686 1,070 4,205 2,378 653 1,133 4,460 2,564 727 1,441 5,061 Subtotal expense ……………………………………………………… 37,690 38,405 39,307 40,165 41,432 - - - Total expense …………………………………………………………… 37,690 38,405 39,307 Externally-funded service delivery agency expense: Further efficiencies ...................................................................... 1 (125) 40,040 The 2008/09 budget estimate and revised forecast have been restated to reflect government's current organization and accounting policies. Budget and Fiscal Plan – 2009/10 to 2011/12 (250) 41,182 12 Three-Year Fiscal Plan Taxpayer-supported debt is forecast to increase to $34.1 billion by 2011/12, reflecting the significant infrastructure investments planned over the next three years that will benefit future generations of British Columbians, and the forecast deficits over the next two fiscal years. Total provincial debt, which includes commercial Crown agency debt, is forecast to increase over the next three years to $47.2 billion by 2011/12, primarily reflecting additional investment in improving and expanding British Columbia’s hydro generation assets. Significant progress has been made in reducing the taxpayer supported debt burden over the past six years. The taxpayer-supported debt to GDP ratio has declined from 21.3 per cent in 2002/03 to 13.8 per cent by 2008/09, a 35 per cent reduction. Due to significant infrastructure investments and weaker economic growth, the taxpayersupported debt to GDP ratio is forecast to increase from 13.8 per cent in 2008/09 to 15.8 per cent in 2011/12. Debt remains affordable, despite the global economic downturn. Additional information on the debt outlook is found starting on page 40. Chart 1.2 Taxpayer-supported debt burden remains low per cent 21.3% 20.6% 20.8% 20.0% 20.2% 20.3% 3-year moving average debt to GDP ratio Forecast 20.6% 18.3% 18.2% 16.1% 15.7% Annual debt to GDP ratio 14.7% 16.1% 01/02 02/03 03/04 04/05 05/06 15.6% 14.0% 14.2% 15.8% 15.2% 14.9% 14.3% 13.8% 13.8% 06/07 07/08 08/09 09/10 10/11 11/12 The main risks to the government fiscal plan include a protracted period of low economic growth in the US, reduced global demand for BC’s exports, continuing turmoil in global financial markets, and further weakening of domestic demand. Other risks include exchange rate movements or changes in natural gas, lumber or other commodity markets, as well as service demand pressures on the expenditure side. These and other risks are more fully described starting on page 43. The fiscal plan includes contingencies of $385 million in 2009/10, $300 million in 2010/11 and $250 million in 2011/12 to help ensure the fiscal targets are met. In addition, government will continue to review its operations to achieve a further $250 million in annual efficiencies by the end of 2011/12. The budget provides no funding for annual wage increases in the next round of public sector bargaining. The three-year fiscal plan conforms to the standards set by the accounting profession for senior governments in Canada referred to as generally accepted accounting principles or “GAAP”. Budget and Fiscal Plan – 2009/10 to 2011/12 13 Three-Year Fiscal Plan Revenue Changes since the first Quarterly Report Since the updated fiscal plan released September 12, 2008 in the 2009 Budget Consultation Paper, the revenue forecast has declined $1.2 billion, $2.1 billion, $2.0 billion and $1.7 billion in the four years 2008/09 to 2011/12, respectively. Changes to the 2008/09 revenue forecast are detailed in Part 4: 2008/09 Revised Financial Forecast (third Quarterly Report). Chart 1.3 Three-year cumulative change in revenue since the first Quarterly Report $ billions Total cumulative change: -$6.6B 0.2 0.3 Federal Contributions* Commercial Crowns (0.3) (2.8) (4.0) Taxation Natural Resources Other * Excludes $870 million in funding for the LMDA transfer The economic downturn resulted in a reduction of $6.6 billion in revenue over the fiscal plan period since the September Budget Consultation Paper. This loss was partially offset by $870 million in federal funding in support of the Labour Market Development Agreement, resulting in a net decrease in revenue of $5.8 billion. The cumulative $5.8 billion revenue loss over the next three years reflects decreases Chart 1.4 Nominal GDP changes $ billion 228.5 First Quarterly Report Down 5.4% 218.1 216.1 208.2 200.0 206.6 Budget 2009 192.6 199.1 198.3 2008 2009 190.2 2007 2010 2011 Budget and Fiscal Plan – 2009/10 to 2011/12 14 Three-Year Fiscal Plan in taxation, natural resource and other revenue sources, partially offset by improvements in federal government transfers and commercial Crown corporation net income. The global economic slowdown combined with the financial market crisis and equity market disruptions have contributed to a significant decline in the BC economic outlook. The level of nominal Gross Domestic Product in 2011 is now projected to be 5.4 per cent lower than forecast in the first Quarterly Report. This loss in economic output, combined with the effects of accelerated tax cuts, results in a $4.0 billion cumulative reduction in taxation revenues over the three years. Weaker economic growth affects virtually all taxation revenue sources and in particular, the cumulative three-year loss from personal income, corporate income, social service, carbon and property transfer tax revenues totals $3.5 billion. Chart 1.5 Taxation revenue changes 21.1 $ billion First Quarterly Report 20.3 Down 6.7% 19.7 19.4 19.7 18.9 19.4 18.9 18.4 2007/08 2008/09 Budget 2009 18.5 2009/10 2010/11 2011/12 Plunging commodity prices and the fallout in the US housing sector are major contributors to the three-year total loss of $2.8 billion in natural resource revenues. Chart 1.6 Change in natural gas prices $ Cdn/gigajoule at plant inlet 7.58 First Quarterly Report 7.27 6.86 6.67 6.61 6.57 6.21 Budget 2009 5.87 5.47 2007/08 2008/09 2009/10 2010/11 2011/12 Budget and Fiscal Plan – 2009/10 to 2011/12 15 Three-Year Fiscal Plan Chart 1.7 Change in US housing starts million units 1.34 1.40 First Quarterly Report 0.94 1.20 Down 21.4% 1.10 0.89 0.91 0.82 Budget 2009 0.65 2007 2008 2009 2010 2011 Lower natural gas prices, disruptions in capital markets and a reduced expectation of the average bonus bid per hectare result in a $1.5 billion reduction from natural gas royalties and revenue of sales of Crown land tenures over the three years ending 2011/12. Volatility in other commodity markets including lumber, pulp, coal, metals, oil and electricity contribute to a further $1.4 billion revenue decline. Chart 1.8 Change in coal prices $US/tonne 237 229 First Quarterly Report 189 173 Down 7.5% 172 158 160 2010/11 2011/12 Budget 2009 92 2007/08 2008/09 2009/10 Budget and Fiscal Plan – 2009/10 to 2011/12 16 Three-Year Fiscal Plan Chart 1.9 Change in natural resource revenue $ billion 4.8 First Quarterly Report 4.8 4.7 4.7 Down 15.3% 4.0 4.0 3.9 Budget 2009 3.6 3.8 2007/08 2008/09 2009/10 2010/11 2011/12 Excluding the $870 million in support of the Labour Market Development Agreement, the $0.2 billion improvement over the three years from federal government contributions mainly reflects increases in program recoveries from ministries and taxpayer supported Crown corporations. Since these transfers represent both higher revenues and expenses, there is no impact on government’s bottom line. These recoveries include $69 million for additional agricultural programs, $24 million in added support to the Ministry of Children and Family Development and $110 million directed to taxpayer supported Crown agencies. The three-year $0.3 billion decline in other taxpayer-supported sources includes reduced revenue from the school, university, college and health authority (SUCH) sector and $183 million resulting from decommissioning the Coquihalla highway toll booths. Higher net incomes from the commercial Crown corporations mainly reflect increased sales from the Liquor Distribution Branch, timing of BC Railway Company asset dispositions and an improved rate of return from BC Hydro. Budget and Fiscal Plan – 2009/10 to 2011/12 17 Three-Year Fiscal Plan Table 1.5 Major Factors Underlying Revenue Budget 2009 Calendar Year Per cent growth unless otherwise indicated 2008 2009 2010 First Quarterly Report 2011 2008 2009 2010 2011 Real GDP ……………………………………………… 1.0 Nominal GDP ………………………………………… 3.9 Personal income ……………………………………… 5.1 Corporate profits ……………………………………… -4.0 Consumer expenditures ……………………………… 3.7 Consumer expenditures on durable goods ………… -5.1 Business investment ………………………………… 4.6 Retail sales ……………………………………………… 1.5 2.1 Employment …………………………………………… BC housing starts .…………………………………… -12.4 US housing starts .……………………………………… -32.7 -0.9 -0.9 1.7 -24.7 1.9 0.3 -0.5 1.3 -0.5 -25.6 -28.0 2.4 4.2 3.5 1.5 4.8 2.3 5.4 4.4 1.3 4.9 25.4 2.6 4.6 4.3 3.2 4.7 2.5 4.8 4.4 1.5 3.8 35.0 1.7 4.7 5.5 -1.6 4.8 -1.0 4.6 3.2 2.5 -5.4 -29.9 2.3 4.6 4.3 1.7 4.9 3.2 3.4 4.7 1.7 -11.2 -5.3 2.9 4.8 4.5 4.3 5.1 2.7 5.1 4.9 1.7 -4.3 34.8 2.8 4.8 4.5 4.5 5.0 2.8 5.6 4.9 1.6 -1.4 16.7 SPF 2x4 price ($US/thousand board feet) ………… Pulp ($US/tonne) ……………………………………… Exchange rate (US cents/Canadian dollar) ………… $219 $851 93.7 $213 $606 79.3 $250 $650 86.2 $300 $700 89.4 $237 $882 99.3 $250 $850 98.2 $300 $825 95.1 $300 $800 94.4 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 Natural gas price ($Cdn/GJ at plant inlet) …………… $6.57 Bonus bids average bid price per hectare ($) ……… $3,659 Electricity price ($US/mega-watt hour, Mid-C) ……… $61 Metallurgical coal price ($US/tonne, fob west coast) … $237 Copper price ($US/lb) ………………………………… $2.65 $5.87 $794 $61 $172 $1.73 $6.21 $954 $67 $158 $2.44 $6.61 $1,226 $67 $160 $2.38 $7.58 $4,299 $81 $237 $3.56 $7.27 $1,010 $76 $229 $3.23 $6.86 $1,082 $74 $189 $2.93 $6.67 $1,173 $75 $173 $2.58 52.0 55.0 60.0 52.0 54.0 60.0 63.0 Fiscal Year Crown harvest volumes (million cubic metres) ……… 51.0 Budget 2009 Plan Government revenue includes the combined revenues of the Consolidated Revenue Fund (CRF), taxpayer-supported Crown agencies, the SUCH sector, and the net income of commercial Crown corporations. Following growth of 3.4 per cent in 2007/08, revenue is forecast to decline 3.5 per cent to total $38.5 billion in 2008/09. The 2008/09 revised forecast incorporates the impacts of slowing economic growth in 2008; and tax measures introduced in Budget 2007, Budget 2008, and Budget 2009 as well as accelerated tax cuts announced on October 22, 2008 designed to improve competitiveness and reduce costs for families and businesses. The 2008/09 revenue projection also includes the impacts of volatile commodity markets with increasing revenue from natural gas royalties, sales of Crown land tenures and coal production, partially offset by a 46 per cent decline in forest revenue. In 2009/10, revenue growth of 0.9 per cent reflects a 7.7 per cent increase in federal government contributions and a 2.5 per cent increase in other taxpayer supported revenue sources, partially offset by the impacts of a 0.9 per cent decline in nominal GDP growth, falling natural gas prices and the full-year effect of reducing corporate income tax rates. More than half of the increasing federal government transfers represent additional funding in support of higher expenses under the Labour Market Development Agreement, agricultural programs and taxpayer supported Crown agencies. Over the next two years as economic growth strengthens and commodity prices rise, due in part to an improving US economic outlook, revenue is expected to average 3.0 per cent annual growth. Budget and Fiscal Plan – 2009/10 to 2011/12 18 Three-Year Fiscal Plan Chart 1.10 Revenue forecast Total revenue Annual % change $38.5 B $38.5 B -3.5% $38.8 B 0.9% $39.8 B 2.5% $41.2 B 3.5% 2.7 2.9 2.8 5.8 5.9 6.4 Other Revenue 7.5 7.3 7.5 Natural Resources 3.7 4.0 3.6 3.9 4.0 Taxation Revenue 18.8 18.4 18.5 18.9 19.7 2008/09 Budget 2008/09 Update 2009/10 2010/11 2011/12 $ billions Commercial Crown Net Income Federal Contributions 3.0 2.9 6.7 6.5 7.8 7.6 Key assumptions and sensitivities relating to revenue are provided in Appendix Table A10. The major revenue components are: – up 5.5 per cent in 2009/10, and rising to 5.8 per cent and 6.1 per cent over the next two years. Over the four years, revenue includes the effects of $2.6 billion of tax reductions provided to BC residents in the 2007 and 2008 budgets. Adding back the tax measures, base revenue is forecast to average 4.8 per cent annual growth over the next three years, consistent with Budget 2009 projections of personal and labour incomes. For full details on tax initiatives, see Part 2: Tax Measures. Table 1.6 Personal Income Tax Revenue ($ millions) 2008/09 Budget 2009 revenue ................................................ Budget 2009 measures – dividend tax credits ………… Budget 2008 measures – carbon tax recycling …………………………...…..…… – Other measures ………………..……………………… Budget 2007 measures – tax cuts in 2008 …………… Federal government measures .................................... Prior-year adjustment …………………………………… Base personal income tax revenue ………………… 2009/10 2010/11 2011/12 6,219 6,562 6,942 7,366 320 (6) 273 11 151 6,968 (8) (32) (32) 365 (41) 282 4 - 377 (43) 298 11 - 404 (46) 316 11 - 7,164 7,553 8,019 Annual growth ……………………………………………… 4.9% 2.8% 5.4% 6.2% Personal income growth (calendar year) ……………… Labour income growth (calendar year) ………………… Elasticity1 (calendar year basis, policy neutral) ………… 5.1% 5.8% 1.0 1.7% 1.2% 1.3 3.5% 3.8% 1.4 4.3% 5.0% 1.4 1 Per cent growth in current year tax relative to per cent growth in personal income. Budget and Fiscal Plan – 2009/10 to 2011/12 19 Three-Year Fiscal Plan – declining $508 million or 25 per cent in 2009/10 reflecting a slowing economy; the full-year impact of tax cuts implemented in July and December 2008; and a lower settlement payment in respect of prior years. Revenue continues to decline over the next two years due to overpayments from the federal government in 2009 and 2010; and general rate reductions in 2010 and 2011 supporting the 2009/10 Revenue Neutral Carbon Tax Plan. For more details on carbon tax recycling, see the Revenue Neutral Carbon Tax topic box on page 72. Table 1.7 Corporate Income Tax Revenue ($ millions) 2008/09 2009/10 2010/11 2011/12 Advance instalments from the federal government: – Payment share ……………………………………… 10.0% – Advances …………………………………………… 1,386 International Financial Activity Act refunds ………… (20) 671 Prior-year adjustment ................................................ 12.1% 1,302 (20) 247 11.7% 1,257 (20) (165) 10.8% 1,209 (20) (266) Corporate income tax revenue ……………………… 2,037 1,529 1,072 923 -24.9% -29.9% Annual per cent growth ………………………………… -9.5% -13.9% – after incorporating measures introduced in Budget 2009, annual growth is forecast to average 3.4 per cent over the next three years, lower than recent history and consistent with the revised outlook of consumer and business spending and overall economic growth. For full details on tax initiatives, see Part 2: Tax Measures. Table 1.8 Social Service Tax Revenue ($ millions) 2008/09 2009/10 2010/11 2011/12 5,102 (15) 5,087 5,317 (18) 5,299 5,543 (10) 5,533 -1.5% 1.8% 4.2% 4.4% 3.7% 4.6% 3.9% 1.9% -0.5% -0.9% 4.8% 5.4% 4.2% 4.7% 4.8% 4.6% Base revenue …………………………………………… 4,998 Budget 2009 measures ………………………………… Budget 2009 revenue ………………………………… 4,998 Annual growth …………………………………………… Annual per cent change (calendar year) Personal consumption …………………………………… Business investment …………………………………… Nominal GDP …………………………………………… – as announced in Budget 2008, the carbon tax rate per tonne of CO2-equivalent will increase by $5 each year to $25 per tonne in 2011/12. The forecast assumes that purchased volumes of natural gas will continue to grow by 2.0 per cent while consumption of gasoline is expected to be flat over the next three years. Revenue is expected to increase in line with these higher rates and assumed volume growth. By law, carbon tax revenue is fully returned to taxpayers through tax reductions. For more details on carbon tax recycling, see the Revenue Neutral Carbon Tax topic box on page 72. – revenue is expected to average 2.2 per cent annual growth over the fiscal plan and includes the effects of an Industrial Property Tax Credit for light and major industrial properties announced on October 22, 2008; and other tax measures including the northern and rural homeowner benefit announced in Budget 2009. These tax cuts are included in the 2009/10 Revenue Neutral Carbon Tax Plan. For full details on tax initiatives, see Part 2: Tax Measures. Budget and Fiscal Plan – 2009/10 to 2011/12 20 Three-Year Fiscal Plan Chart 1.11 Property transfer tax annual growth rate 50% 30% Property transfer tax revenue (annual growth) Housing starts (annual growth) 10% -10% -30% -50% 1989/90 1991/92 1993/94 1995/96 1997/98 1999/00 2001/02 2003/04 2005/06 2007/08 2009/10 2011/12 – consistent with the outlook for BC housing starts and expected moderation in the housing market, annual revenue growth is forecast to average 0.7 per cent over the next three years. Natural gas r oyalties – declines 26.3 per cent in 2009/10 due to lower natural gas prices and increasing production from wells qualifying for royalty programs and credits. Over the next two years, revenue is expected to increase as demand and average prices rise with an improving North American economy. The government continues to provide royalty programs and credits to foster industry investment in exploration and development. See Appendix Table A.11 for more details regarding natural gas price forecasts. Other energy, metals and minerals – average annual revenue growth from sales of Crown land tenures is forecast to be 3.4 per cent over the next three years as annual cash sales are recorded as revenue over eight years. Revenue from other Chart 1.12 Revenue from energy metals and minerals $ millions 3,010 2,646 2,814 2,919 Total Energy, Metals & Minerals 862 932 952 889 517 396 255 418 330 376 Metals, minerals and other 310 Electricity sales (Columbia River Treaty) 325 1,376 1,014 2008/09 2009/10 Sales/leases of Crown land drilling rights 1,156 1,281 2010/11 2011/12 Budget and Fiscal Plan – 2009/10 to 2011/12 Natural gas royalties 21 Three-Year Fiscal Plan energy, metals and minerals falls in the next three years due to the effects of commodity prices, production volumes, the exchange rate and higher mining costs. – in 2009/10, the impacts of the mountain pine beetle infestation, prevailing weak lumber prices and an anaemic US housing market are expected to continue to result in declining stumpage revenue. This is partially offset by increasing border tax revenues mainly resulting from a one-time $39 million refund to forest companies in 2008/09. Over the next two years as prices and markets are expected to recover, stumpage revenue increases, partially offset by declining border tax revenues. Revenue is forecast to average 7.2 per cent annual growth, however by 2011/12, forests revenue is still expected to be significantly below recent historical levels. Health and social transfers – Over the next three years, revenue is expected to average 4.2 per cent annual growth reflecting national base growth, rising BC population share and incorporating partial protection from the federal government health transfer measures introduced in its recent budget on January 27, 2009. Table 1.9 Health and Social Transfers ($ millions) 2008/09 2009/10 2010/11 2011/12 Canada Health Transfer (CHT) ………………………………… Wait times ………………………………………………………… Health deferral …………………………………………………… Canada Social Transfer (CST) ………………………………… Prior-year adjustments …………………………………………… 3,168 145 1,385 (5) 3,373 33 68 1,436 - 3,536 33 53 1,488 - 3,719 33 23 1,541 - Total health and social transfers …………………………… Annual Change 4,693 4,910 5,110 5,316 79 1.7% 217 4.6% 200 4.1% 206 4.0% Other federal contributions – up $237 million or 19 per cent in 2009/10 mainly due to funding under the Labour Market Development Agreement for which the province administers programs and services previously provided by the federal government, aimed at helping Employment Insurance clients and the unemployed prepare for and obtain employment. – declining $52 million in 2010/11 mainly reflecting the termination of funding for the Millennium Scholarship program in 2009/10. Commercial Crown Corporation Net Income British Columbia Hydro and Power Authority – BC Hydro’s net income, based on meeting its allowed return on equity, is forecast at $452 million in 2009/10, $493 million in 2010/11 and $542 million in 2011/12 after regulatory account transfers. These transfers are used to mitigate the income risks of key assumptions such as water inflows, market prices and trade income. The projections reflect increases in energy costs largely due to a greater proportion of requirements being met through imported energy and from new sources of supply generated by independent power producers. These sources result in higher energy costs than from power generated by Heritage resources which are operating at near maximum capacity. Maintenance requirements and additional borrowings for capital asset improvement programs are also increasing financing and amortization Budget and Fiscal Plan – 2009/10 to 2011/12 22 Three-Year Fiscal Plan expenses. These costs are driven by the need for major overhauls of ageing infrastructure and to address capacity constraints caused by demand load growth, reliability issues, and escalating construction costs. While BC Hydro has incorporated rate increases into its projections, the rate increases are subject to approval by the BC Utilities Commission (BCUC) through the revenue requirements application process. In November 2008, BC Hydro filed its Final Argument for rate increases in 2008/09 and 2009/10. BCUC’s decision is expected in early 2009 (see Appendix Table A10 for rate assumptions). British Columbia Liquor Distribution Branch (LDB) – LDB’s net income is forecast at $896 million in 2009/10, $918 million in 2010/11 and $938 million in 2011/12. These projections reflect an increasing sales trend for spirits, wine and beer, and cost reductions resulting from operating efficiencies. British Columbia Lottery Corporation – BCLC’s net income (after payments to the federal government) is forecast at $1,154 million in 2009/10, $1,198 million in 2010/11 and $1,228 million in 2011/12. These projections reflect continued revenue growth mainly from casinos, community gaming centres and e-Gaming. Revenue from lotteries is also expected to increase, but at a more moderate pace. A significant portion of provincial income from gaming is redistributed to charities and local governments. In Budget 2009, total distributions of gaming income are projected to increase from $263 million in 2008/09 to $280 million in 2011/12. British Columbia Railway Company – BCRC’s net income is forecast at $37 million in 2009, $32 million in 2010 and $0.2 million in 2011 reflecting the completion of surplus property sales at the end of 2010. BCRC will continue to operate the Port Subdivision (Robert’s Bank) as well as invest in the DeltaPort Berth 3 expansion project in support of government’s Pacific gateway and ports strategies. – ICBC’s net income is forecast at $260 million in 2009, $192 million in 2010 and $217 million in 2011. The projections reflect current assumptions for premiums including the full-year impact of a 3.0 per cent rate decrease on optional insurance, effective on July 1, 2008, and moderate growth in vehicles being insured. The projections also reflect lower investment income as a result of the decline in equity investment markets in 2008 and a return to historical claims trends. Consolidated Revenue Fund Spending Consolidated Revenue Fund (CRF) spending is forecast to increase from a revised forecast of $32.1 billion in 2008/09 to $33.9 billion by 2011/12 – a 5.6 per cent increase over the three year period. Budget 2009 protects health care, education and social services on which BC families depend. To address the current economic challenges, Budget 2009 also provides support for communities and protection of the environment. Government recognizes, and has acted on, the need to cut back in all areas of discretionary spending, just as British Columbia’s businesses and citizens are having to do in these difficult economic times. Budget 2009 achieves significant administrative savings while supporting direct services to the public in health care, education, social supports, and other priority services. A further review of programs throughout the public sector is planned over the next two years to achieve additional savings to again reach a balanced budget by 2011/12. Budget and Fiscal Plan – 2009/10 to 2011/12 23 Three-Year Fiscal Plan Protecting Health Care and Education Health Care Budget 2009 confirms government’s commitment to health care and provides an additional $920 million for the Ministry of Health Services and health authorities in 2011/12, for an annual 6 per cent increase in funding for the third year of the fiscal plan. This funding is in addition to $3.9 billion over 3 years allocated previously in Budget 2008. Chart 1.13 Ministry of Health Services budget increases 6.2% $15,821 ($ millions) 5.7% $14,901 $920 Budget 2009 increase $945 3-year total increase: $4,830 Budget 2008 Base 5.7% $14,095 $25 $1,572 $1,572 2010/11 Total previous increases $3,885 2011/12 $741 $13,329* 2008/09 2009/10 * Before $120 million Supplementary Estimates Budget 2009 provides additional funding of $562 million to health authorities in 2011/12, an increase of 6 per cent from 2010/11. Funding for Ministry of Health Services programs including PharmaCare, Medical Services Plan, and Emergency Health Services, increases by $358 million in 2011/12. Funding for the Ministry of Health Services and health authorities will support growth in beds, increased surgical procedures, improved access to services and new hospital facilities. The Ministry’s budget includes $25 million in 2009/10 for the Lower Mainland Innovation and Integration Fund (LMIIF) to assist health authorities implement best practices and integrate and coordinate service delivery. This funding is in addition to the $50 million provided for the LMIIF in 2008/09. To ensure that health services are protected in the current economic environment, the Ministry of Health Services and health authorities will be required to achieve efficiencies and administrative savings beginning in 2009/10. These savings will be re-directed to enhance health services. of $25 million per year, approximately 2 per cent of the health authorities’ administration and support services costs. It is expected that a significant portion of these savings can be realized through innovation and lean-design approaches to health care delivery. Every dollar will be redirected to patient care. Budget and Fiscal Plan – 2009/10 to 2011/12 24 Three-Year Fiscal Plan which $35 million will be redirected to health authorities to enhance patient care and the remaining $13 million will be allocated to establish a BC Family Residence Program for family members traveling to regional health centres. Health spending by function includes all health care-related spending by the Ministry of Health Services and other ministries, including Healthy Living and Sport, Children and Family Development, and Housing and Social Development, as well as other service delivery agencies such as Canadian Blood Services. Health spending by function, on a summary basis, increases to $17.5 billion in 2011/12, up from $12.4 billion in 2005/06, a 41 per cent increase. Post-Secondary Education Budget 2009 is consistent with government’s commitment to increase access to post-secondary education and training throughout the province. At a time of global economic slowdown, government recognizes, more than ever, the importance of maintaining funding to this sector. Budget 2009 provides $244 million in new operating funding, including $228 million to post-secondary institutions and $16 million to support immigrant workers, over three years. The post-secondary portion is comprised of: opportunities in universities and colleges throughout BC. shortages, including expanding the three-year Bachelor of Science in nursing, medical technology, and pharmacy. of doctors trained to address growing demands on the health care sector. In recognition of the importance of BC’s industry training and apprenticeship system, government will maintain funding of $105 million per year to the Industry Training Authority for apprenticeship training spaces in public and private training institutions. By the end of 2009/10, government will have funded an additional 7,000 new apprenticeship spaces since 2007/08, allowing more apprentices to take their classroom training and complete their apprenticeships. Since 2001, funding for industry training has increased by 42 per cent and the number of apprentices and trainees in BC has more than doubled to an estimated 45,500 in 2008/09. Collectively, public post-secondary institutions will be required to achieve administrative savings of $11 million per year. It is expected that these savings will be redirected to education and training within the institutions. Post-secondary education spending by function, on a summary basis, increases to $4.8 billion in 2011/12, up from $3.9 billion in 2005/06, a 23 per cent increase. Even during the current economic slowdown, skilled labour shortages remain a critical issue for BC employers. To remain competitive and address skills supply issues, BC must attract and retain a highly skilled workforce from other countries. Moreover, many immigrants face challenges in adapting their knowledge and integrating into the workforce. Budget and Fiscal Plan – 2009/10 to 2011/12 25 Three-Year Fiscal Plan Chart 1.14 Post-secondary funding 39 per cent increase in funding since 2001/02 $1,924 $ millions $1,794 $1,707 $1,573 $1,494 $1,383 2001/02 $1,407 $1,401 $1,420 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Budget 2009 includes new investments of $16 million over the next three years beginning in 2009/10 in the following initiatives that remove barriers to employment for BC’s immigrant workforce: programs and leverage additional federal investments in these areas. Both programs address the barriers to full labour market participation that many immigrants face. to support skills upgrading, language enhancement and workplace experience opportunities in order to overcome barriers to employment. improve recognition of foreign credentials and work-based language training. On February 20, 2008 Canada and British Columbia signed a new Labour Market support to help them prepare for, obtain and maintain employment. A separate new labour market agreement (LMA) totaling approximately $66 million per year for the ministries of Advanced Education and Labour Market Development, Housing and agreements. Stable Funding for K-12 Education Budget 2009 maintains operating grant funding to school districts at previously announced funding levels. Over the next 3 years, while the total budget for K-12 education increases, enrolment is expected to decline, resulting in increasing levels of per pupil funding at the school district level. Budget and Fiscal Plan – 2009/10 to 2011/12 26 Three-Year Fiscal Plan Chart 1.15 Student enrolment and per pupil funding (public schools) Enrolment (FTEs) Per Pupil Funding 600,000 $8,500 Funding Increasing 590,000 $8,000 580,000 $7,500 570,000 560,000 $7,000 Enrolment Declining 550,000 $6,500 540,000 $6,000 530,000 FTE per pupil $ $5,500 520,000 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 Collectively, school districts will be required to achieve administrative savings of $12 million per year. It is expected that these savings will be redirected to the classroom. K–12 education spending by function, on a summary basis, increases to $5.8 billion in 2011/12, up from $4.8 billion in 2005/06, a 21 per cent increase. Sustaining Social Services Government is committed to ensuring that programs and services that enhance the quality of life for British Columbians in need are protected. Table 1.10 Sustaining Social Services ($ millions) 2008/09 2009/10 2010/11 2011/12 30 - - - 30 - 14 8 11 13 8 13 20 9 14 47 25 38 - 33 19 34 27 43 27 110 73 - 47 20 47 19 16 19 110 58 30 119 127 105 381 Acquisition of social housing ………………………… Children and Families – Supporting families and children in care ………… – Child care subsidies ………………………………… – Supporting children with special needs …………… Subtotal ……………………………………………… Supporting adults with developmental disabilities … Income assistance for individuals and families in need ………………………………………………… Policing and victim support …………………………… Total …………………………………………………… Total Budget 2009 maintains previous funding commitments to implement new and expanded measures to help break the cycle of homelessness and support low income seniors and families. In 2008/09 the province intends to introduce supplementary estimates for $30 million to acquire and renovate rental properties including 4 single room occupancy (SRO) hotels in Vancouver and 4 hotels/motels throughout British Columbia. This new, year-end funding is part of a $36 million initiative to protect and Budget and Fiscal Plan – 2009/10 to 2011/12 Three-Year Fiscal Plan 27 create housing involving 15 properties and utilizing $6 million in existing funding. In total, the provincial government has protected or created 45 properties since 2001 through multiple initiatives. Budget 2009 continues to support families and communities to care for and protect vulnerable children and youth, and to support healthy child and family development, by providing $110 million over 3 years for priority programs and services, including: costs of supporting children in care and for preventative and family support services; low and middle income families with the cost of child care; and Budget 2009 includes an additional $73 million over three years for programs and services to adults with developmental disabilities and their families. This funding will provide for continued access to community living services including respite care, residential placements and life skills training. During this global economic downturn, more individuals and families will experience difficulty in paying for their basic living necessities and will require income assistance. Budget 2009 provides an additional $110 million over three years to support individuals and families in need of income assistance. Budget 2009 provides $47 million over 3 years to fund RCMP salary, pension and operating cost increases and $11 million to fund increased costs related to providing financial assistance and benefits to victims and others who are impacted by violent crimes. Supporting Communities and the Environment Budget 2009 provides $479 million over four years to support economic activity in communities throughout the province during the economic downturn as well as to maintain BC as a leader in environmental protection. Targeted new spending includes: Supporting Communities the province is investing $6 million over 3 years to support the strategic development of shale and tight gas resources in the northeast area of BC. This expenditure will assist in adding to BC’s natural gas potential. Forest Service Roads) to address safety and access issues near many remote BC communities. $5 million has been allocated in 2008/09 with an additional $15 million allocated in 2009/10. creation in rural BC. Budget and Fiscal Plan – 2009/10 to 2011/12 28 Three-Year Fiscal Plan Table 1.11 Supporting Communities and the Environment 2008/09 1 ($ millions) 2009/10 2010/11 2011/12 Total Supporting Communities – Improving access for shale gas development …………………… – Improvements for rural resource roads …………………………. – Community economic development …......……………………… – Towns for Tomorrow: cost shared community infrastructure … – Local transportation projects to accelerate job creation ……… – Bulkley-Nechako / Kitimat-Stikine Regional District grants …… – Internet connectivity for rural communities ……………………… – Peace River Regional District infrastructure …………………… – Local government priorities, including community safety ……… 5 30 20 2 151 2 15 30 1 2 3 - 2 20 1 1 3 - 2 1 3 - 6 20 30 50 20 3 5 9 151 Subtotal ………………………………………………...…………… 208 53 27 6 294 - 15 15 - 59 59 15 59 74 – Carbon tax rebates for local government ………………………… – Extending the ICE fund for green technology advancements … – Planning for Capital Regional District water treatment facility … – Trees for Tomorrow : planting trees in public places …………… – BC portion of the Hydrogen Highway …………………………… 3 - 4 25 - 4 25 2 4 25 - 15 75 2 2 - 3 4 3 2 3 2 11 8 Subtotal ………………………………………………...…………… 5 36 36 34 111 Total …………………………………………………………………… 213 104 63 99 479 Targeted Measures – Michael Smith Foundation for health research ………… – Provincial Transit Plan additional operating funding …………… Subtotal ……………………………………………………………… Continued Environmental Leadership 1 Supplementary Estimates will be introduced to obtain the necessary appropriations to fund all 2008/09 amounts, except base funding for rural resource road improvements. Towns for Tomorrow grant program to local governments. Of this amount $30 million for cost-shared infrastructure projects is allocated in 2008/09 and a further $20 million in 2010/11, allowing communities in British Columbia to continue to maintain and improve community infrastructure. rehabilitation projects to ensure public safety and reliable access to communities, while providing near-term job creation in BC’s regions. $1 million in total will be paid to the Bulkley-Nechako and Kitimat-Stikine Regional Districts for a period of 15 years, providing these communities with the same treatment as other communities which host and/or are impacted by generating facilities. Program to encourage delivery of “last-mile” broadband internet connectivity and cell phone coverage for British Columbians living in rural and remote communities. member municipalities to address the infrastructure deficit in this region. In collaboration with the Union of British Columbia Municipalities (UBCM) and its members, the government also plans to restructure current provincial/local funding arrangements to provide local governments with increased financial certainty in uncertain economic times. As part of this restructuring of local/provincial financial arrangements, an additional $151 million will be provided to local governments in 2008/09. This initiative will support local government priorities and will provide greater flexibility to address immediate needs, including community safety. Budget and Fiscal Plan – 2009/10 to 2011/12 29 Three-Year Fiscal Plan Targeted Measures Budget 2008 Continued Environmental Leadership Budget 2009 Budget 2008 Trees for Tomorrow Budget 2009 2010 Olympic and Paralympic Winter Games Table 1.12 Olympics Funding Prior years ($ millions) 2008/09 2009/10 2010/11 Provincial Envelope Venues and Live Sites …………………………… Venues operating endowment ………………… Medical…………………………………………… Security…………………………………………… Paralympic Games ……………………………… First Nations and municipal legacies …………… Olympics contingency allocations 1…………… 56 4 74 20 - 19 8 69 10 310 55 13 87 20 36 79 Total contribution to provincial commitment … 1 235 55 1 13 36 340 154 96 10 600 Notionally allocated within the Contingencies vote. Budget and Fiscal Plan – 2009/10 to 2011/12 30 Three-Year Fiscal Plan including venues, security, a venue operating trust, live sites, and the hosting of the Paralympic Games. It also includes a provincial funding commitment in relation to medical costs, First Nations, sports and municipal legacies, and a contingency allocation earmarked for addressing unbudgeted costs. Budget 2009 includes $106 million over 2009/10-2010/11 for remaining expected spending within the $600 million funding commitment. Included in this funding is an allocation of $69 million within the contingencies vote in 2009/10 for managing unidentified pressures. This leaves $10 million available in the contingency allocation for 2010/11 should any post-2010 Games costs emerge. Administrative and Other Savings Government is managing down expenses in order to protect health care, education and social service programs. Significant savings in administrative and other discretionary spending will be achieved, and some government programs will be streamlined. Budget 2009 reallocates $1.9 billion in administrative and other savings over 3 years to health care, education and social service programs noted above as well as to support other priority programs that provide public services. Table 1.13 Managing Down Expenses ($ millions) 2009/10 2010/11 2011/12 Budget 2008 – total ministries and Office of the Premier …… 29,711 30,590 30,590 86 127 63 25 13 920 87 105 99 505 314 1,240 (589) (650) 1 Budget 2009 measures: – Health care ………………………………………………………… – Post-secondary education ……………………………………… – Sustaining social services ……………………………………… – Supporting communities and the environment ……………… – Public service transformation fund ……………………………… – Other changes …………………………………………………… Subtotal ………………………………………………...………… Less : Administrative and other savings ………………………… 25 71 119 104 50 136 Budget 2009 – total ministries and Office of the Premier ……… 29,627 1 30,254 29 (631) 31,199 Restated to reflect government' s current organization and accounting policies. 2 2 Includes $65 million for increases to the Crown Land Special Acount. The 2009/10 Estimates, in comparison to the 2008/09 Estimates, include administrative savings of $297 million in 2009/10. For example: of $177 million; $16 million; $23 million. Budget and Fiscal Plan – 2009/10 to 2011/12 31 Three-Year Fiscal Plan Table 1.14 Administrative Spending – Change from 2008/09 2008/09 2009/10 Estimates Estimates ($ millions) Expense category: – Boards, commissions and courts (fees and expenses) … – Public servant travel ………………………………………… – Professional services ………………………………………… – Office and business expenses ……………………………… – Informational advertising and publications ………………… – Operating equipment and vehicles………………………… – Transfers – grants (discretionary) 1………………………… Total savings ………………………………………………… 1 $ Change % Change 11 74 769 116 30 135 826 10 58 592 106 7 123 768 (1) (16) (177) (10) (23) (12) (58) -5% -22% -23% -8% -76% -9% -7% 1,961 1,664 (297) -15% To provide a consistent comparison, 2008/09 and 2009/10 Estimates have been restated for local government services and transfers, the Crown Land Special Account and the transfer of funding from Contingencies to the Ministry of Health Services. Public Service Transformation Fund The BC Public Service is the province’s largest employer with approximately 30,000 ministry employees working in 280 communities around BC in more than 200 different professions. The vast and diverse scope of the public service means that public service employees do work that impacts virtually every aspect of the social and economic fabric of the province. The government believes it would be short-sighted to make staffing reductions now in job streams where government expects to have difficulty recruiting in a few years time. As a result, a Public Service Transformation Fund of $50 million in 2009/10 and $25 million in 2010/11 has been established within the Public Service Agency. The purpose of this transformation fund is two-fold. The fund will be used: ongoing demand for the expertise is demonstrated; and to deliver quality services to citizens with fewer staff. The fund will also be used to cover workforce adjustment costs incurred as a result of ministry plans to meet their budget targets. Service Delivery Agencies Externally funded service delivery agency spending (expenses in excess of government transfers) is forecast to increase from a $3.0 billion revised forecast in 2008/09 to $3.6 billion in 2011/12 for the combined SUCH sector entities (Schools, Universities, Colleges and Health authorities). The increase reflects spending in the priority areas of health and education, and reflects an increase in the spending funded through own-source revenues. In addition, other service delivery agency spending is forecast to increase from a $1.1 billion revised forecast in 2008/09 to $1.4 billion in 2011/12, primarily reflecting the impact of infrastructure spending, including investments under the transportation investment plan by the BC Transportation Financing Authority and BC Transit. Budget and Fiscal Plan – 2009/10 to 2011/12 32 Three-Year Fiscal Plan Further Efficiencies In order to achieve a balanced budget by 2011/12, government will be seeking further efficiencies and savings of $125 million in 2010/11 and $250 million in 2011/12. Government will be reviewing programs delivered by ministries and service delivery agencies to ensure these programs are efficient and cost-effective, to minimize duplication and to ensure continued alignment with government priorities. Full-Time Equivalents Taxpayer-supported full-time equivalents (FTEs), including ministries/special offices (CRF) and service delivery agencies, are projected at 36,564 in 2009/10. This represents an increase of 469 FTEs from 2008/09 and is 205 FTEs higher than the projection in Budget 2008. However, by 2011/12 FTEs are projected to decline by 322 to total 36,232 FTEs reflecting government efficiency measures. Table 1.15 provides details of changes from Budget 2008. FTEs of the SUCH sector are not included in these forecasts. Table 1.15 Full-Time Equivalents (FTEs) – Changes from Budget 2008 FTEs 2009/10 Ministries and special offices (CRF): Budget 2008 ………………………………………………………………………………………… 32,034 Changes: 336 Transfer of federal programs (Agristability/Labour Market Development Agreement) ……… 58 Attorney General (courts security, recruitment lag and attrition) ...…………………………… 105 Children and Family Development (transfer from service delivery agency) ………………… (169) Children and Family Development (vacancies, recruitment lag and attrition) ……………… (65) Finance (recruitment lag, attrition and Olympic Games Secretariat wind-down) …………… (105) Forests and Range (recruitment lag and attrition) ……………………………………………… 4 Health Services (Emergency and Health Services programs) ………………………………… Housing and Social Development (recruitment lag and attrition) ……………………………… (128) 61 Labour and Citizens' Services (historical correction, recruitment lag and attrition) ………… 83 Other ministry changes (net) ……………………………………………………………….……… 180 Budget 2009 Updated Fiscal Plan ……………………………………………………………… 32,214 Service delivery agencies 2: Budget 2008 ……………………………………………………………………………………… 4,325 Changes: Oil and Gas Commission – activities increase …………………………………………………… 20 BC Pavilion Corporation – Vancouver Convention Centre expansion and maintenance …… 27 Pacific Carbon Trust – new entity ………………………………………………………………… 13 Children and Family Development agencies – transfers to ministry/reorganization ………… (53) 18 Other changes (net) …………………………………………...…………………………………… 25 Budget 2009 Updated Fiscal Plan ……………………………………………………………… 4,350 Summary: Ministries and special offices (CRF) ……………………………………………………………… 32,214 Service delivery agencies ………………………………………………………………………… 4,350 Budget 2009 Updated Fiscal Plan ……………………………………………………………… 36,564 Budget 2008 ……………………………………………………………………………………… 36,359 1 2 2011/12 reflects changes from the 2010/11 baseline. Service delivery agency FTE amounts do not include SUCH sector staff employment. Budget and Fiscal Plan – 2009/10 to 2011/12 2010/11 2011/12 1 32,179 32,179 336 (25) 105 (169) (131) (141) 4 (128) 61 42 (46) 32,133 336 (168) 105 (267) (206) (188) 129 (128) 61 19 (307) 31,872 4,365 4,365 23 27 16 (123) 7 (50) 4,315 24 25 16 (123) 53 (5) 4,360 32,133 4,315 36,448 31,872 4,360 36,232 36,544 36,544 Three-Year Fiscal Plan 33 Ministries/special offices (CRF) The 2009/10 FTEs projection for ministries and special offices is 32,214 – a net increase of 180 FTEs from Budget 2008. The increase primarily reflects devolution of the Labour Market Development and Agristability programs from the federal government, and revised FTE estimates to eliminate historical inconsistencies. The FTE total in 2011/12 will decline moderately from 2009/10 reflecting government efficiencies. Service delivery agencies The 2009/10 service delivery agencies FTE projection is 4,350 – an increase of 25 FTEs from Budget 2008. The increase is primarily due to increased activity by the Oil and Gas Commission, expansion and maintenance of services in the Vancouver Convention Centre, and staffing-up of the Pacific Carbon Trust. These increases are partially offset by staff transfers from children and family development agencies to Ministry of Children and Family Development and other reorganization changes within the children and family development agencies. By 2011/12, service delivery agency FTEs are projected to increase marginally to 4,360. Capital Spending 1 Capital spending on schools, hospitals, roads, bridges, hydro-electric projects and other infrastructure across the province over the next three years (2009/10 – 2011/12) is expected to total $20 billion. Provincial capital infrastructure investments are made through school districts, health authorities, post-secondary institutions, Crown agencies and ministries. The total capital investment of $20 billion is comprised of $15.5 billion in capital investments funded wholly or in part by the province as well as capital investments by commercial Crown corporations and $2.0 billion of new capital investments cost-shared with the federal government to be accelerated over the next three years. The remaining $2.5 billion is comprised of $1.7 billion in capital investments in the K–12 and post-secondary education sectors that are wholly financed through contributions from other sources and $0.8 billion for capital contingencies. The province is accelerating planned capital investments to stimulate the economy and keep people at work in the construction sector. Construction investments of $10.6 billion are also included in the Province’s capital plan (i.e. excludes information technology projects, land purchases, vehicle purchases). An additional $1.4 billion in local infrastructure is being built in partnership with local government and the federal government. These investments are estimated to generate 88,000 direct construction jobs over the next three years. Investments in construction projects generate approximately 6.4 direct jobs per million dollars (BC Stats, March 2008). 1 Capital investments are not included in the government’s annual surplus or deficit. In accordance with generally accepted accounting principles (GAAP), annual amortization expenses that recognize the estimated wear and tear of capital assets during the fiscal year are included in the government’s annual expenses instead of recording the full capital costs as they occur. Budget and Fiscal Plan – 2009/10 to 2011/12 34 Three-Year Fiscal Plan Table 1.16 Capital Spending 1 2008/09 Revised Budget Forecast ($ millions) Taxpayer-supported Education Schools (K–12) …………………………………………… Post-secondary …………………………………………… Health ………………………………………………………… BC Transportation Financing Authority ………………… BC Transit ………………………………………..………… Vancouver Convention Centre expansion project ……… BC Place rejuvenation …………………………..………… Government ministries …………………………………… Other 3………………………………………………………… Accelerated infrastructure projects ……………………… Capital spending contingencies …………………………… 441 706 924 884 74 288 286 56 200 442 666 910 956 74 251 38 436 125 55 180 Total taxpayer-supported ……………………………… 3,859 Self-supported BC Hydro …………………………………………………… BC Transmission Corporation …………………………… Columbia River power projects 4………………………… BC Railway Company ……………………………………… ICBC ………………………………………………………… BC Lotteries ………………………………………………… Liquor Distribution Branch ………………………………… Budget Estimate 2009/10 Plan 2010/11 Plan 2011/12 458 619 886 1,000 154 37 125 279 43 885 260 438 551 998 981 110 51 160 335 36 720 270 414 487 619 762 114 42 248 31 340 325 4,133 4,746 4,650 3,382 1,663 21 19 30 30 124 20 1,596 18 38 10 25 112 19 1,752 19 166 80 42 120 20 1,920 12 242 95 100 115 21 1,902 12 258 100 125 115 30 Total self-supported commercial ……………………… 1,907 1,818 2,199 2,505 2,542 Total capital spending …………………………………… 5,766 5,951 6,945 7,155 5,924 2 1 As the agreement has not been finalized, the fiscal implications of the Port Mann Bridge/Highway 1 Project (which will be funded from tolls) are not included in Budget 2009 – see the topic box at the end of Part 1. 2 Includes Supplementary Estimates of $80 million. Includes BC Housing Management Commission, Provincial Rental Housing Corporation and other service delivery agencies. 3 4 Joint ventures of the Columbia Power Corporation and Columbia Basin Trust. Taxpayer-supported capital spending Taxpayer-supported capital spending includes capital infrastructure for school districts, health authorities, post-secondary institutions, taxpayer-supported Crown agencies, and ministries. Taxpayer-supported capital spending is projected at $4.7 billion in 2009/10, declining to $3.4 billion by 2011/12. This is higher than the capital spending forecast in Budget 2008 of $3.4 billion in 2009/10 and $3.1 billion in 2010/11. Significant elements of this projected spending include the following: program to seismically upgrade at-risk schools, as well as the ongoing rehabilitation Budget 2009 includes $1.7 billion in capital spending by post-secondary institutions Budget and Fiscal Plan – 2009/10 to 2011/12 35 Three-Year Fiscal Plan Building at the University of BC’s Okanagan campus, and gathering places to support Aboriginal learners on campuses at post‑secondary institutions throughout the province. • Post‑secondary capital spending also includes a significant level of investment funded through other sources, including foundations, donations, cash balances, federal funding and revenues generated from services. • Capital spending in the Health sector will total $2.5 billion over the three years of the plan. These investments support new major construction and upgrading of health facilities, equipment, and information systems over the next three years, and include funding from the province as well as other sources, such as Regional Hospital Districts and Foundations. • Capital investments in the Health sector include the new Fort St. John hospital, the Royal Jubilee Hospital inpatient facility, expansions to Kelowna General and Vernon Jubilee Hospitals, the Northern Cancer Centre in Prince George, and redevelopment of the Surrey Memorial Hospital. Table 1.17 Provincial Transportation Investments 1 2008/09 Update ($ millions) Transportation Investment Plan – Gateway program ………………………………………………………… – Rehabilitation …………………………………………………………… – Interior and rural side roads …………………………………………… – Oil and gas rural road improvement program ………………………… – Mountain pine beetle strategy ………………………………………… – Highway 1 – Kicking Horse Canyon …………………………………… – Sea-to-Sky highway …………………………………………………… – William R Bennett Bridge ……………………………………………… – Border crossing infrastructure ………………………………………… – Okanagan Valley corridor ……………………………………………… – Cariboo connector program …………………………………………… – Other highway corridors and programs ……………………………… – Airports and ports ………………………………………………………… – Cycling infrastructure …………………………………………………… Provincial Transit Plan – Canada Line Rapid Transit Project …………………………………… – Evergreen Line …………………………………………………………… – Rapid transit projects …………………………………………………… – Buses and other transit priorities ……………………………………… Total provincial investment 2………………………………………… Investments funded through contributions from other partners – Canada Line (contributions from the federal government; South Coast British Columbia Transportation Authority; Vancouver Airport Authority; and private sector partner) ………………………………… – Evergreen Line (federal contribution and TransLink ) ……………… – Federal contributions to other projects ………………………………… Total investments funded through contributions from other partners ………………………………………………………… 1 2 3-Year Total 2009/10 2010/11 2011/12 180 161 68 44 33 8 167 23 34 61 42 80 15 9 156 146 50 47 30 15 44 29 45 187 8 5 115 146 50 47 30 16 27 15 118 8 6 97 146 50 30 13 13 93 8 6 368 438 150 94 90 44 44 69 60 398 24 17 15 2 11 30 20 25 32 94 20 88 11 43 20 82 33 49 60 195 76 186 983 933 740 640 2,313 348 6 96 145 50 207 123 220 83 152 145 256 579 450 402 343 235 980 As the agreement has not been finalized, the fiscal implications of the Port Mann Bridge/Highway 1 Project (which will be funded from tolls) are not included in Budget 2009 – see the topic box at the end of Part 1. Total provincial investment includes operating and capital spending. Budget and Fiscal Plan – 2009/10 to 2011/12 36 Three-Year Fiscal Plan Budget 2009 Budget 2009 Budget 2009 Accelerated capital investments Budget and Fiscal Plan – 2009/10 to 2011/12 37 Three-Year Fiscal Plan Capital Contingencies Financing Capital Projects Chart 1.16 Financing government’s capital plan Taxpayer capital spending ($ millions) Source of financing Other contributions, cash and working capital $4,746 $1,877 $4,650 $2,035 $3,382 $1,281 Federal contributions $758 P3 liabilities $329 Direct borrowing $693 $329 $385 $281 $1,782 $1,593 $1,435 2009/10 2010/11 2011/12 Self-supported capital spending Budget and Fiscal Plan – 2009/10 to 2011/12 38 Three-Year Fiscal Plan Self-supported capital spending is projected to increase from $2.2 billion in 2009/10 to $2.5 billion in 2011/12. The majority of this capital spending is for electrical generation, transmission and distribution projects carried out through BC Hydro to meet growing customer demand and to enhance reliability. Large generating facilities built between the late 1960s and early 1980s provide about 90 per cent of the province’s electrical power. The major mechanical and electrical components (such as turbines and transformers) in these facilities are nearing the end of their design life and require major overhauls to maintain reliability. A significant portion of self-supported capital spending represents measures to address the issue of ageing infrastructure. Table 1.18 provides information on major power generation and transmission projects. Further details on provincial capital investments are shown in the service plans of ministries and Crown agencies. Projects over $50 million As required under the Budget Transparency and Accountability Act, major capital projects with multi-year budgets from provincial sources totaling $50 million or more are shown in Table 1.18. Annual allocations of the full budget for these projects are included as part of the provincial government’s capital investment spending shown in Table 1.16. In addition to financing through provincial sources, major projects may be cost-shared with the federal government, municipalities and regional districts, and/or the private sector. Total capital spending for these major projects is $8.5 billion, reflecting financing of $7.1 billion through internal sources or borrowing, $677 million from federal government contributions and $706 million from other sources including private donations. Major capital investments include: University of Victoria, student residences at UBC, and expansion of Vancouver Community College’s Broadway (King Edward) Campus. Cancer Centre; the Surrey Outpatient Facility and Surrey Memorial Hospital Sea-to-Sky Highway. (Canada Line) is not included in the province’s capital spending, but is included in the transportation investment plan (see Table 1.17). Bridge/Highway 1 project, which will be funded by tolls, are not included in Budget 2009 financing charges the total could increase to over $3 billion (see the topic box at the end of Part 1). BC Transmission Corporation and the Brilliant Expansion Power Corporation. These projects are driven by the need for major overhauls to ageing infrastructure, and to address reliability issues and increasing demand for power. rejuvenation projects. Budget and Fiscal Plan – 2009/10 to 2011/12 39 Three-Year Fiscal Plan Table 1.18 Capital Expenditure Projects Greater Than $50 million 1 Note: Information in bold type denotes changes from the second Quarterly Report . Projected Completion Date ($ millions) Total Costs to Dec. 31, 2008 Post secondary facilities University of Victoria – Science building ………………………………………………… Spring 2009 University of British Columbia – Marine Drive student housing ………………………………… Spring 2009 Vancouver Community College – Broadway (King Edward) Campus expansion ……………… Winter 2008 Project Financing Internal/ Federal Other Debt Government Contributions 4 67 57 - 10 87 16 103 103 - - 49 14 8 26 449 26 378 - 71 61 138 67 172 67 172 - - 121 173 299 148 201 301 21 201 203 - 127 98 248 147 100 517 1,826 275 158 100 517 2,414 26 158 100 497 1,849 - 249 20 565 39 198 108 90 - 196 491 38 70 234 561 234 561 - - 181 265 4 863 185 1,128 185 763 365 - 1,292 1,014 2,306 1,851 455 - 71 26 97 97 - - 55 65 83 47 31 94 13 277 52 24 3 Total other ……………………………………………………… 21 159 Summer 2011 BC Place rejuvenation …………………………………………… 11 - 27 11 588 Other Vancouver Convention Centre expansion project …………… Summer 2009 - 205 27 28 2 Total power generation and transmission …………………… 45 226 6 34 6 56 27 12 441 3 7 199 Health facilities Abbotsford Regional Hospital and Cancer Centre Summer 2008 – Government direct cost ………………………………………… Summer 2008 – P3 contract ……………………………………………………… Surrey Outpatient Facility – Government direct cost ………………………………………… Spring 2011 – P3 contract …………………………………………………… Spring 2011 Victoria Royal Jubilee Hospital inpatient facility – Government direct cost ………………………………………… Winter 2011 – P3 contract ……………………………………………………… Winter 2011 Fort St. John Hospital replacement 2…………………………… Winter 2011 Expansions to Kelowna General and Vernon Jubilee Hospitals – Government direct cost ………………………………………… Fall 2012 Fall 2012 – P3 contract ……………………………………………………… Northern Cancer Centre initiative 2……………………………… Winter 2012 2 Surrey Memorial Hospital critical care tower ……………… Winter 2014 Total health facilities …………………………………………… Power generation and transmission BC Hydro – Mica Dam – generator stator replacement ………………… Summer 2009 – Peace Canyon Dam – generator stator Fall 2009 replacement and rotor modification ………………………… Fall 2008 – Coquitlam Dam seismic upgrade …………………………… – Aberfeldie redevelopment …………………………………… Winter 2009 Fall 2010 – GM Shrum G1–G4 stator replacement ……………………… Fall 2009 – Peace Canyon G1–G4 turbine overhaul …………………… 4 Fall 2011 – Revelstoke Unit 5 generation ………………………………… Fall 2011 – Cheakamus spillway gate reliability upgrade …………… Fall 2008 – Vancouver Island transmission reinforcement 5……………… 5 – Mission and Matsqui transmission and distribution ………… Winter 2009 5 Fall 2014 – Interior to Lower Mainland transmission line ……………… 5 Fall 2010 – Central Vancouver Island transmission line ………………… BC Transmission Corporation – System control centre modernization ………………………… Spring 2008 Brilliant Expansion Power Corporation Fall 2008 – Brilliant Dam power expansion ……………………………… Total Capital Costs 63 Total post-secondary facilities ………………………………… Transportation Pitt River Bridge …………………………………………………… Winter 2009 Sea-to-Sky Highway Fall 2009 – Government direct cost ………………………………………… Fall 2009 – P3 contract ……………………………………………………… William R. Bennett Bridge – P3 contract ……………………………………………………… Spring 2008 South Fraser Perimeter Road ………………………………… Winter 2012 Total transportation …………………………………………… Projected Costs to Complete 31 1 12 50 24 256 59 21 4 578 91 86 66 95 97 55 350 72 298 56 602 94 86 66 95 97 55 350 72 298 56 602 94 - - 127 2 129 129 - - 228 7 235 235 - - 1,170 1,162 2,332 2,332 - - 734 13 149 352 883 365 541 365 222 - 120 - 747 501 1,248 906 222 120 1 Only projects that have been approved by Treasury Board and/or Crown corporation boards are included in this table. Ministry service plans may include project s that still require final approval. Capital costs reflect current government accounting policy. As the agreement has not been finalized, the fiscal implications of the Port Mann Bridge/Highway 1 Project (which will be funded from tolls) are not included in Budget 2009 – see the topic box at the end of Part 1. 2 Figures shown are based on preliminary Treasury Board approvals. These amounts will change after P3 contracts are finalized. 3 The William R. Bennett Bridge was opened for traffic in May 2008. Decommissioning of the old bridge is forecast to be complete in March 2009. 4 Total costs for Revelstoke Unit 5 range from $280 million to $350 million with forecast completion in 2010/11 or 2011/12, depending on the project's final scope. 5 Assets are owned by BC Hydro and managed by BC Transmission Corporation. 6 The system control centre was substantially complete and put into service in March 2008. Budget and Fiscal Plan – 2009/10 to 2011/12 40 Three-Year Fiscal Plan Provincial Debt The provincial government along with its Crown corporations and agencies provide services and capital infrastructure to support the social and economic programs needed for maintaining and enhancing the quality of life in BC. Funding for these programs is mainly derived from revenue sources such as taxation and the sale of natural resources. Government also obtains financing from outside sources mainly through debt issuances that are to be repaid on future dates. Borrowing for operations is required to finance deficits and to meet other working capital requirements such as loans and advances or changes in accounts receivable/payable. This type of debt (government direct operating debt) tends to rise during periods of deficits, but declines with surpluses. Since peaking in 2003/04, government has made significant progress in reducing taxpayer-supported debt, including the operating debt. Taxpayer-supported debt has declined from $30.0 billion in 2003/04 to $27.7 billion by 2008/09. Operating debt has been reduced by 59 per cent from a peak of $15.7 billion in 2003/04 to $6.4 billion in 2008/09. These reductions allow government the flexibility to address the current economic challenges, while keeping debt affordable. Table 1.19 Provincial Debt Summary 1, 2 2008/09 ($ millions unless otherwise indicated) Revised Forecast Budget Budget Estimate 2009/10 Plan 2010/11 Plan 2011/12 Taxpayer-supported debt Provincial government direct operating debt …………… Other taxpayer-supported debt (mainly capital) Education 2……………………………………………………… Health 2…………………………………………………………… Highways and public transit …………………………………… Other 3……………………………………………………………… 7,408 6,437 6,847 7,104 7,074 8,755 3,945 6,916 717 8,692 3,820 6,814 1,929 9,216 4,332 7,612 2,206 9,624 4,936 8,232 2,496 9,972 5,431 8,804 2,797 Total other taxpayer-supported debt ……………………… 20,333 21,255 23,366 25,288 27,004 Total taxpayer-supported debt ………………………………… 27,741 27,692 30,213 32,392 34,078 Self-supported commercial Crown corporations debt …… 9,250 9,395 10,258 11,811 13,137 Warehouse borrowing program……………………………… - 400 - - - Total debt before forecast allowance ………………………… 36,991 750 Forecast allowance ……………………………………………… 37,487 - 40,471 - 44,203 - 47,215 - 37,741 37,487 40,471 44,203 47,215 Total provincial debt …………………………………………… Debt as a per cent of GDP Provincial government direct operating …………………...…… 3.7% Taxpayer-supported ………………………………………….… 14.0% Total provincial ………………………………………….……… 19.0% Taxpayer-supported debt per capita ($) ……………………… 6,248 Taxpayer-supported interest bite (cents per 4.5 dollar of revenue) ……………………………………………… 3.2% 13.8% 18.7% 6,320 4.3 3.5% 15.2% 20.4% 6,795 4.3 3.4% 15.7% 21.4% 7,186 3.3% 15.8% 21.8% 7,458 4.5 4.6 1 Debt is after deduction of sinking funds and unamortized discounts, and excludes accrued interest. Government direct and fiscal agency accrued interest is reported in the government's accounts as an accounts payable. 2 Includes debt and guarantees incurred by the government on behalf of school districts, universities, colleges and health authorities/hospital societies (SUCH), and debt directly incurred by these entities. 3 Includes service delivery agencies, other fiscal agency loans, student assistance loan guarantees, loan guarantees to agricultural producers, guarantees issued under economic development and home mortgage assistance programs, and loan guarantee provisions. Budget and Fiscal Plan – 2009/10 to 2011/12 41 Three-Year Fiscal Plan Chart 1.17 Operating debt down from peak in 2003/04 $ billions $15.4 $15.7 Operating Debt declines rapidly due to large operating surpluses $14.5 $13.8 $11.9 $9.5 $8.3 $6.4 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 $6.8 09/10 $7.1 10/11 $7.1 11/12 Chart 1.18 Taxpayer-supported debt burden remains low Taxpayer-supported debt to GDP ratio 20.6% 21.3% 20.6% 18.2% 16.1% 15.2% 14.2% 01/02 02/03 03/04 04/05 05/06 06/07 15.7% 15.8% 13.8% 13.8% 07/08 08/09 09/10 10/11 11/12 Government operating debt is forecast to increase by $637 million over the next three years mainly reflecting temporary deficits projected in 2009/10 and 2010/11. Borrowing for capital projects finances the building of schools, hospitals, roads and other social and economic assets. As these investments provide essential services over several years, the government, like the private sector, borrows to fund these projects and amortizes the costs over the assets’ useful life. In 2008/09, provincial debt is forecast to total $37.5 billion, $254 million below budget. In 2009/10, provincial debt is forecast to increase $3.0 billion from the 2008/09 updated forecast to total $40.5 billion. The 2009/10 change reflects: finance net capital requirements ($2.1 billion); Budget and Fiscal Plan – 2009/10 to 2011/12 42 Three-Year Fiscal Plan partially offset by funds are used primarily to fund capital requirements. Over the next two years, taxpayer-supported debt is forecast to increase by $3.9 billion reflecting the $3.6 billion required to finance government’s investments in infrastructure and the projected deficit in 2010/11. Self-supported debt will increase $2.9 billion over 2010/11 and 2011/12, mainly to fund power generation and transmission projects which will refurbish ageing infrastructure and expand capacity to support the province’s economic growth. In general, the change in debt will not equal the surplus/deficit: costs included in the surplus; and balance sheet items (such as cash balances, loan receivables and other accounts receivables/payables), but do not form part of the surplus. Table 1.20 reconciles forecast surplus/deficit with changes in debt. In the updated fiscal plan, debt rises due to the impact of capital spending in excess of amortization, and higher commercial Crown corporation debt incurred for capital investments as well as the projected deficits in 2009/10 and 2010/11. Table 1.20 Reconciliation of Summary Results to Provincial Debt Changes Revised Forecast 2008/09 ($ millions) Budget Estimate 2009/10 Plan 2010/11 Plan 2011/12 Operating statement (surplus) deficit ……………………………………… Taxpayer-supported capital spending ……………………………………… Increase (reduction) in cash and temporary investments ……………… Amortization (non-cash expense included in the surplus) ……………… Net increase in commercial Crown corporations (mainly capital) ……… Other balance sheet and working capital changes ……………..………… (50) 4,133 77 (2,086) 1,747 (961) 495 4,746 (1,659) (1,795) 463 734 245 4,650 (760) (2,099) 1,553 143 3,382 5 (2,225) 1,326 524 Total provincial debt increase ……………………………………………… 2,860 2,984 3,732 3,012 The ratio of taxpayer-supported debt, which excludes commercial Crown corporations and other self-supported debt, to GDP is a key measure often used by financial analysts and investors to assess a province’s ability to repay debt. Significant progress has been made in reducing the taxpayer supported debt burden over the past six years. The taxpayer-supported debt to GDP ratio has declined from 21.3 per cent in 2002/03 to 13.8 per cent by 2008/09, a 35 per cent reduction. The taxpayer-supported debt to GDP ratio is forecast to increase from 13.8 per cent in 2008/09 to 15.2 per cent in 2009/10 and to 15.8 per cent in 2011/12, due to both lower GDP and increased infrastructure spending. The debt remains low, despite the global economic downturn. Taxpayer-supported interest costs continue to remain low, representing less than 5 cents per dollar of revenue in each year of the three year plan. Budget and Fiscal Plan – 2009/10 to 2011/12 43 Three-Year Fiscal Plan Table 1.21 Provincial Financing Debt 1 Outstanding at March 31, 2008 ($ millions) 2008/09 Debt Change Estimated Debt 1 Outstanding at March 31, 2009 Estimated 2009/10 Transactions New Retirement Borrowing 2 Provision 3 Net Change Debt 1 Outstanding at March 31, 2010 Taxpayer-supported debt Provincial government direct operating …… Education 4……………………………………… Health 4………………………………………… Highways and public transit ………………… Other debt 5…………………………………… 8,264 8,220 3,345 6,082 668 (1,827) 472 475 732 1,261 6,437 8,692 3,820 6,814 1,929 1,618 908 827 1,052 401 (1,208) (384) (315) (254) (124) 410 524 512 798 277 6,847 9,216 4,332 7,612 2,206 Total taxpayer-supported debt …………… 26,579 1,113 27,692 4,806 (2,285) 2,521 30,213 Self-supported commercial Crown corporations debt …………………………… 8,048 1,347 9,395 1,530 (667) 863 10,258 (400) - 400 400 - (400) Total self-supported debt…………………… 8,048 1,747 9,795 1,530 (1,067) 463 10,258 Total provincial debt ………………………… 34,627 2,860 37,487 6,336 (3,352) 2,984 40,471 Warehouse borrowing program……………… - 1 Debt is after deduction of sinking funds and unamortized discounts, and excludes accrued interest. Government direct and fiscal agency accrued interest is reported in the government's accounts as an accounts payable. 2 New long-term borrowing plus net change in short-term debt. 3 Sinking fund contributions, sinking fund earnings and net maturities of long-term debt (after deduction of sinking fund balances for maturing issues). 4 Includes debt and guarantees incurred by the government on behalf of school districts, universities, colleges and health authorities/hospital societies (SUCH), and debt directly incurred by these entities. 5 Includes service delivery agencies, other fiscal agency loans, student assistance loans, loan guarantees to agricultural producers, guarantees issued under economic development and home mortgage assistance programs, and loan guarantee provisions. Table 1.21 summarizes the provincial financing plan for 2009/10. New borrowing of $6.3 billion is anticipated, of which $3.3 billion will be used to replace maturing debt and $3.0 billion will be used for capital and other financing requirements. Additional details on the debt outstanding for government, Crown corporations and agencies are provided in Appendix Tables A16 and A17. Risks to the Fiscal Plan The major risks to the fiscal plan stem from changes in factors that government does not directly control. These include: such as economic factors, commodity prices and weather conditions. federal government and impacts on the provincial income tax bases arising from federal tax policy and budget changes. services, and income assistance. In addition, changes in accounting treatment or revised interpretations of generally accepted accounting principles (GAAP) could have material impacts on the bottom line. Budget and Fiscal Plan – 2009/10 to 2011/12 44 Three-Year Fiscal Plan Table 1.22 summarizes the approximate effect of changes in some of the key variables on the surplus. However, individual circumstances and inter-relationships between the variables may cause the actual variances to be higher or lower than the estimates shown in the table. For example, an increase in the US/Cdn dollar exchange rate may be offset by higher commodity prices. Table 1.22 Key Fiscal Sensitivities Variable Increases of: Nominal GDP ……………………………………… 1% $50 Lumber prices (US$/thousand board feet) ……… Natural gas prices (Cdn$/gigajoule) ……………… $1 US exchange rate (US cent/Cdn $) ……………… 1 cent Interest rates ………………………………………… 1 percentage point Debt ………………………………………………… $500 million 1 Annual Fiscal Impact ($ millions) $150 – $250 $50 – $100 1 $275 – $325 -$25 to -$40 -$80 -$18 Sensitivity relates to stumpage revenue only. Depending on market conditions, changes in stumpage revenues may be offset by changes in border tax revenues. Own Source Revenue The main areas that may affect own source revenue forecasts are BC’s overall economic performance, the relative health of its major trading partners, the exchange rate and commodity prices. Revenues are sensitive to economic performance. For example, taxation and other revenue sources are driven by economic factors such as personal income, retail sales, population growth and the exchange rate. The revenue forecast contained in the fiscal plan is based on the economic forecast detailed in Part 3: British Columbia Economic Review and Outlook. Revenues in British Columbia can also be volatile, largely due to the influence of the cyclical natural resource sector in the economy and the importance of natural resource revenues in the province’s revenue base. Changes in commodity prices such as natural gas, or lumber may have a significant effect on natural resource revenues. Income tax revenues can be affected by timing lags in reporting current and prior years tax assessments by the Canada Revenue Agency. Federal Government Contributions Potential policy changes regarding federal transfer allocations, including federal health transfers and cost-sharing agreements, including sharing the 2010 Olympic security costs, could affect the revenue forecast. In January 2009, the federal government announced an infrastructure stimulus package as part of its 2009 budget. On a population basis, British Columbia’s share of this package is approximately $1 billion. The province has identified a total of $2 billion in new capital investments to maximize the cost sharing benefits of federal programs and will work with the federal government over the coming weeks to finalize program details. Capital and debt forecasts and related interest and amortization could be impacted once negotiations on cost-sharing are finalized. Details on major assumptions and sensitivities resulting from changes to those assumptions are outlined in Appendix Table A10. Budget and Fiscal Plan – 2009/10 to 2011/12 Three-Year Fiscal Plan 45 Crown Corporations and Agencies Crown corporations and agencies have provided their own forecasts. These forecasts, as well as their statements of assumptions were used to prepare the fiscal plan. The boards of those corporations and agencies have also included these forecasts, along with further details on assumptions and risks, in the service plans being released with the budget. The fiscal plan does not assume or make allowance for extraordinary adjustments other than those noted in the assumptions provided by the Crown corporations and agencies. Factors such as electricity prices, water inflows into the BC Hydro system, accident trends, interest/exchange rates, decisions of an independent regulator, or pending litigation could significantly change actual financial results over the forecast period. BC Hydro’s and ICBC’s results may be affected by the outcome of BC Utilities Commission decisions on current and future rate applications. New decisions or directions by Crown corporation or agency boards of directors may result in changes to costs and revenues due to restructuring, valuation allowances and asset write-downs, or gains and losses on disposals of businesses or assets. SUCH Sector Three-year aggregate financial plans for the SUCH sector have been developed by the Ministries of Health Services, Education and Advanced Education and Labour Market Development based on broad policy assumptions and the funding for SUCH sector organizations included in the respective ministry budgets. Allocations of funding to individual agencies is being developed by ministries and will be communicated in the coming weeks. Individual agency financial plans based on these funding decisions, may, therefore, differ from the ministry developed sector plans included in the budget. Health authorities and hospital societies have identified annual spending pressures of approximately 3.5 per cent of the provincial funding provided to health organizations. The Ministry of Health Services will continue to work with the health authorities to manage these spending pressures. Spending The spending forecast contained in the fiscal plan is based on ministry and taxpayer-supported Crown corporation and agency spending plans and strategies. Details on major assumptions and sensitivities resulting from changes to those assumptions are shown in Appendix Table A12 and in ministry service plans. The main spending issues follow. Compensation The current public sector negotiating framework provides for a dividend to be made available to employees if the projected surplus at March 31, 2010 is greater than $150 million, to a maximum of $300 million. Given the forecasted deficit in 2009/10, provision for a dividend payment is not included in the fiscal plan. However, consistent with negotiated agreements, a dividend would be paid if the required surplus is achieved in the Public Accounts for 2009/10. Budget and Fiscal Plan – 2009/10 to 2011/12 46 Three-Year Fiscal Plan Many of the wage agreements reached in the last round of public sector negotiations expire by the end of 2009/10. In response to the global economic forecast and government’s fiscal position, the fiscal plan assumes no wage increases for 2010/11 and 2011/12. The Ministry of Health Services funding growth in 2010/11 and 2011/12 is maintained at approximately 6 per cent, as in previous years. This funding is expected to accommodate wage increases within the current negotiating framework and any labour market adjustments arising from the upcoming collective agreements. Health sector bargaining is expected to be consistent with the mandate for the rest of government. Contingency Vote A contingency vote of $385 million is included in 2009/10, decreasing to $300 million in 2010/11 and $250 million in 2011/12. The allocation to contingencies is a prudent budgeting measure that protects the three-year fiscal plan from: values are impacted by external events or prices. Table 1.23 Notional Allocations to Contingencies ($ millions) 2009/10 2010/11 2011/12 2010 Olympics – preliminary allocation of contingency amount … 69 10 Subtotal notional allocations …………………………………… Unallocated contingencies …………………………………………… 69 316 10 290 250 Total contingencies ……………………………………………… 385 300 250 The contingency amounts provide $79 million for the remaining contingency that is earmarked to help address cost uncertainties in areas related to staffing and hosting the 2010 Winter Olympic and Paralympic Games (2010 Winter Games). Budget 2008 provided $75 million for the Innovation and Integration Fund within the Contingency vote ($50 million in 2008/09 and $25 million in 2009/10). Budget 2009 provides the $25 million funding for the Innovation and Integration Fund in 2009/10 in the Ministry of Health Services budget. Public Sector Program Delivery The vast majority of government-funded services are delivered through third party delivery agencies that provide programs such as acute and continuing health care, K–12 education, post-secondary education, and community social services. All of these sectors face cost pressures in the form of program demand and non-wage inflation. The government also funds a number of demand-driven programs such as PharmaCare, K–12 education, student financial assistance and income assistance. The budgets for these programs reflect the best estimates of demand and other factors such as price inflation. If demand is higher than estimated, this will result in a spending pressure to be managed. Budget and Fiscal Plan – 2009/10 to 2011/12 Three-Year Fiscal Plan 47 Budget 2009 protects and enhances funding for health, post secondary, and education, in part by setting targets for administrative efficiencies across government. As these efficiencies are implemented, government may reassess some efficiency targets to help ensure that program delivery is protected, particularly in areas vulnerable to rapidly changing economic circumstances Treaty Negotiations and the New Relationship The provincial government is committed to building a new relationship with First Nations and Aboriginal people based on mutual respect, recognition, and reconciliation of Aboriginal rights and title. The vision for the New Relationship was established in 2005 and government continues to partner with Aboriginal leadership to develop new means and structures that promote co-operation and workable arrangements with a goal of closing the gap that exists between Aboriginal and other British Columbians. Treaties continue to be a primary objective for the province for achieving certainty over land and resource ownership. The Tsawwassen Final Agreement received full ratification by Canada in the federal Parliament on June 17, 2008, and the parties expect the treaty will take effect in April 2009. The five Maa-nulth First Nations and BC have ratified a treaty final agreement, which is awaiting ratification by Canada. On November 20, 2008, the Yale First Nation signed an understanding with BC on a final agreement. The First Nation and the federal government still need to resolve issues concerning salmon fisheries before a final agreement can be reached. In November 2008, BC finalized the first Incremental Treaty Agreement (ITA) in the province with the Tla-o-qui-aht First Nation. The ITA will transfer Crown land and other benefits to the First Nation in increments tied to milestones in the treaty process, in exchange for accelerated treaty negotiations, commitments not to engage in litigation with the province, and other provisions. Government continues to negotiate treaties and incremental treaty agreements with First Nations, and the impact of these agreements on the fiscal plan will depend on the outcome of negotiations and ratification. The province is involved in litigation with First Nations relating to aboriginal rights. Settlement of these issues, either in or out of court, may result in additional costs to government. Capital Risks The capital spending forecasts assumed in the fiscal plan may be affected by a number of the various factors listed below: costs; Budget and Fiscal Plan – 2009/10 to 2011/12 48 Three-Year Fiscal Plan government; Unfunded Liabilities The Public Service, Teachers, College and Municipal Pension Plans – the four major public service plans – are joint trusteeship plans. Actuarial evaluations are conducted on each plan every three years, and a report is received within one year of the evaluation. In the event that the actuarial evaluation indicates a plan deficit, the pension boards are required to address the shortfall by contribution adjustments or other means. of March 31, 2008 indicated a $487 million surplus. Contribution rate increases of 0.15 per cent for both members and employers were required effective April 1, 2009 to address a Pension Benefits Standards Act provision that imposes a minimum funding requirement, and are included in the fiscal plan. December 31, 2005 indicated a $904 million liability. Contribution rate increases of 1.61 per cent for both members and employers were required effective July 1, 2007, and are included in the fiscal plan. August 31, 2006 indicated a $54 million liability. Contribution rate increases of 0.51 per cent for both members and employers were required effective September 1, 2007, and are included in the fiscal plan of December 31, 2006 indicated a surplus of $438 million. March 31, 2011 is expected to be received by March 31, 2012; the report for the Teachers’ Pension Plan as of December 31, 2008 is expected to be received by December 31, 2009; the report for the College Pension Plan as of August 31, 2009 is expected to be received by August 31, 2010; and the report for the Municipal Pension Plan as of December 31, 2009 is expected to be received by December 31, 2010. Catastrophes and Disasters The spending plans for the Ministries of Forests and Range and Public Safety and Solicitor General include amounts to fight forest fires and deal with other emergencies such as floods. These amounts are based on historical averages of actual spending and on conditions of normal to moderate severity. Extreme occurrences may affect expenses in these ministries and those of other ministries. Budget and Fiscal Plan – 2009/10 to 2011/12 Three-Year Fiscal Plan 49 Pending Litigation The spending plan for the Ministry of Attorney General contains provisions for payments under the Crown Proceeding Act based on estimates of expected claims and related costs of settlements likely to be incurred. Litigation developments may occur that are beyond the assumptions used in the plan (for example, higher-than-expected volumes, or size of claim amounts and timing of settlements). These developments may affect government revenues and/or expenditures in other ministries. One-time Write-downs and Other Adjustments Ministry budgets provide for anticipated levels of asset or loan write-downs where estimates can be reasonably predicted. The overall spending forecast does not make allowance for extraordinary items other than the amount provided in the contingency vote. Budget and Fiscal Plan – 2009/10 to 2011/12 50 Three-Year Fiscal Plan Presentation of Provincial Government Debt Why does it matter that taxpayer supported debt is increasing After a downward trend over the past six years the ratio of taxpayer supported debt to GDP is set to increase in Budget 2009. This change is significant because provincial government debt represents an obligation passed on to future generations. Government reports on both the level of total debt and the level of taxpayer-supported debt. Generally speaking taxpayer-supported debt is paid for out of government revenues while total debt includes debt paid from revenues generated from services provided by crown corporations or agencies. For many years taxpayer supported debt to GDP has been the measure most often referred to as an indicator of whether the level of provincial debt is affordable. However this measure of affordability does not provide information about the debt’s purpose. For example, government could borrow for current operations and neglect borrowing to support infrastructure. In both cases the obligation to pay would fall to future generations but it is generally accepted that borrowing for investments with long lives is more appropriate than borrowing to pay for day-to-day operations since investments provide benefits beyond one year. Over the next two years, as the government introduces deficit budgets, operating debt is expected to increase. When GDP is growing faster than taxpayersupported debt a decreasing portion of government revenue raised from economic activity is required to service debt obligations. When GDP growth is less than the rate of increase in borrowing a greater portion of future tax revenue is required to repay those debt obligations. Sinking funds Under the Budget Transparency and Accountability Act government prepares it’s budget and Public Accounts in accordance with generally accepted accounting principles which require the total amount of all obligations to be disclosed. Sinking funds, which are amounts set aside to retire both taxpayer-supported and self-supported debt, are presented separately. Since these amounts have already been set aside to repay future obligations when they become due, the net amount of debt obligations less sinking fund investments is the outstanding obligation that must be funded from future tax revenue or revenue raised through commercial activities. Debt disclosure The province currently reports information about provincial debt in a number of different documents. The budget documents provide information about the provinces debt forecast. Annual service plans and service plan reports provide accountability targets and report on results. The independently audited financial statements, detailed debt summary and debt statistics reports included in the annual Public Accounts provide an accounting of the province’s debt obligations at the end of each fiscal year. How classification of self-supported debt may become inconsistent Historically self-supported debt has been described as the amount of provincial borrowing that has been lent to commercial government business enterprises. This is unique to British Columbia as most jurisdictions in Canada report debt net of lending to commercial government business enterprises. Budget and Fiscal Plan – 2009/10 to 2011/12 Three-Year Fiscal Plan New types of business structures within other crown corporations could also fund the repayment of their debt through specifically dedicated revenues raised outside the government reporting entity. An example would be a student residence paid for from rent. Because these programs and projects may not be structured as government business enterprises, they would not be included under the current definition of self supported debt. This currently results in inconsistent treatment of debt even though the nature of the debt is the same. Need for increased disclosure in notes The types of debt obligations entered into by the province have also become more varied as the financial environment continues to change. Both taxpayer-supported and self-supported debt can include not only notes, bonds and debentures but also mortgages, demand loans, capital lease liabilities and obligations under Public Private Partnership contracts. It is important that debt information remains informative in the context of these changing structures. Conclusion To adapt and respond to the changing nature of business, government is reviewing how provincial debt is represented in all of its financial reports. Options include moving to gross debt reporting and refining the definition of taxpayer-supported debt to consistently segregate those debts supported from service revenue. In reviewing the presentation of debt in the financial reports of the province the first consideration is retaining compliance with the evolving principles of generally accepted accounting principles, and the expectations about the current and future materiality of the debt information being disclosed. The information requirements of the different user groups who rely on the financial information to support their decision making and the way other governments in Canada report their debt to ensure financial information remains comparable are also considerations. Budget and Fiscal Plan – 2009/10 to 2011/12 51 52 Three-Year Fiscal Plan The Port Mann Bridge / Highway 1 Project The fiscal implications of the Port Mann/ Highway 1 Project, announced in January 2009, are not included in the Budget and Fiscal Plan. Based on continuing negotiation, appropriate presentation can only be determined when the agreement is finalized. The project includes widening Highway 1, building a wider Port Mann Bridge, upgrading interchanges and improving access and safety on Highway 1 from the McGill interchange in Vancouver to 216th Street in Langley, a distance of approximately 37 kilometres. The pre-design concept includes congestion reduction measures such as high occupancy vehicle lanes, transit and commercial vehicle priority access to highway on-ramps, improvements to the cycling network, and the capability to accommodate future light rail transit. Construction costs are estimated to total $2.46 billion. For presentation in financial statements, generally accepted accounting principles require the inclusion of interest charges and project management costs which could increase the total capital cost to over $3 billion. To achieve an opening date of 2013, initial groundwork in preparation for construction was initiated in October and is ongoing. These expenditures, approximately $94 million to the end of 2008/09, are currently being managed by the province but will be fully recovered through the terms of the concession agreement. Total costs over the life of the concession will include operating and maintenance, rehabilitation, and interest. Provincial financing is part of the ongoing negotiation. While the accounting treatment and financial statement presentation cannot be finalized until the structure of the deal is known on financial close, at an assumed total capital cost of $3 billion, the project debt would represent approximately 1.2 per cent of GDP by 2014/15. All costs will be recovered by tolls. The announced toll is $3 each way for cars when the bridge opens in 2013. Final terms and conditions for project financing are anticipated to be settled in early March. The government retains control of the rate of the tolls as the concessionaire cannot change the toll rate without provincial approval. Budget and Fiscal Plan – 2009/10 to 2011/12 Three-Year Fiscal Plan British Columbia’s Strong Foundation In 2002, facing a forecast $4.4 billion deficit, government undertook an ambitious strategy to revitalize the provincial economy. Since that time, the province has reduced its operating debt by 40 per cent, benefited from increases in investment in much of its resource sector, and experienced an average 2.6 per cent annual growth in real GDP per capita while the Canadian average was 1.8 per cent. Over the same period the unemployment rate has fallen, averaging 4.6 per cent in 2008. A balanced budget was achieved in 2004 and maintained for four consecutive budget cycles. Operating debt has been reduced by $7.4 billion over the last five years and the province has the highest possible credit rating of AAA with Moody’s Investor Services and Standard & Poor’s. Strong fiscal position restored economic and fiscal position is stronger now than it was in 2002 and this will help to mitigate the impact of the global economic slowdown and ensure that British Columbia manages through these turbulent economic times. Government’s investments over the last seven years to build a framework that is sustainable, flexible, and responsive have created a strong British Columbia. Initiatives such as the minimization of “red tape” and a competitive tax environment for business; reductions in personal income taxes; a focus on resource development in an environmentally sustainable manner; targeted spending on education to ensure a skilled and adaptable workforce; and a $31 billion capital infrastructure program supporting both urban and rural communities have all contributed to the productive and prosperous standard of living enjoyed by British Columbians today. Surplus/Deficit ($millions) 4,500 4,056 3,500 3,060 2,886 2,575 Tax and regulatory competitiveness 2,500 1,500 500 -500 -1,500 -1,233 -1,339 -2,500 -3,169 -3,500 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 Source: Annual audited Public Accounts Taxpayer-supported debt has decreased from 21.3 per cent of GDP in 2002 to below 14 per cent by the end of 2008/09. Today the province is once again facing challenging times. The latest provincial economic forecast indicates the economy is expected to decline by 0.9 per cent in 2009 and in the last quarter of 2008, an estimated 13,700 jobs were lost. Since September 2008, forecasted provincial revenues have decreased by $6.6 billion over the next three years. In 2002, government’s primary objectives were to build confidence in the economy and enable a stable, growing revenue base. Today those same objectives remain the priority for government. However, BC’s current base Since 2001, attracting business investment to British Columbia to create and maintain jobs has been a top priority for the province. The major tools to achieve this include a competitive tax system, streamlined regulations and a highly educated and trained workforce. Significant changes have been made to the provincial tax system resulting in a very competitive tax regime in British Columbia that has supported the province’s strong economic performance over the last seven years. Since 2001, and including Budget 2009, the government has introduced more than 120 tax cuts which have benefited British Columbian families, individuals, and businesses. Personal income tax cuts put money back into people’s pockets to spend, or invest, or pay down debt. The tax changes have resulted in: 37 per cent for most taxpayers with lower income taxpayers receiving tax cuts of 70 per cent or more; Budget and Fiscal Plan – 2009/10 to 2011/12 53 54 Three-Year Fiscal Plan Corporate tax reductions since 2001 (per cent of taxable income) 16.5 2001 After Budget 2009 10.0* 4.5 2.5 General rate Small Business rate * Effective 2011 Personal income tax reductions since 2001 2001 $4,468 2009 45% reduction Deregulation $2,466 100% reduction $71 $0 Senior couple - $30,000 $795 78% reduction $177 Individual - $20,000 Family of four - $70,000 Regulatory Requirements and Results to December 31, 2008 Ministry 1 Requirement Net Change Requirement as of June as of Dec-31- as of Dec-312008 2008 2004 Number of Regulations Aboriginal Relations and Reconciliation ………… Advanced Education and Labour Market Development ……………………………………… Agriculture and Lands ……………………………… Attorney General …………………………………… Children and Family Development ………………… Community Development ………………………… Education …………………………………………… Energy, Mines and Petroleum Resources ……… Environment ………………………………………… Finance ……………………………………………… Forests and Range ………………………………… Health Services ……………………………………… Healthy Living and Sports ………………………… Housing and Social Development ………………… Labour and Citizens' Services …………………… Premier's Office – Intergovernmental Relations … Public Safety and Solicitor General ……………… Small Business, Technology and Economic Competitiveness ………………………………… Tourism, Culture and the Arts ……………………… Transportation and Infrastructure ………………… Total government ……………………………… 1 2 61 - 61 4,818 6,438 4,851 8,597 8,916 17,607 11,448 14,629 47,346 8,954 4,789 2,955 11,548 29,703 9 10,887 (672) (142) 47 (275) (1,097) (3,316) (388) (923) (3,759) (926) (99) (73) (120) (2,994) (702) 4,146 6,296 4,898 8,322 7,819 14,291 11,060 13,706 43,587 8,028 4,690 2,882 11,428 26,709 9 10,185 14,420 7,089 13,769 (297) (4,174) (152) 14,123 2,915 13,617 228,834 (20,062) 208,772 The distribution of the count across ministries was affected by the re-alignment of responsibilities completed in July 2008. The baseline regulatory count, June 2004, reflects corrections to the baseline count reported in Budget 2007 . Budget and Fiscal Plan – 2009/10 to 2011/12 Three-Year Fiscal Plan Infrastructure Since 2001, the province has invested $31 billion in capital projects in all sectors and across the province. This includes $22.8 billion in investments in the education, health and transportation sectors, government ministries and other service delivery agencies, and a further $8.2 billion in investments by commercial Crown corporations, primarily BC Hydro. Infrastructure investments of $31 billion since 2001 ($ millions) 5,951 6,000 4,964 5,000 4,392 3,958 4,000 2,961 3,000 2,763 2,858 3,139 2,000 1,000 0 fastest-growing region access to a world-class university. SFU Surrey is expected to enroll the equivalent of 2,500 full-time students by 2010. In 2002, government committed to increase the role of the private sector in the delivery of public infrastructure with the intention of minimizing costs and risks to taxpayers. By 2007, public-private partnerships (P3) became the base case for capital investment decisions over $20 million. Phase 2 of the Kicking Horse Pass project, the new floating bridge over Okanagan Lake, and the nearly completed Sea-to-Sky Highway improvements have, to date, all been delivered on budget and ahead of schedule through P3 arrangements with internationally supported consortiums. Two major elements of the Gateway Project, the South Fraser Perimeter Road and the Port Mann Bridge are also expected to be delivered through P3 arrangements. 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 Source: 2008 British Columbia Financial and Economic Review – Capital Spending Forecasted 2008/09 Multi-year transportation investments in rail, road and port infrastructure have opened up the province to emerging global markets. The Prince Rupert Container Terminal, announced in 2007, established British Columbia as the closest container shipping port to Asian markets and shortened product movement times by one to two days. Improvements to the Trans-Canada Highway in the Kicking Horse Canyon are providing a safer and more efficient journey for all travelers, and a competitive corridor for the east-west movement of goods to ports and southern routes. The William R. Bennett Bridge, opened in May 2008, plays a pivotal role in growing the Okanagan’s signature tourism industry. Critical capital investments in health and education have also been made in response to the changing demographics of both the population and workforce. The 300-bed Abbotsford Regional Hospital, opened in September 2008, is the first cancer centre in Western Canada to be integrated into a hospital from the ground up. In 2006, Simon Fraser University’s new campus in Surrey was opened, giving students in BC’s Public-private partnerships have also been used to deliver health projects such as the Surrey Outpatient Facility, Abbotsford Regional Hospital and Cancer Centre, Fort St. John Hospital replacement, Victoria Royal Jubilee Hospital inpatient facility, and expansions to the Kelowna General and Vernon Jubilee Hospitals. Key Sector Strategies Forestry British Columbia’s forest industry continues to be challenged by a slumping US housing market, low lumber prices and the devastating mountain pine beetle epidemic. Since 2002, the province has championed a number of policies and legislative changes to improve the market responsiveness and competitiveness of British Columbia’s forest sector. Under the 2003 Forestry Revitalization Plan, new auction based Market Pricing Systems were introduced to more accurately respond to changes in the market. As well, through a province wide timber reallocation process, new forest sector opportunities have been provided to market loggers, First Nations and for new community forests and woodlots. Budget and Fiscal Plan – 2009/10 to 2011/12 55 56 Three-Year Fiscal Plan Forestry agreements have been provided to over 150 First Nations, and over 50 communities have benefited from new or expanded community forest agreements. The performance-based criteria of the Forest and Range Practices Act encourages innovation while still maintaining high environmental standards. Over the next years the government will continue its focus on revitalizing this key industry. Government will work to strengthen existing policies and develop strategies to increase the existing market for wood products as well as capture new wood markets such as China. British Columbia exported 308 million board feet of lumber to China in 2007 and exceeded that amount in the first nine months of 2008. As well, the province is looking to take advantage of emerging new sectors such as wood bioenergy. Amendments to BC’s building code effective April 2009 will raise the limit on wood frame construction to six storeys. In addition, several 2010 Olympic venues and the Vancouver Convention and Exhibition Centre have used a significant amount of wood in their structures. For displaced forestry workers, the Community Development Trust is supporting transition to new careers or bridge to retirement. Oil and Gas In 2008, oil and gas land right sales hit a record high of $2.7 billion demonstrating continued optimism about the future of BC’s oil and gas sector. Since 2001, provincial natural gas reserves as a share of Canadian reserves have increased from 15 per cent to 22 per cent, and BC’s share of capital investment has increased from 10 per cent to 15 per cent. Oil and gas BC activity as a percentage of total Canadian activity Per cent 22.3 23 Reserves 21.2 18.2 19 15.3 14.9 16.4 15.8 15 15.8 12.9 14.6 16.0 Production 15.2 14.1 Capital Spending 11 9.7 6.6 6.4 6.2 2005 2006 2007 7 5.1 5.7 Wells Drilled 3 2000 2001 2002 2003 2004 Source: CAPP Policies supporting the development potential of the province’s abundant natural gas resources in a competitive global market have focused on resource access, regulatory streamlining, and a responsive royalty structure. The Infrastructure Royalty Credit Program encourages exploration and development in under-explored areas by providing infrastructure royalty credits to offset access road and pipeline costs. The government continues to encourage active investment in the oil and gas sector through a flexible and timely royalty regime. As exploration has become more technically complex, royalty programs that encourage shale gas development, enhanced oil recovery, deep wells, and exploration in remote and under-explored areas have been introduced. Mining Since 2002, exploration expenditures have increased from a low of $29 million in 2001 to nearly $367 million in 2008 – the second highest total ever for exploration spending in the province. Over a similar time period, Mineral exploration ($ millions) 500 471 400 367 344 300 218 While current prices for oil and gas have fallen recently, strong investor confidence in BC’s resources and its fiscal and regulatory environment are expected to support the industry through this period of low prices. 200 152 100 36 29 39 63 0 2000 2001 2002 2003 2004 2005 Source: Natural Resouces Canada – National Exploration Survey Forecasted 2008/09 (MEMPR) Budget and Fiscal Plan – 2009/10 to 2011/12 2006 2007 2008 Three-Year Fiscal Plan BC’s share of Canadian mineral exploration investment in BC has increased to 15 per cent from approximately 7 per cent. Government’s changes to the tax and regulatory systems, combined with appreciating commodity values, improved land use certainty, and proactive First Nations consultation, have been critical to the reemergence of the mining sector in BC. Tax incentives include the BC Mining Flow-Through Share tax credit which, in combination with a similar federal tax credit, reduces the cost of a $1,000 investment to about $383. The Mining Exploration tax credit available for 20 per cent of eligible mineral exploration expenses was increased to 30 per cent in Mountain Pine Beetle affected areas in Budget 2007. Land access remains a critical requirement for investor confidence. Policies implemented since 2001 have increased certainty for access to land and resource development for industry and investors. Several land use plans have been approved in recent years such as the Sea-to-Sky and Mid and North Coast plans and the Mining Resource Revenue Sharing program, a sector specific benefit, has been established under the New Relationship agreement with First Nations. High-Tech and Research Since 2001, BC has pursued its vision to establish the province as one of the top ten high-tech centres in the world. The strategy focused on improving both the personal and corporate income tax systems to create a competitive environment for the high-tech sector and building a knowledge-based economy through targeted investments in research and education. Many of the personal and corporate income tax cuts implemented since 2001 have directly benefited the high-tech sector, an industry which attracts highly skilled workers and entrepreneurs. Provincial investment in research and innovation has been considerable, with $1.7 billion invested since 2001. These investments included: BC Knowledge Development Fund to enable key research institutions to undertake leading edge research and attract world renowned scientists. Foundation for Health Research for cancer research. support its investments in and management of large-scale research projects in areas such as health, forestry, agriculture and the environment. Sciences Centre, the UVIC Medical Sciences Building, and UNBC’s Dr Donald Rix Northern Health Sciences Centre, doubling the capacity available for first-year student doctors. Endowment Fund (LEEF) to conduct research on a variety of diverse issues from addiction and mental illness to early childhood development, marine ecosystems, and sport technology. Media Education. The Centre is training home-grown experts in digital media, a $2.3 billion industry in BC that employs 16,000 people. Tourism In 2002, the government committed to doubling tourism’s contribution to BC’s economy by 2015 and a corresponding effort was undertaken to streamline access to Crown land, encourage expansion of the cruise ship industry, and secure the 2010 Olympic and Paralympic Winter Games. Budget and Fiscal Plan – 2009/10 to 2011/12 57 58 Three-Year Fiscal Plan A number of initiatives since 2002 have strengthened this pledge including the BC Resort Strategy and Tourism Action Plan. To date the province has seen $1.044 billion in increased investments in resort expansion and development which, in turn, has contributed to the 35 per cent growth in tourism revenue since 2002. Film and Television British Columbia’s scenic beauty, expertise in digital animation and visual effects, and competitive tax credits has made the province an attractive location for film production. The film and television industry currently adds approximately $1 billion annually to the provincial economy and provides about 20,000 direct and 15,000 indirect jobs. Since 2001, the province has increased the basic film tax credit rate to 35 per cent from 20 per cent for domestic film productions and to 25 per cent from 11 per cent for foreign film productions. Agriculture Under the five-year provincial-federal Agricultural Policy Framework Agreement, which ran from 2003 to 2008, over $500 million was provided to British Columbia’s agri-food industry. Among the programs put into place were production insurance and farm income stabilization. Capitalizing on the positive momentum generated by the original agreement, the province is preparing to enter into a new agreement with the federal government, the “Growing Forward Agreement on Agriculture, Agri-Food and Agri-Based Products”. Funding will support programs that focus on key results in the areas of competitiveness and innovation, environmental and food safety priorities, and proactive risk management. Housing British Columbia continues to be a desirable place to live and has attracted substantial investment in the housing sector over the past six years. This increased investment has, in some cases, resulted in financial challenges for British Columbians, whether for access to housing or managing sharp increases in existing housing costs. Since 2001, the government has constructed 12,838 units of subsidized housing and 2,687 additional units are in a development stage. Rental assistance has been made available to elderly seniors and low-income families that earn less than $35,000. To further support seniors, the province has increased the total supply of supportive housing by more than threefold to 4,400 units today. For existing homeowners, the government has provided tax relief for first time home buyers, making it easier for them to buy a home by increasing the exemption threshold and removing the 70 per cent financing eligibility requirement for the exemption from property transfer tax. A number of additional changes also provide tax relief for homeowners including: threshold to ensure more than 95 per cent to eligible low income homeowners with tax deferment program for people facing financial hardship. As part of its continued commitment to breaking the cycle of homelessness, the province has acquired 45 properties throughout BC and preserved 2,030 units of housing for low-income individuals and families. Budget 2008 provided $30 million annually to be directed primarily towards outreach teams and operating the Emergency Shelter Program as interim assistance until users can be connected with more permanent supportive housing. Budget and Fiscal Plan – 2009/10 to 2011/12 59 Three-Year Fiscal Plan Sustainable Environmental Policies The government places a high priority on encouraging a thriving private sector economy that creates high-paying jobs while maintaining high environmental standards. A focus on results based regulation has created an environment that supports sustainable resource management. Streamlined approval processes under the Environmental Assessment Act and Environmental Management Act have removed impediments to businesses and more appropriate penalties and incentives have been put in place to ensure improved compliance and accountability. In recent years the Environmental Assessment Office has focused extensively on improving timeliness and providing certainty of process to all interested parties. The province and federal government have recently signed an agreement that commits to developing joint work plans to strengthen the delivery of cooperative environmental assessments in British Columbia. Climate Action Plan In 2008 government made a commitment to become carbon neutral by 2010 and to reduce BC’s greenhouse gas (GHG) emissions by onethird by 2020 and by 80 per cent by 2050. This commitment was entrenched in legislation and Budget 2008 committed over $1 billion towards these goals. research and development in areas such as wood-waste cogeneration, biofuel production and wood pellet production. The Pacific Carbon Trust, the crown agency mandated to assist the government in delivering on its GHG targets is on track to meet government’s carbon offset requirements. Negotiations are underway to secure the required 35,000 tonnes of offsets needed through an open, competitive tender call with private-sector suppliers. Educational Excellence In 2001, the government noted that a fundamental requirement for economic prosperity was a high quality, relevant education system that was sensitive to the changing requirements of both industry and students. Quality education begins in the kindergarten to Grade 12 education system in British Columbia, a fact supported by BC students consistently scoring well on standardized international foundation skills tests. The province continues to increase per student funding as it has every year since 2001. K-12 spending has increased 28% since 2001 ($ millions) 6,000 5,687 5,774 5,521 5,272 5,000 4,495 4,542 4,687 4,757 4,829 2003/04 2004/05 2005/06 4,000 With the worldwide market for clean energy technologies valued at an estimated $1 trillion by 2030, the Climate Action Plan positions BC to support new innovation. Investments under this Plan include a $95 million endowment to create the Pacific Institute for Climate Solutions which brings together universities, government and the private sector to facilitate cutting-edge solutions; a $25 million Innovative Clean Energy (ICE) Fund, designed to help make BC a leader in global alternative technologies; and a $25 million Bioenergy Network to encourage 3,000 2001/02 2002/03 2006/07 2007/08 2008/09 2009/10 Source: 2008 British Columbia Financial and Economic Review – Expense by Function Forecasted 2008/09 & 2009/10 Investments in post-secondary education have increased and are focused on providing individuals with the education, training, and skills required to be productive and competitive in today as well as tomorrow’s economy. Budget and Fiscal Plan – 2009/10 to 2011/12 60 Three-Year Fiscal Plan Health spending has increased 49% since 2001 Since 2001, government has supported: ($ millions) 15,722 16,000 15,071 Industry Training Authority spaces); 15,000 14,236 14,000 13,250 13,000 12,430 campuses providing more choices, and 12,000 10,962 11,000 11,250 11,529 10,563 10,000 9,000 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Source: 2008 British Columbia Financial and Economic Review – Expense by Function Forecasted 2008/09 & 2009/10 physician training, physiotherapy, graduate Post secondary spending has increased 53% since 2001 ($ millions) 5,000 4,500 4,303 4,418 4,582 4,056 3,906 4,000 3,536 3,500 3,127 3,329 3,002 3,000 2,500 2,000 Budget 2009 is 1,500 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Source: 2008 British Columbia Financial and Economic Review – Expense by Function Forecasted 2008/09 & 2009/10 Lifestyle Connector, and various transit initiatives Moving Forward In 2001, the government initiated a strategy Budget and Fiscal Plan – 2009/10 to 2011/12 Three-Year Fiscal Plan $2 billion of approved capital infrastructure spending will be accelerated. has committed to accelerate $401 million in capital investments from within the capital plan. Projects include highway improvements; upgrades and maintenance of rural resource roads; and additional housing for the homeless. ($ millions) 7,155 6,945 $2 billion in accelerated infrastructure projects 6,000 5,951 720 885 340 6,435 5,896 6,060 4,964 3,958 5,584 4,392 1,500 0 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 Source: 2008 British Columbia Financial and Economic Review – Capital Spending Forecasted 2008/09 to 2011/12 provincial/local funding arrangements, an additional $151 million in grants will be provided to local governments in 2008/09 providing immediate strategic investment opportunities for communities. an additional 2,000 apprenticeship training spaces in 2009/10 to accommodate the changing skill requirements of the provincial workforce. The long term focus continues to be keeping British Columbia an attractive place to live and invest where multiple opportunities for growth and prosperity exist. Maintaining a competitive climate and encouraging the development of new markets will be critical factors. The province will continue taking advantage of key assets for success including: natural resources; investors, and newcomers searching for the superior lifestyle enjoyed by British Columbians today. 5,924 55 4,500 3,000 economies, including BC’s strategic location on the West Coast; and To position British Columbia for the future, the province will continue to seek out opportunities in the following areas: Continued investments in infrastructure 7,500 workforce; and encouraging the development of alternative energy sources, will be a priority as the government makes every effort to achieve its goal of electricity self-sufficiency by 2016. The LiveSmart BC Energy Incentive Program, the Innovative Clean Energy Fund, and the Bioenergy Network support this direction. exposure to out-of-province visitors and the world at-large from the 2010 Olympic and Paralympic Winter Games to better position British Columbia to further market itself as a tourism destination and international sport event locale. an International Finance Centre through proactive policy, tax and investment regulations, including incentives to pursue the commercialization of intellectual property in the form of eligible patents such as those related to water treatment and fuel cell technology. Asia-Pacific trade partners to maximize the economic benefits of the provincial investment in the Pacific Gateway Strategy which includes, amongst others, the Gateway Project (Pitt River Bridge, South Fraser Perimeter Road, Port Mann Bridge), the expansion of the Prince Rupert shipping terminal, and the Provincial Nominee Program. Budget and Fiscal Plan – 2009/10 to 2011/12 61 62 Three-Year Fiscal Plan Consistent with its strong record of fiscal management, government plans to balance the budget by 2011/12. This will be done by seeking further public sector efficiencies and administrative savings. Core public services will be maintained, administrative spending will be kept to a minimum and ongoing monitoring and updating of the revenue and expenditure outlook will provide the ability to take corrective action as necessary. Conclusion The government is committed to following the same principles of strong fiscal management, protecting key government services, and building a strong competitive economy which have been the foundation of provincial financial performance since 2002. With a well-built framework for economic success in place, the government is confident that it can weather the economic downturn, achieve an operating surplus by 2011/12, and maintain BC’s ability to maximize its future opportunities for growth. Budget and Fiscal Plan – 2009/10 to 2011/12 Part 2: TAX MEASURES Table 2.1 Summary of Tax Measures October 22 and November 1, 2008 Measures 1 Income Tax Act Land Tax Deferment Act Social Service Tax Act and Hotel Room Tax Act School Act Subtotal October 22 and November 1, 2008 Measures Budget 2009 Measures Income Tax Act Corporation Capital Tax Act International Financial Activity Act Logging Tax Act Social Service Tax Act 64 Table 2.1 Summary of Tax Measures – Continued Social Service Tax Act – Continued bona fide Motor Fuel Tax Act Tobacco Tax Act Home Owner Grant Act School Act Taxation (Rural Area) Act Subtotal Budget 2009 measures (149) Total Tax Measures — Supplementary Information October 22 and November 1, 2008 Measures Income Tax Act Personal Income Tax Rates Reduced As announced on October 22, 2008, the 3 per cent reduction in the rates for the two lowest income tax brackets that was legislated to take effect January 1, 2009 is made retroactive to January 1, 2008. Combined with the 2 per cent reduction in Budget 2008, this provides a $211 million reduction in 2008 taxes for British Columbians to help stimulate the economy. Taxpayers will see the benefit of the 3 per cent reduction when they file their 2008 tax returns. Budget and Fiscal Plan – 2009/10 to 2011/12 (208) 65 Table 2.2 British Columbia Personal Income Tax Cut – Impact on Taxpayers 1 Budget 2008 Small Business Corporate Income Tax Rate Reduced As announced on October 22, 2008, effective December 1, 2008, the small business corporate income tax rate is reduced from 3.5 per cent to 2.5 per cent. The small business corporate income tax rate had been reduced from 4.5 per cent to 3.5 per cent on July 1, 2008 and a further reduction to 2.5 per cent was planned by 2011. The accelerated tax rate reduction means a 44 per cent tax cut for small business in 2008. Land Tax Deferment Act Temporary Property Tax Deferment Program Introduced As announced on November 1, 2008, effective for the 2009 and 2010 taxation years, a temporary property tax deferment program is introduced to allow homeowners who are experiencing financial hardship due to current economic conditions, and who have at least 15 per cent equity in their home, to defer their property taxes. Homeowners do not have to repay the taxes until their home is sold or transferred other than to a surviving spouse, but may repay the deferred taxes earlier if they choose. Social Service Tax Act and Hotel Room Tax Act Commission Rates Increased As announced on October 22, 2008, effective for the November 2008 tax returns, the allowances paid to businesses for collecting and forwarding provincial sales tax and hotel room tax to the province is doubled. For amounts of tax collected above $333.33 per reporting period, the commission is now 6.6 per cent of the tax collected to a maximum of $198 per reporting period up from 3.3 per cent of tax collected to a maximum of $99 per reporting period. Table 2.3 Commission Rates Amount of tax collected for each reporting period Commission amount $0 - $22 $22.01 - $333.33 More than $333.33 Equal to tax collected $22 6.6% of tax collected to a maximum of $198 Budget and Fiscal Plan – 2009/10 to 2011/12 66 School Act Industrial Property Tax Credit Introduced As announced on October 22, 2008, effective for the 2009 and subsequent taxation years, an Industrial Property Tax Credit is introduced to reduce provincial school property tax on major industrial (class 4) and light industrial (class 5) properties by 50 per cent. The Industrial Property Tax Credit applies to British Columbia manufacturing, mining, forestry and other major and light industries. Budget 2009 Measures Income Tax Act Dividend Tax Credit Rate Reduced Effective January 1, 2010, the provincial personal income tax dividend tax credit rate applicable to ordinary dividends is reduced to 3.4 per cent from 4.2 per cent. This change maintains integration between the personal and corporate income taxes as a result of the December 1, 2008 reduction in the small business corporate income tax rate to 2.5 per cent from 3.5 per cent. Income from Registered Disability Savings Plans (RDSP) Excluded from Benefit Calculation Effective January 1, 2009, income from an RDSP is excluded from income for purposes of determining eligibility for the BC Sales Tax Credit. This income will also be excluded for purposes of Medical Services Plan premium assistance eligibility. BC Mining Flow-Through Share Tax Credit Extended As announced on December 5, 2008, the BC Mining Flow-Through Share Tax Credit is extended to the end of 2009. General Corporate Income Tax Rate Reduced As proposed in the 2008 Revenue Neutral Carbon Tax Plan, the general corporate income tax rate is reduced from 11 per cent to 10.5 per cent effective January 1, 2010 and to 10 per cent effective January 1, 2011. Film Tax Credits Expiry Dates Removed Expiry dates for the film tax credits are removed. The additional basic tax credit rates of 5 per cent for the Film Incentive BC and 7 per cent for the Production Services Tax Credit were legislated to expire in 2009. The basic, additional, regional, distant location, film training and digital animation and visual effects tax credits for the Film Incentive BC and Production Services Tax Credit were legislated to expire in 2013. Film Incentive BC Eligibility Expanded As announced on December 18, 2008, the requirement that a corporation be BC-controlled to be eligible for the Film Incentive BC tax credit is removed for productions with principal photography starting on or after January 1, 2009. This will allow Canadian-controlled eligible production corporations to qualify. Budget and Fiscal Plan – 2009/10 to 2011/12 67 Corporation Capital Tax Act Corporation Capital Tax Base Clarified Effective for taxation years ending on or after October 1, 2006, the capital tax base is amended to include accumulated other comprehensive income. This income is required to be shown as a separate item on a corporation’s balance sheet resulting from accounting changes made in 2006. International Financial Activity Act 90 day Amalgamation Notification Rule Relaxed The rule requiring the commissioner to be notified of an amalgamation between a registered and a non-registered corporation within 90 days of the amalgamation is amended to give the commissioner discretion to accept late notifications. Intellectual Property Expanded Effective April 1, 2009, the list of eligible patents is expanded to include patents relating to wastewater treatment and fuel cell technology. Meaning of Non-resident Person Clarified Effective September 1, 2004, the Act is amended to clarify that a non-resident person excludes a business carried on in Canada by that non-resident person. Review Initiated As required under the , the government has initiated a review of the program. The review will examine program objectives and opportunities for improvement and streamlining. Logging Tax Act Logging Tax Remission Effective for taxation years ending after December 2008, a partial remission of the logging tax is provided to corporations that cannot use the full amount of the logging The remission is provided to ensure that small tax credit under the business corporations with logging income can benefit from the reduction in the small business corporate income tax rate to 2.5 per cent from 3.5 per cent which is effective December 1, 2008. Social Service Tax Act Temporary Exemption for ENERGY STAR Residential Heating Equipment Extended The exemption for ENERGY STAR qualified oil-fired forced-air furnaces, boilers, and air and ground-source heat pumps purchased or leased for residential use is extended to March 31, 2011. Budget and Fiscal Plan – 2009/10 to 2011/12 68 Temporary Exemption for ENERGY STAR Qualified Windows, Doors and Skylights Extended The exemption for ENERGY STAR qualified windows, doors and skylights is extended to March 31, 2011. Temporary Exemption for Energy Efficient Residential Gas-Fired Water Heaters Extended The exemption for residential gas-fired water heaters with an energy factor of 0.80 or greater is extended to March 31, 2011. Temporary Exemption for Energy Efficient Commercial Boilers Introduced Effective February 18, 2009, commercial boilers fired by natural gas or propane with a boiler input rating of at least 200,000 BTU/h are exempt if they: in accordance with the following standards: – for boilers with a boiler input rating under 300,000 BTU/h ▪ CAN/CSA-P.2-07 “Testing Method for Measuring the Annual Fuel Utilization Efficiency of Residential gas-fired furnaces and boilers” of the Canadian Standards Association; or – for boilers with a boiler input rating of 300,000 BTU/h or more: ▪ ANSI Z21.13-2004/CSA 4.9-2004 “Gas-Fired Low Pressure Steam and Hot Water Boilers” of the Canadian Standards Association or ▪ BTS-2000 Testing Standard, “Method to Determine Efficiency of Commercial Space Heating Boilers” of the Hydronics Institute Division of Air Conditioning, Heating and Refrigeration Institute. This exemption expires March 31, 2011. Temporary Exemption for Devices to Reduce Idling Introduced Effective February 18, 2009, auxiliary power units, cabin heaters and engine heaters for trucks with a gross vehicle weight of at least 5000 kg are exempt until March 31, 2012. Use of these devices reduces fuel use and emissions as they reduce the need for trucks to idle. Exemption for Aerodynamic Devices Expanded Effective February 18, 2009, the exemption for certain aerodynamic devices that are designed to reduce wind resistance and improve the fuel efficiency of commercial tractor-trailers is expanded to include base flaps and boat tails. Labour charges to install these devices are also exempt. Budget and Fiscal Plan – 2009/10 to 2011/12 69 Exemption for Equipment to Produce Energy from Ocean Currents,Tides and Waves Introduced Effective February 18, 2009, equipment specifically designed to produce mechanical or electrical energy from ocean currents, tides or waves is exempt. Generators, wiring, controllers, monitors, pumps, tubing, floats, water fences, aids to navigation as defined in the federal Canada Shipping Act, 2001, and devices that convert direct current into alternating current are also exempt when sold with and as part of the specifically designed equipment. Exemption for Production Machinery and Equipment Clarified and Expanded The exemption for production machinery and equipment is clarified and expanded: manufacturers of tangible personal property other than electricity, transformers and converters, inverters, regulators, breakers and switches designed for use and used with transformers. This equipment is exempt if located within a qualifying manufacturing site, mine site, well site, natural gas processing plant or petroleum refinery and used exclusively to transmit or distribute electricity if more than 50 per cent of the electricity is used to power exempt machinery and equipment or as an integral component in a manufacturing process. and equipment used to transmit or distribute tangible personal property (including electricity and heat generated by local government bodies and local government corporations). This machinery and equipment is exempt if it is located within a qualifying manufacturing site, mine site, well site, natural gas processing plant or petroleum refinery and is used primarily to transmit or distribute qualifying tangible personal property, raw materials, partially finished goods or similar items within the site, processing plant or refinery. repair, maintain, modify or assemble exempt machinery and equipment. Materials qualify for exemption if they are purchased by an eligible person and remain part of, or attached to, the machinery or equipment after the repair, maintenance, modification or assembly. Examples of materials that may qualify for exemption include sheet metal and electrical wiring. equipment used to generate heat only if the generation of heat is one step in an activity to: – fabricate or manufacture tangible personal property to create a new product that is substantially different from the material or property from which it was made, – process tangible personal property by performing a series of operations or a complex operation that results in a substantial change in the form or other physical or chemical characteristics of the tangible personal property, or – extract or process minerals, petroleum or natural gas. Budget and Fiscal Plan – 2009/10 to 2011/12 70 Exemption for Bona Fide Farmers Expanded Effective February 18, 2009, bona fide farmers are exempt from PST on purchases of egg packing equipment and refrigeration equipment used for cooling or cold storage of farm products. To qualify for exemption, this equipment must be acquired and used solely for a farm purpose. Exemption for Prescription Drugs and Vaccines Expanded and Clarified Effective February 18, 2009, the following are exempt: Drug Schedules Regulation under the Pharmacists, Pharmacy Operations and Drug Scheduling Act, and Regulation, under the Pharmacists, Pharmacy Operations and Drug Scheduling Act. With this change, prescription drugs and vaccines for human and animal use no longer need to be sold on the prescription of an eligible medical practitioner to qualify for exemption. Therefore, medical service providers, medical clinics and public health units may purchase prescription drugs and vaccines for use in providing medical services (i.e. immunizations) exempt from tax. Medications not listed on those schedules or exempt under existing provisions for patent medicines or pain relievers continue to require a prescription to qualify for exemption. Effective February 18, 2009, the definition of “prescription” is also updated to recognize that in addition to physicians, dentists and veterinarians, other practitioners such as midwives, nurse practitioners and pharmacists are authorized to prescribe certain medications. Concept of “at another person’s expense” Clarified Retroactive to January 1, 2000, the Act is amended to clarify the concept of “at another person’s expense”. These changes ensure that tax is payable on transactions where property, services or rights are acquired for use by one person at another person’s expense. Motor Fuel Tax Act Alternative Motor Fuel Classification for Hydrogen Fuel Provided Effective February 18, 2009, hydrogen fuel is classified as a Category 1 alternative motor fuel and exempt from motor fuel tax provided that: the carbon dioxide emitted as a result of the process is captured and stored or captured and sequestered. Budget and Fiscal Plan – 2009/10 to 2011/12 71 Tobacco Tax Act Tobacco Tax Rates Increased Effective February 18, 2009, the tax rate on cigarettes is increased to $37.00 from $35.80 per carton of 200 cigarettes, and the tax rate on fine-cut tobacco is increased to 18.5 cents per gram from 17.9 cents per gram. The new rates are consistent with the rates in Alberta. Home Owner Grant Act Threshold for Home Owner Grant Phase-out Maintained at 2008 Level For the 2009 taxation year, the threshold for the phase-out of the home owner grant is maintained at the 2008 level of $1,050,000. Consistent with longstanding government policy, the home owner grant threshold is set so that more than 95 per cent of homeowners are eligible for the full grant. Given the assessment changes for 2009 announced on November 1, 2008, no adjustments to the threshold are required for 2009 to meet this policy objective. For properties valued above the threshold of $1,050,000, the grant is reduced by $5 for every $1,000 of assessed value in excess of the threshold. The basic grant is eliminated for properties valued at $1,164,000 and above. The additional grant, available to seniors, veterans and the disabled, is eliminated for properties valued at $1,219,000 and above. School Act Provincial Residential School Property Tax Rates Set For the 2009 taxation year, average residential school property taxes before application of the home owner grant will increase by the 2008 provincial inflation rate. This rate setting policy has been in place since 2003. Provincial Non-Residential School Property Tax Rates Set A single province-wide rate is set for each of the non-residential property classes. The rates for 2009, except the rate for the major industry property class, will be set so that non-residential school tax revenue will increase by inflation plus new construction. The rates will be set when revised assessment roll data are available. Taxation (Rural Area) Act Provincial Rural Area Property Tax Rates Set A single rural area residential tax rate applies province-wide. For the 2009 taxation year, average residential rural area taxes will increase by the 2008 provincial inflation rate. Non-residential rural area tax rates will be set so that total non-residential rural area tax revenue will increase by inflation plus new construction. Budget and Fiscal Plan – 2009/10 to 2011/12 72 Revenue Neutral Carbon Tax Revenue Neutral Carbon Tax As required under Part 2 of the Carbon the following tables show the Revenue Neutral Carbon Tax Report for 2008/09 and the Revenue Neutral Carbon Tax Plan for 2009/10 to 2011/12. Material Assumptions and Policy Decisions In both the report and the plan the forecasts of carbon tax revenue and the cost of tax reductions to return revenues to taxpayers are consistent with, and have the same underlying material assumptions and policy decisions, as the forecasts prepared for Budget 2009. The only material assumption specific to the carbon tax report and plan is that the cost of the revenue reductions due to personal income tax rate cuts change with changes in personal income tax revenues for each year. Revenue Neutral Carbon Tax Report Revenue neutrality means that tax reductions must be provided that fully return the estimated revenue from the carbon tax to taxpayers in each fiscal year. Table 1, Revenue Neutral Carbon Tax Report 2008/09, reports the revised forecast of carbon tax revenues and the cost of the tax reductions for the 2008/09 fiscal year. Carbon tax revenues for 2008/09 are now estimated to be $300 million, down from the original estimate in Budget 2008 of $338 million. Reduced revenue is due to a number of factors including lower than estimated motor fuel consumption. The tax reductions shown in Table 1 are those that were listed in the Revenue Neutral Carbon Tax Plan 2008/09 to 2010/11 presented in Budget 2008 and that reduce revenues in 2008/09. The personal tax measures are the low income climate action tax credit and the two per cent reduction in the rates for the first two personal income tax brackets. The business tax measures are the one percentage point reductions in each of the general and small business corporate income tax rates effective July 1, 2008. Based on the most recent available data there are very small changes in the estimated cost of each tax reduction but the total reduction remains unchanged from the total presented in Budget 2008. The estimated reduction in provincial revenues as a result of the designated revenue measures is now $220 million for the personal tax measures and $118 million for the business tax measures for a total reduction of $338 million. Table 1 Revenue Neutral Carbon Tax Report 2008/09 Revised Forecast 2008/09 $ millions Carbon Tax Revenue ……………………………………………………………………... Reduction in provincial revenues due to designated measures 300 1 Personal tax measures: • Low income climate action tax credit effective July 1, 2008 …………………………… • Reduction of 2 per cent in the first two personal income tax bracket rates effective January 1, 2008 …………………………………………………………………… Total personal tax measures ……………………………………………………………… (106) (114) (220) Business tax measures: • General corporate income tax rate cut from 12% to 11% effective July 1, 2008 …… • Small business corporate income tax rate cut from 4.5% to 3.5% effective July 1, 2008 ……………………………………………………………………… Total business tax measures ……………………………………………………………… (42) (118) Total designated revenue measures ……………………………………………………… (338) 1 Designated measures are those included in the carbon tax plan presented in Budget 2008 . Budget and Fiscal Plan – 2009/10 to 2011/12 (76) 73 Tax Measures Based on these revenue and tax reduction estimates, revenue neutrality has been met for 2008/09. In fact, the reduction in provincial revenue exceeds the $300 million in carbon tax revenue by $38 million. Next year’s carbon tax report will be based on actual carbon tax revenues for 2008/09 as reported in the 2008/09 Public Accounts. Revenue Neutral Carbon Tax Plan As required under the Carbon Tax Act Table 2 shows the Revenue Neutral Carbon Tax Plan for 2009/10 to 2011/12. Table 2, the Revenue Neutral Carbon Tax Plan 2009/10 to 2011/12, shows carbon tax revenue and tax reduction cost estimates for the revenue measures designated as those that return the carbon tax revenues to taxpayers for 2009/10 to 2011/12. The designated revenue measures include those presented in the first carbon tax plan in Budget 2008, measures introduced in October 2008 as part of the Economic Plan and measures included in Budget 2009. The October 2008 tax reduction measures include the acceleration to December 1, 2008 of the reduction in the small business corporate income tax rate to 2.5 per cent from 3.5 per cent, originally planned for 2011, and the Industrial Property Tax Credit for light and major industrial properties effective for the 2009 tax year. Measures announced in Budget 2009 are the following: credit by 10 per cent effective July 1, 2011; benefit of up to $200 for homeowners in areas of the province outside the Capital Regional District, Greater Vancouver Table 2 Revenue Neutral Carbon Tax Plan 2009/10 to 2011/12 2009/10 Carbon Tax Revenue 1 ………………………………………………………………………………… Forecast 2010/11 $ millions 2011/12 546 754 968 (145) (220) (365) (146) (231) (21) (398) (146) (12) (246) (83) (487) (150) (200) (270) (170) (142) (144) (50) (370) (52) (3) (1) (398) (54) (11) (2) (481) (735) (796) (968) Reduction in provincial revenues due to designated revenue measures: Personal tax measures: • Introduce low income climate action tax credit of $100 per adult and $30 per child effective July 1, 2008 increasing by 5% effective July 1, 2009 ……………………… • Increase low income climate action tax credit by 10% effective July 1, 2011 2 ……………… • Reduction of 5% in the first two personal income tax rates ……………………………………… • *Provide a Northern and Rural Homeowner benefit of up to $200 3 …………………………… Total personal tax measures ……………………………………………………………………… Business tax measures: • General corporate income tax rate cut from 12% to 11% effective July 1, 2008, to 10.5% effective January 1, 2010 and to 10% effective January 1, 2011…………………… • Small business corporate income tax rate cut from 4.5% to 3.5% effective July 1, 2008 and to 2.5% effective December 1, 2008 ………………………………. • Introduce Industrial Property Tax Credit of 50% of school property taxes payable by light and major industrial properties effective for the 2009 tax year ………………………… • *Increase the Industrial Property Tax Credit to 60% from 50% ………………………………… • *Reduce school property taxes by 50% for land classified as "farm" …………………………… Total business tax measures ……………………………………………………………………… Total designated revenue measures ……………………………………………………………… 1 The carbon tax applies to fossil fuels and combustibles at rates based on the CO 2 equivalent emission of each particular fuel starting at $10 per tonne effective July 1, 2008 and increasing by $5 per tonne each July 1st through 2012. 2 The 10% increase means the maximum annual low income climate action tax credit will increase to $115.50 per adult, from $105 per adult, plus $34.50 per child, from $31.50 per child, effective July 1, 2011. 3 Eligible homeowners are those in areas outside the Capital, Greater Vancouver and Fraser Valley regional districts. Based on the current forecast of carbon tax revenues for 2011/12 the Northern and Rural Homeowner benefit is expected to be $200 per homeowner. * Proposed measures effective for the 2011 tax year. Budget and Fiscal Plan – 2009/10 to 2011/12 74 Tax Measures Regional District and Fraser Valley Regional District for the 2011 tax year; 2011 tax year; and 2011 tax year. Budget 2008 Under the Carbon Tax Act Budget and Fiscal Plan – 2009/10 to 2011/12 Part 3: BRITISH COLUMBIA ECONOMIC REVIEW AND OUTLOOK 1 Summary and then to grow by 2.4 per cent in 2010 (see Chart 3.1). moderating domestic demand, as well as instability in global financial and commodity markets. of growth, due primarily to the anticipated recovery of US demand (particularly in the housing sector) and a gradual rise in commodity prices. Chart 3.1 British Columbia’s economic outlook BC Real GDP Per cent change Forecast Ministry of Finance 4.0 Economic Forecast Council 2.8 3.0 2.4 2.6 2.6 2.6 2.6 2.6 2.6 2.0 1.0 1.3 1.0 0.0 0.0 -1.0 -0.9 -2.0 2008 e 2009 2010 2011 2012 2013 e: estimate Note: the EFC provided an average forecast for 2011 to 2013 on January 9, 2009 Risks to the economic outlook are weighted to the downside, and include: exports; However, there is also upside risk to the forecast resulting from the potential impact of Federal and Provincial fiscal stimulus measures. The Economic Forecast Council’s average estimate of BC’s economic growth is 1.3 per cent for 2008, 0.0 per cent (or no growth) for 2009 and 2.8 per cent for 2010. Over the medium-term (2011 to 2013), the Council projects BC’s annual average economic growth at 2.6 per cent. The Council’s average forecast has been downgraded since the release of the first Quarterly Report in September 2008, when it projected BC’s real GDP to grow by 2.7 per cent in 2009 and 2.8 per cent each year for 2010 to 2012 (see Chart 3.2). 1 Reflects information available as of February 6, 2009. Budget and Fiscal Plan – 2009/10 to 2011/12 76 British Columbia Economic Review and Outlook Chart 3.2 Economic Forecast Council lowers BC forecast from first Quarterly Report Annual real GDP growth forecast, per cent First Quarterly Report (Jul 2008) Budget 2009 (Jan 2009) 4.0 3.0 2.8 2.7 2.8 2.8 2.6 2.1 2.0 1.3 1.0 0.0 0.0 e 2008 2009 2010 2011-2013 e: estimate; The EFC provided an average forecast for 2011 to 2013 in the January 2009 survey. NOTE: Forecast from July 2008 EFC for 2010 and 2011-2013 is the average growth for the years 2010-2012. The Ministry of Finance’s outlook for 2009 is significantly lower than the outlook provided by the Economic Forecast Council. This greater-than-normal level of prudence recognizes the potential for further forecast downgrades by the private sector due to continuing economic and financial turmoil in global markets. The Ministry’s medium-term outlook is slightly lower than the Council’s outlook for 2010, projecting 2.4 per cent real GDP growth compared to the Council’s 2.8 per cent. For 2011 to 2013, the Ministry’s forecast is equal to the Council’s medium-term outlook. A topic box at the end of Part 3 reports on the most recent consultation between the Economic Forecast Council and the Minister of Finance. Recent Developments Indicators of economic performance through most of 2008 confirm that British Columbia’s economy slowed considerably in the latter half of the year. On the domestic side, monthly retail sales declined in four of the five months from July to November. A dramatic decline in housing starts also occurred in the second half of the year, with starts plummeting nearly 36.0 per cent between July and December 2008. BC’s employment situation has also weakened in recent months, with the unemployment rate climbing from 4.5 per cent in July 2008 to 6.1 per cent in January 2009. On the trade side, the value of manufacturing shipments fell steadily through most of 2008 due mainly to reduced demand for BC’s forest products from the troubled US economy. However, total exports from BC increased year-to-date to Table 3.1 British Columbia Economic Indicators Data seasonally adjusted unless otherwise noted Third Quarter Jul. to Sep. 2008 change from Apr. to Jun. 2008 Fourth Quarter Oct. to Dec. 2008 change from Jul. to Sep. 2008 Year-to-Date Jan. to Dec. 2008 change from Jan. to Dec. 2007 Per cent change Employment …………………………… Manufacturing shipments ……………… Exports …………………………………… Retail sales ……………………………… Housing starts …………………………… Non-residential building permits ……… Note: * data available to November only; 0.0 -0.4 +3.2 -0.6 -4.7 -34.2 -0.6 -0.9* +2.0* -3.1* -30.0 +4.2 ** annual non-seasonally adjusted data Budget and Fiscal Plan – 2009/10 to 2011/12 +2.1** -6.3* +4.7* +1.4* -12.4** -7.1** British Columbia Economic Review and Outlook 77 November 2008, driven by high energy prices in the middle of the year pushing up the value of energy exports. The performance of key BC economic indicators in recent quarters is presented in Table 3.1. In 2008, employment in BC posted annual growth of 2.1 per cent, an addition of 48,000 new jobs. Despite the slowing rate of job growth throughout the year, BC’s rate was third highest among provinces in 2008, behind Alberta’s 2.8 per cent increase and Saskatchewan’s 2.2 per cent gain. BC’s construction industry posted large employment gains in 2008, adding 23,900 jobs (a 12.2 per cent increase) over 2007. At the same time, employment in BC’s manufacturing industries fell by 17,700 jobs (or 8.6 per cent). Strong gains were also observed in the professional, scientific and technical sectors (up 4.6 per cent) and educational services (up 3.5 per cent). BC’s unemployment rate climbed gradually through the first half of 2008, beginning at 4.1 per cent in January and reaching 4.5 per cent in June. This pace accelerated after July, as the rate rose to reach 5.3 per cent in December. The unemployment rate averaged 4.6 per cent for the year compared to 4.2 per cent in 2007. The rate climbed even higher in January 2009, reaching 6.1 per cent – the highest unemployment rate recorded since April 2005. Manufacturing shipments continued their descent year-to-date to November 2008, falling 6.3 per cent compared to the first 11 months of 2007. Declines were driven by a 15.4 per cent drop in the value of wood product shipments, but losses were widespread across many categories. Further slowing of wood product shipments are anticipated in the coming months, with weakening demand from the troubled US housing market resulting in lower wood prices and volumes of goods shipped. Merchandise exports from BC, however, have grown by 4.7 per cent year-to-date to November 2008 compared to the same period in 2007. Overall growth in total exports has been buoyed by extremely strong gains in energy exports (up 54.6 per cent year-to-date to November 2008), which were driven by high energy prices (especially prices for coal and natural gas) through the middle months of the year. Strength in BC’s energy exports have helped to offset weakness in forestry exports, which have fallen by 18.0 per cent year–to–date to November. With continued weakness in US demand for forestry products and the recent downward trend in natural gas prices, it is likely that BC’s export market will weaken going forward in 2009. BC’s retail sector, which helped to drive the province’s strong domestic economy in recent years, has slowed through the first 11 months of 2008. Year-to-date to November, retail sales increased 1.4 per cent compared to the same period in 2007. However, month-over-month retail sales in BC have declined in four of the last five months leading up to November, reflecting declining consumer confidence among British Columbians (see Chart 3.3). Falling confidence among consumers suggests that they will put off major retail purchases for the time being, and that BC’s retail sector is unlikely to resume the strong growth of recent years in 2009. Moderating demand in BC’s domestic sector is also evident in housing start data. The housing sector – a source of economic strength for BC in recent years – saw significant softening in 2008, with the number of housing starts falling by 12.4 per cent over 2007 levels and reaching 34,321 units. This decline includes a rapid drop-off from 36,000 annualized units in July to 23,100 units in December. Further, November’s 21,300 housing starts is the lowest monthly rate observed since May 2003. Budget and Fiscal Plan – 2009/10 to 2011/12 78 British Columbia Economic Review and Outlook Chart 3.3 Consumer confidence at record lows in BC and Canada CB Consumer Confidence Index, 2002 = 100 135 BC, Feb 2008: 117.6 125 BC 115 105 BC, Jan 2009: 79.4 95 Canada 85 Canada, Feb 2008: 96.6 Canada, Jan 2009: 70.2 75 65 2006 2007 2008 2009 Source: Conference Board of Canada The decline included losses in starts of both single and multiple units. Weakness in the non-residential sector is also apparent, as non-residential building permits fell by 7.1 per cent in 2008 compared to 2007, with declines across all major categories. Recently, large month-over-month declines were observed in November and December, as non-residential permits fell 35.8 per cent and 39.0 per cent, respectively. The Outlook for the External Environment United States In the latter half of 2008, the US economy began to experience a period of dramatic economic instability. The fallout from the US housing market crisis – brought on by a period of intense speculation and reckless lending practices by American financial institutions – has left the US facing a severe and prolonged recession. Investors have lost trillions of dollars in equity markets, large and long-standing American financial institutions have collapsed, credit markets for individuals and businesses remain tight and millions of workers have lost their jobs. With the globalized nature of the US financial system, the economic shocks from this crisis have been felt throughout the world, resulting in financial, industrial and employment losses in many nations. Since the onset of the most recent crisis period in early September 2008, the Dow Jones Industrial Average has shed over 3,000 points – nearly 30 per cent of its total value – and major US banks and financial institutions have lost hundreds of billions of dollars due to the financial upheaval. Most lending institutions have survived, but have subsequently reduced the availability of credit and increased the cost to borrowers of accessing credit by raising interest rates. Tighter credit markets have resulted in consumers encountering greater difficulty borrowing funds to buy big ticket items like houses and cars. Similarly, businesses that generally operate with borrowed money to pay workers and purchase supplies are having a tougher time meeting expenses. In attempts to slow the financial downturn, US policymakers drastically lowered the intended federal funds rate (which now sits just above 0.0 per cent), issued income tax rebate cheques to all taxpayers as an incentive to increase consumer spending, Budget and Fiscal Plan – 2009/10 to 2011/12 79 British Columbia Economic Review and Outlook purchased troubled mortgage-backed assets from financial institutions and assumed partial ownership of some major banks. In addition, the incoming US administration has promised to provide almost a trillion dollars worth of fiscal stimulus to the economy through infrastructure spending and other initiatives. At this point, it is unclear what effect any of these policies have had or will have on the US economic outlook. The US housing market continued its rapid decline through 2008, with annual housing starts falling to 902,400 units – 32.7 per cent below the 1,340,700 starts observed in 2007. Only 1974 posted a greater annual decline in housing starts, with a 34.8 per cent fall. The pace of starts dropped dramatically through the latter half of 2008, with annualized starts ending up at 550,000 units in December – the lowest monthly pace since 1959. With eroding demand for new homes due to job losses, rapidly weakening prices for new and existing homes, rising foreclosure rates, declining consumer confidence and tight credit markets, the bottom of this US housing slump may still be far off. This gloomy outlook is supported by the latest data from the National Association of Homebuilders Housing Market Index – an indicator of American homebuilder optimism – sitting at a record of low of 8 points in January. Chart 3.4 US housing starts lowest on record in December 2008 US Housing Starts (000s; saar) Jan, 2006: 2,273 2,500 2,000 1,500 1,000 Dec, 2008: 550 Jan, 1991: 798 500 1987 1990 1993 1996 1999 2002 2005 2008 Source: US Census Bureau US citizens are faced with an increasingly bleak employment outlook, as job losses have been mounting since early 2008. The US economy shed about 3.6 million jobs since December 2007, with over two million jobs lost between September 2008 and January 2009, as businesses made deep cuts to costs in response to declining demand and tight credit conditions. On a monthly basis, the unemployment rate has climbed steadily since January 2008, and reached 7.6 per cent in January 2009 – the highest rate since 1992. As new data on the US economy continue to be released, most analysts anticipate further increases to unemployment in the coming months. Confidence among American consumers was ravaged by the financial crisis through 2008, as the US Conference Board Index declined heavily during the year. The Index, which surveys consumers to measure their aggregate level of confidence in the US economy, fell to a historic low of 38.6 points in December 2008 after beginning the year at 87.3 points in January (1985=100). The index reached a new record low in January 2009, as it fell to 37.7 points. Behind this downturn in confidence are growing Budget and Fiscal Plan – 2009/10 to 2011/12 80 British Columbia Economic Review and Outlook Chart 3.5 US loses 3.6 million jobs since January 2008 300 Net monthly change in US employment (000s, sa) 215 184 200 180 165 156 120 100 100 36 54 35 0 -100 -65 -28 -72 -144 -200 -122 -160 -137 -161 -128 -175 -300 -321 -400 -380 -500 -600 -597 -577 -598 -700 Jan Mar May Jul Sep Nov 2007 Jan Mar May Jul Sep Nov 2008 Jan 2009 Source: US Bureau of Labor Statistics fears among consumers of job and income losses, falling house prices and reduced credit availability. Recent monthly declines in confidence arrived despite declining energy prices and deep discounting on consumer items by retailers. Lack of confidence in the American economy among US citizens manifested itself in drastic monthly declines in retail sales through the latter months of 2008 (see Chart 3.6). After several years of healthy annual increases, the US retail sector saw an annual drop of 0.4 per cent in 2008 compared to 2007 – the first time since 1967 that the annual change in retail sales has fallen into negative territory. Chart 3.6 US retail sector posts major declines in latter half of 2008 Month-over-month per cent change in US retail sales (sa) 1 0.8 0.5 0.2 0.1 0 -0.2 -0.5 -0.7 -1 -0.7 -1.6 -2 -2.1 -2.7 -3 -3.4 -4 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2008 Source: US Census Bureau US real GDP fell by 3.8 per cent on an annualized basis in the October to December quarter of 2008, following a 0.5 per cent decline in the previous quarter. GDP results from the most recent period represent the biggest quarterly contraction in the US economy since early 1982. Most private sector analysts expect the current economic Budget and Fiscal Plan – 2009/10 to 2011/12 81 British Columbia Economic Review and Outlook weakness to last through at least the first half of 2009, as the financial crisis continues to restrict the flow of credit through the US economy and leads consumers and businesses to further reduce spending. Forecasts for the US economy in 2009 have deteriorated substantially from a year ago, when the January 2008 Consensus Economics survey of private sector economists forecast US real GDP to grow by 2.7 per cent. According to the January 2009 Consensus, the average forecast now sees US real GDP declining by 1.8 per cent in 2009 (see Chart 3.7). Reasons for the expected weakness include rising unemployment, falling industrial production, record-low consumer confidence and expectations of further weakness in the housing market. In December 2008, the US National Bureau of Economic Research declared that the US economy has been in recession since December 2007. However, the January Consensus expects the US economy to recover somewhat in 2010, projecting positive annual growth of 2.3 per cent in that year. Chart 3.7 US Consensus outlook for 2009 deteriorates Forecast annual per cent change in US real GDP, 2009 4.0 3.0 2.7 2.6 2.3 2.1 2.0 1.9 1.7 1.5 1.4 1.4 1.0 0.0 0.0 -0.6 -1.0 -1.3 -2.0 -1.8 -3.0 Jan Feb Mar 2008 Apr May June July Aug Sep Oct Nov Dec Jan 2009 Source: Consensus Economics The chart above represents forecasts for real GDP growth in 2009 as polled on specific dates. For example, forecasters surveyed on January 12, 2009 had an average 2009 US real GDP forecast of -1.8 per cent, while on January 14, 2008 they forecast 2009 US real GDP to grow 2.7 per cent. In order to reflect the mounting risks surrounding the US economic outlook, the Ministry of Finance’s growth assumptions are lower than the January Consensus with the expectation that the Consensus outlook will decline further in coming months. The Ministry of Finance is assuming that the US economy will contract by 2.3 per cent in 2009, compared to the 1.8 per cent decline projected in the January Consensus. A recovery to 1.8 per cent real GDP growth is then expected by the Ministry in 2010, compared to the January Consensus prediction of 2.3 per cent. Over the medium-term, the Ministry of Finance assumes that the US economy will grow at a rate of 2.6 per cent per year. Canada Canada has also experienced a significant economic slowdown in recent months, though not as severely as the US economy. The Canadian housing market is in better shape than the American market – where reckless subprime lending practices and Budget and Fiscal Plan – 2009/10 to 2011/12 82 British Columbia Economic Review and Outlook widespread speculation over the last few years have led to the recent deflation of a huge housing bubble. Although Canada’s housing market has undergone some weakening through 2008, it has not seen the same drastic erosion in home values and rising foreclosure rates as in the US. Further, Canada’s banks and other financial institutions have much lower exposure to toxic subprime debt than American financial institutions and, although Canadian firms have not escaped the effects of the credit crunch, their balance sheets are generally in better shape than their US counterparts. The Canadian economy contracted at an annualized pace of 0.6 per cent in the January to March quarter of 2008, and then grew by 0.6 per cent in the April to June quarter and 1.3 per cent in the July to September quarter. However, gains in these last two quarters were mainly the result of high commodity prices driving capital expenditures and a contraction in imports due to slower domestic demand. Further, in the July to September quarter, Canada’s export sector continued its significant decline and the pace of consumer spending slowed considerably. With weakening demand from the US for Canadian products in recent months and consumer confidence currently residing at very low levels, many analysts expect Canadian real GDP to post a contraction in the final three months of 2008 and the first three months of 2009. Similar to the outlook for the US, forecasts for the Canadian economy’s performance in 2009 declined considerably throughout the last year. The January 2009 Consensus Economics survey projected Canada’s real GDP to decline by 0.7 per cent this year, compared to the 2.5 per cent growth expected in the January 2008 survey. The Ministry of Finance assumes that the Canadian economy will post a 1.2 per cent contraction in 2009, followed by a recovery to 1.9 per cent growth in 2010 and 2.5 per cent growth over the medium-term. Chart 3.8 Consensus outlook for Canada in 2009 also downgraded Forecast annual per cent change in Canadian real GDP, 2009 3.0 2.5 2.5 2.3 2.3 2.2 2.1 2.0 2.0 2.0 1.8 1.1 1.0 0.5 0.0 -0.1 -0.7 -1.0 Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec 2008 Jan 2009 Source: Consensus Economics The chart above represents forecasts for real GDP growth in 2009 as polled on specific dates. For example, forecasters surveyed on January 12, 2009 had an average 2009 Canadian real GDP forecast of -0.7 per cent, while on January 14, 2008 they forecast 2009 Canadian real GDP to grow by 2.5 per cent. The Canadian housing market weakened in 2008, though not nearly as severely as the US housing market. Canadian housing starts fell 7.6 per cent last year compared to 2007, while residential building permits – a precursor to new residential building activity – declined by 10.2 per cent in 2008. Data from the October to December quarter suggest further weakness for the housing market, as housing starts fell 11.1 per cent from the previous quarter and residential permits dropped by 20.0 per cent. Budget and Fiscal Plan – 2009/10 to 2011/12 British Columbia Economic Review and Outlook 83 Retail spending among Canadians increased by 4.2 per cent year–to–date to November, although this figure has been boosted by high energy prices driving up gasoline sales through the middle months of the year. Recent declines in gasoline prices and waning demand for big ticket items due to low consumer confidence and tight credit conditions have left many private sector analysts expecting further weakening of Canadian retail sales moving into 2009. Employment in Canada also made gains in 2008, as 259,400 jobs were added last year – a gain of 1.5 per cent from 2007. These employment gains were outpaced by the 1.7 per cent growth in the national labour force, leading to a slight rise in the national annual average unemployment rate to 6.1 per cent, from 6.0 per cent the previous year. The Canadian employment situation took a major monthly plunge in January 2009, as 129,000 jobs were lost across the country. At the same time, the national unemployment rate climbed to reach 7.2 per cent in January 2009, 0.6 percentage points higher than the rate in December 2008. Despite having been weakened by eroding demand from the US, Canada’s trade sector also held its ground through the first 11 months of 2008. The value of Canadian merchandise exports experienced strong growth last year, rising 9.1 per cent year-to-date to November 2008 compared to the same period in 2007. Weakness in Canada’s wood and automotive exports in 2008 was offset by remarkable increases in energy exports, which were fuelled by surging energy prices through the middle months of the year. Excluding energy exports, the value of merchandise exports from Canada fell by 1.9 per cent year–to–date to November. Shipments of manufactured goods from Canada held fairly steady year-to-date to November, as the total value of these shipments rose 0.3 per cent compared to the first 11 months of 2007. The recent decline in the value of the Canadian dollar will likely offer some relief to Canadian manufacturers weary of a high dollar limiting American demand for their products. However, the rapidly deteriorating US economic outlook is likely to put further downward pressure on demand from the US for Canada’s manufactured goods. Other Economies The January 2009 Consensus survey forecast Euro zone real GDP to contract by 1.4 per cent in 2009 – a substantial reduction from the 2.0 per cent growth projected in the January 2008 survey. Consensus analysts expect the Euro zone to recover somewhat in 2010 by posting 0.8 per cent growth. The Ministry of Finance’s forecast assumes that Euro zone real GDP will contract by 1.9 per cent in 2009, followed by a modest recovery to 0.5 per cent growth in 2010, and an average of 2.0 per cent growth in the medium-term. According to the January 2009 Consensus survey, the Japanese economy is expected to contract by 1.7 per cent in 2009. A steep decline in industrial production combined with falling earnings and rising unemployment has led Consensus analysts to downgrade their 2009 real GDP forecasts since January 2008, when they projected a 2.0 per cent increase on average. The January Consensus predicts that Japan’s economic growth will reach 1.1 per cent in 2010. The Ministry of Finance’s forecast assumes a greater contraction of 2.2 per cent in 2009, 0.6 per cent growth in 2010 and 1.7 per cent growth over the medium-term. These prudent assumptions reflect the continued uncertainty regarding the Japanese economic outlook. Budget and Fiscal Plan – 2009/10 to 2011/12 84 British Columbia Economic Review and Outlook Table 3.2 Ministry of Finance Economic Forecast: Key Assumptions Forecast 2008 US real GDP ……………………………………… 1.3 Canada real GDP ………………………………… 0.6e Japan real GDP ………………………………… 0.3e Europe real GDP ………………………………… 0.9e US housing starts ………………………………… -32.7 Canada 3–month treasury bill rate (%) ……… 2.4 Canada 10–year government bonds (%) …… 3.6 93.7 US cents/Canadian dollar ……………………… e 2009 2010 2011 2012 Per cent change unless otherwise noted 2013 -2.3 -1.2 -2.2 -1.9 -28.0 0.9 2.9 79.3 2.6 2.5 1.8 2.0 0.0 4.8 5.8 88.6 1.8 1.9 0.6 0.5 25.4 1.7 3.4 86.2 2.6 2.5 1.6 2.0 35.0 2.9 4.0 89.4 2.6 2.5 1.8 2.0 18.2 3.9 4.9 89.5 Ministry of Finance estimate Financial Markets Interest Rates Since January 2008, the Bank of Canada has gradually lowered the overnight target rate, its key interest rate, in efforts to stimulate Canadian economic growth in the wake of the global economic crisis. After beginning 2008 at 4.25 per cent, the overnight target rate has since fallen to 1.00 per cent – the lowest rate ever recorded. In its most recent announcement on January 20, 2009, the Bank cited the deteriorating global economic outlook and the erosion of global demand due to very low levels of business and consumer confidence as reasons for its latest rate cut. Many private sector analysts anticipate further easing of the overnight target rate by the Bank on March 3, 2009 – its next decision date for the key interest rate. The US Federal Reserve Board has also gradually reduced its intended federal funds rate since early 2008, with its target for the rate now resting at 0.00 to 0.25 per cent – its lowest level ever. Following its December 16, 2008 meeting, the Fed noted that it “anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.” Private sector analysts suggest this statement indicates that rates will remain very low for the foreseeable future. The Fed hopes that a very low rate, combined with recent efforts to inject liquidity into the financial system, will lead to an economic recovery over time. Chart 3.9 Private sector expects Canadian and US interest rates to remain low in 2009 Per cent 7 Forecast US Intended Federal Funds Rate 6 5.00% 5 4 5.00% 3 1.00% 2 Bank of Canada Overnight Target Rate 1 0.13% 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 Sources: Bank of Canada, US Federal Reserve Bank; Ministry of Finance. Budget and Fiscal Plan – 2009/10 to 2011/12 2013 85 British Columbia Economic Review and Outlook Outlook Based on the average of five private sector forecasts as of January 7, 2009, the Ministry of Finance interest rate outlook assumes that the Bank of Canada will hold the overnight target rate steady at 1.00 per cent for the duration of 2009. These five forecasters expect the rate to rise to 1.25 per cent in the April to June quarter of 2010, and to reach 2.00 per cent by the end of that year. As of January 7, 2009, the same five private sector forecasters project that the US Federal Reserve will keep the fed funds rate in the 0.00 per cent to 0.25 per cent range for the duration of 2009. They then expect the rate to rise gradually next year, ending 2010 at 1.50 per cent. As of January 7, on average, the private sector projects the US fed funds rate to average 0.14 per cent in 2009 and 0.94 per cent in 2010. The success of Federal monetary policy in aiding the US economic recovery is a significant risk to the US outlook. The average of private sector forecasters’ views on Canadian short-term interest rates (3 month Treasury bills) as of January 7, 2009 (see Table 3.3) indicates that 90 day rates will average 0.9 per cent in 2009 and 1.7 per cent in 2010. This compares to the private sector averages in the first Quarterly Report of 3.2 per cent for 2009 and 4.1 per cent for 2010. Table 3.3 Private Sector Canadian Three Month Treasury Bill Interest Rate Forecasts Average annual interest rate (per cent) Global Insight ……………………………………………………… Bank of Montreal …………………………………………………… Scotiabank …………………………………………….…………… TD Economics ……………………………………………………… RBC Capital Markets ……………………………………………… Average (as of January 7, 2009) ………………………………… Budget 2009 Forecast …………………………………………… 2009 2010 0.7 0.9 0.5 1.4 0.9 0.9 0.9 1.1 2.2 1.1 2.4 1.5 1.7 1.7 Ten-year government of Canada bonds are forecast to average 2.9 per cent in 2009 and 3.4 per cent in 2010 (see Table 3.4). At the time of the first Quarterly Report, the private sector average was 4.1 per cent for 2009 and slightly higher for 2010 at 5.0 per cent. Table 3.4 Private Sector Canadian 10-year Government Bond Interest Rate Forecasts Average annual interest rate (per cent) Global Insight …………………………………………………………… Bank of Montreal ………………………………………………………… Scotiabank …………………………………………….………………… TD Economics …………………………………………………………… RBC Capital Markets …………………………………………………… Average (as of January 7, 2009) ……………………………………… Budget 2009 Forecast ………………………………………………… Budget and Fiscal Plan – 2009/10 to 2011/12 2009 2010 3.3 2.7 2.8 2.9 2.6 2.9 2.9 4.0 3.3 3.3 3.4 3.2 3.4 3.4 86 British Columbia Economic Review and Outlook Exchange Rate The Canadian dollar began 2008 trading around par with the US dollar, and maintained a fairly high value throughout most of the year, averaging 93.7 US cents on the year, up from 93.1 US cents in 2007. However, the value of the loonie experienced significant volatility in recent months, and fell as low as 77.1 US cents on December 5 before climbing to 81.7 US cents by December 31. Chart 3.10 Private sector expects lower Canadian dollar in 2009 US cents/Canadian $ Forecast 110 First Quarterly Report* 100 Noon Rate 93.4¢ 90 88.6¢ 80 Budget 2009* 70 60 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sources: Bank of Canada and BC Ministry of Finance forecasts *The average of 5 private sector forecasters: Global Insight, BMO Capital Markets, RBC Financial Group, Scotiabank and TD Bank. First Quarterly Report 2008 as of July 28th, 2008 (includes CIBC forecast) and Budget 2009 as of January 7th, 2009. CIBC was unable to provide a forecast for Budget 2009. The drop in the dollar’s value in recent months can mainly be attributed to the recent plunge in commodity prices (on which much of the resource-rich Canadian economy is dependent) and the strengthening of the US dollar, as nervous investors flood to the perceived safety of US Treasury bills and bonds in the wake of the global financial crisis. Outlook Private sector expectations for the Canadian dollar and commodity prices have declined significantly since the first Quarterly Report, as uncertainty over the Canadian economy continues to grow. The loonie is expected to gradually increase vis-à-vis the US dollar through 2009 and 2010, and stabilize around 89.0 US cents in the medium-term. An average of five private sector forecasts as of January 7, 2009 saw the Canadian dollar averaging 79.3 US cents in 2009, and rising to 86.2 US cents in 2010. The Ministry of Finance’s exchange rate outlook is based on these private sector averages (see Table 3.5). Table 3.5 Private Sector Exchange Rate Forecasts Average annual exchange rate (US cents/Can $) 2009 2010 Global Insight …………………………………………………… Bank of Montreal ……………………………………………… Scotiabank …………………………………………….………… TD Economics ………………………………………………… RBC Capital Markets …………………………………………… Average (as of January 7, 2009) …………………………… Budget 2009 Forecast ……………………………………… 80.6 82.2 76.3 79.6 78.0 79.3 79.3 88.2 87.1 84.1 87.8 83.8 86.2 86.2 Budget and Fiscal Plan – 2009/10 to 2011/12 87 British Columbia Economic Review and Outlook The British Columbia Economic Outlook Reflecting the deteriorating economic situation, the Ministry of Finance estimates that the BC economy posted growth of 1.0 per cent in 2008, well below last year’s February 2008 budget forecast of 2.4 per cent and the subsequent first Quarterly Report forecast of 1.7 per cent. The Ministry of Finance forecasts BC’s economy to contract by 0.9 per cent in 2009 and then recover somewhat in 2010 to increase by 2.4 per cent. Economic activity is expected to slow considerably in 2009, largely due to weakness in the US economy limiting demand for BC products, as well as continued volatility in global financial and commodity markets. Domestic demand, the main driver of BC’s economic growth in recent years, is expected to slow considerably due to weakened consumer confidence and tighter credit conditions. The province’s export market – particularly the forestry sector – will likely continue to suffer with the sustained downturn in the US housing market. Over the medium-term, the Ministry of Finance forecasts growth of 2.6 per cent in each of the years 2011, 2012 and 2013. This outlook is equal to the Economic Forecast Council’s medium-term projection (see Table 3.6 for a comparison of Ministry of Finance and EFC economic outlooks). Table 3.6 British Columbia Economic Outlook 2008 Ministry of Finance economic forecast ……………………… Economic Forecast Council 1 …………………………...…… e 1 2009 1.0e 1.3 -0.9 0.0 Forecast 2010 2011 2012 Per cent change in real GDP 2.4 2.8 2.6 2.6 2.6 2.6 2013 2.6 2.6 Ministry of Finance estimate. Average of the 12 members who provided forecasts (the Council provided a single average annual growth rate for the 2011 through 2013 period). Table 3.7 summarizes the Ministry of Finance’s outlook for key economic indicators, while Tables 3.9.1 to 3.9.4 at the end of Part 3 provide additional detail on the economic forecast. Table 3.7 Ministry of Finance Economic Forecast: Key Economic Indicators Forecast 2008 British Columbia Economic Indicators Real GDP …………………………………………………… Nominal GDP ……………………………………………… Employment ………………………………………………… Unemployment rate (per cent)…………………………… Total net in-migration (thousands of persons) ………… Personal income …………………………………………… Corporate pre-tax profits ………………………………… Housing starts (thousands of units) ……………………… Retail sales ………………………………………………… e Ministry of Finance estimate. 1 1.0 e 3.9 e 2.1 4.6 56.1 1 5.1 e -4.0 e 34.3 1.5 e 2009 2010 2011 2012 Per cent change unless otherwise noted 2013 -0.9 -0.9 -0.5 6.2 47.8 1.7 -24.7 25.5 1.3 2.6 4.8 1.6 5.5 51.5 4.5 4.4 29.2 4.4 2.4 4.2 1.3 6.0 48.7 3.5 1.5 26.8 4.4 BC Stats estimate. Budget and Fiscal Plan – 2009/10 to 2011/12 2.6 4.6 1.5 5.7 49.8 4.3 3.2 27.8 4.4 2.6 4.8 1.6 5.5 49.6 4.5 4.4 28.4 4.4 88 British Columbia Economic Review and Outlook Labour Market Employment in British Columbia grew 2.1 per cent in 2008, following growth of 3.2 per cent in 2007. This translates to average total employment of 2,314,300 persons, an increase of 48,000 jobs. Full-time employment increased by 40,100 jobs over 2007, while part-time employment increased by 7,800 jobs. Chart 3.11 BC Employment declines in recent months Month-over-month net change in BC employment (sa) 20,000 10,300 9,900 10,000 3,500 1,000 1,700 1,100 0 -1,300 -1,500 -1,600 -4,700 -6,700 -7,000 -10,000 -20,000 -30,000 -35,100 -40,000 Jan Feb Mar Apr 2008 May Jun Jul Aug Sep Oct Nov Dec Jan 2009 Source: Statistics Canada Labour force growth outweighed employment growth in 2008, resulting in British Columbia’s unemployment rate averaging 4.6 per cent during the year, an increase of 0.4 percentage points from 2007. January 2009 brought the most job losses BC has ever experienced in one month, as the number of jobs declined by 35,100 compared to December 2008. Much of the January decrease came from losses in the goods producing sector, namely in the manufacturing and construction industries. These record losses pushed BC’s monthly unemployment rate up to 6.1 per cent in January 2009, its highest rate since April 2005. Outlook The Ministry of Finance outlook calls for employment in British Columbia to decline by 0.5 per cent in 2009, or approximately 11,000 jobs. Employment is then forecast to grow by 1.3 per cent in 2010, then by about 1.6 per cent per year through the 2011 to 2013 period. Labour force growth in BC is expected to exceed employment growth in 2009, resulting in the unemployment rate rising to 6.2 per cent this year. The unemployment rate is then forecast to gradually fall after 2009, reaching 6.0 per cent in 2010 and about 5.6 per cent per year in the medium-term. Domestic Demand Consumer Spending and Housing Retail sales increased by 1.4 per cent through the first 11 months of 2008 compared to the same period in 2007. However, retail sales in BC have fallen in four of the last five months leading up to November – a result of waning consumer confidence among shoppers in BC. Retail trade is certainly coming off the surge it experienced in recent years, after year-over-year sales grew 7.2 per cent in 2006 and 6.7 per cent in 2007. While steady gains have been made in sales by gasoline stations and home electronics and appliance stores, sizeable declines have occurred in sales of new and used automobiles. Budget and Fiscal Plan – 2009/10 to 2011/12 89 British Columbia Economic Review and Outlook Housing starts in BC declined significantly in 2008, averaging 34,321 units on the year – a decline of 12.4 per cent over 2007. Residential building permits, a precursor of new housing activity, fell 19.9 per cent in 2008, including a sizeable 50.7 per cent quarterly decline in the October to December quarter. This downward trend in residential permits suggests that weakness in housing starts will likely continue going forward in 2009. Economic uncertainty and reduced confidence took hold of BC homebuyers during 2008, as seasonally adjusted MLS home sales plummeted from 7,837 units in January to 3,907 in December (see Chart 3.12). In November, home sales dipped to their lowest monthly level on record (dating back to 1988), reaching 3,632 units. Further, the average home price in BC fell from about $472,000 in January 2008 to about $406,000 in December – a reduction of 14.0 per cent. Homebuyers’ expectations of further price declines in the coming months, in combination with tighter credit conditions and growing fears of job losses, will likely result in further slowing of BC’s housing market in 2009. Chart 3.12 BC home sales plummet in 2008 BC MLS home sales (units, sa) July 2007: 9,251 10,000 9,000 8,000 7,000 Dec 2008: 3,907 6,000 5,000 4,000 3,000 2001 2002 2003 2004 2005 2006 2007 2008 Source: Canadian Real Estate Association MLS Suggestive of further declines in the non-residential building sector going forward, non-residential building permits, a leading indicator of non-residential investment, fell by 7.1 per cent in 2008. Declines in non-residential permits were observed across all major categories on the year. Outlook The Ministry of Finance estimates that real (inflation-adjusted) consumer spending on goods and services grew by 1.6 per cent in 2008, and is forecasting slower growth of just 0.9 per cent in 2009 (see Table 3.9.1 at the end of Part 3). Real consumer spending is forecast to improve in 2010, growing by 2.6 per cent, and to average 2.8 per cent growth per year in the medium-term. Retail sales are estimated to have increased by 1.5 per cent in 2008, and are forecast to grow by 1.3 per cent in 2009 and 4.4 per cent each year from 2010 to 2013. Weakened confidence among BC consumers combined with rising unemployment is expected to put downward pressure on personal consumption in the near-term. Budget and Fiscal Plan – 2009/10 to 2011/12 90 British Columbia Economic Review and Outlook As British Columbia’s housing boom draws to a close, housing starts are expected to ease from the high levels observed over the last few years. The Ministry of Finance forecasts housing starts to total approximately 25,500 units in 2009 and 26,800 units in 2010. Over the medium-term, BC housing starts are expected to level out, averaging around 28,500 units per year from 2011 to 2013. Business and Government Real business investment (including residential) is estimated to have increased by 1.9 per cent in 2008 – slightly greater than the 1.4 per cent observed in 2007. The main source of the 2008 increase in business investment was stronger investment in non-residential construction and in machinery and equipment that offset weaker investment in residential construction. BC is likely to see weaker non-residential investment moving into 2009, as non-residential building permits showed significant weakness in the final two months of 2008. Real business machinery and equipment investment growth slowed in 2008. Following growth of 8.8 per cent in 2007, machinery and equipment investment is estimated to have grown 4.5 per cent in 2008. Real business non-residential investment is estimated to have increased by 1.8 per cent in 2008, following a 6.4 per cent decline in 2007. This measure represents inflationadjusted spending by businesses for construction of industrial, commercial and institutional buildings, highways, bridges, sewage systems and various other projects. Real residential investment, which includes new housing investment as well as renovations and improvements, is estimated to have grown by just 0.5 per cent in 2008, following growth of 2.2 per cent in 2007. The Vancouver non-residential building construction price index, a measure of costs facing the construction industry in Vancouver that includes both labour, building material costs and profits, rose 10.4 per cent through the first nine months of 2008, compared to the same period in 2007. This follows annual growth of 12.7 per cent in 2007. Central 1 Credit Union, a private sector group that frequently examines BC’s construction industry, points out that overall construction cost increases going into 2009 are moderating for both materials and labour. Lower prices for energy and wood products, as well as higher unemployment among construction workers, are aiding in this moderation. The BTY group, another private sector group that forecasts construction cost growth in several regions of Canada, projects that BC’s construction costs will increase by 3.0 per cent in 2009, 3.0 per cent in 2010 and 5.0 per cent in 2011. This represents a significant moderation of cost growth from recent years, due to lower expected energy costs, slower projected housing starts in the coming years and slower expected economic growth in general. Real (inflation adjusted) local, provincial and federal government combined spending on goods and services in BC is estimated to have increased 3.2 per cent in 2008, following growth of 4.1 per cent in 2007. Budget and Fiscal Plan – 2009/10 to 2011/12 British Columbia Economic Review and Outlook 91 Outlook With a bleaker outlook for many businesses in 2009, total real business investment in BC is forecast to decline by 5.1 per cent on the year. This contraction reflects a slowdown of investment across all major categories. However, renewed growth in business investment is expected in 2010, as all categories are expected to post modest gains. Over the medium-term, total business investment in BC is projected to grow approximately 3.5 per cent per year on average, with all major sectors making steady annual gains. On average, real non-residential investment is forecast to grow by 3.3 per cent per year from 2011 to 2013, while investment in machinery and equipment is forecast to rise by an average of 3.5 per cent per year. Residential investment is projected to increase by 3.6 per cent per year on average in the medium-term. Corporate pre-tax profits, which declined by 3.2 per cent in 2007, are estimated by the Ministry of Finance to have fallen by 4.0 per cent in 2008. Due to the weaker economic outlook and significant declines anticipated for commodity prices in 2009, the Ministry expects corporate profits to fall by 24.7 per cent on the year. A recovery to modest growth is anticipated in 2010, however, when corporate profits are forecast to rise by 1.5 per cent. Combined real spending by the three levels of government (federal, provincial and municipal) on goods and services is expected to grow by 0.6 per cent in 2009, and rise again by 2.5 per cent in 2010. Over the medium-term, real spending from all three levels of government is forecast to grow by 2.3 per cent per year on average. External Trade and Commodity Markets The value of BC’s merchandise exports increased through 2008, rising 4.7 per cent year–to–date to November compared to the same period in 2007. Driving this healthy gain was a 54.6 per cent increase in energy exports, which helped to offset an 18.0 per cent drop in forestry exports. Further degradation in the US housing market that weakened demand for BC forest products (combined with falling lumber prices) took a toll on BC’s forest industry during 2008. Weakness was also observed in exports of automotive products and machinery and equipment. Global commodity markets experienced substantial volatility in 2008, with the values of most commodities plunging in the latter months of the year. Lumber prices began the year at fairly low values, with western spruce-pine-fir (SPF) 2x4 prices averaging $204 US per thousand board feet in January 2008. Prices recovered somewhat throughout the year, with monthly values reaching as high as $276 US per thousand board feet in August. However, prices fell again in September as the turmoil in US financial markets took its toll on US demand for wood products. On the year, lumber prices averaged $219 US, down $30 US compared to 2007. Prices reached a recent low of $130 US per thousand board feet during the fourth week of January. Natural gas prices also fluctuated significantly throughout 2008. After beginning the year at $5.86 C/GJ in January, natural gas reached a high of $9.33 C/GJ in June and then plunged to hit $5.46 C/GJ in September. Prices averaged $6.89 C/GJ in 2008, up from $5.41 C/GJ in 2007. Weaker demand due to the US economic downturn contributed to the fall in natural gas prices during the latter months of 2008. Budget and Fiscal Plan – 2009/10 to 2011/12 92 British Columbia Economic Review and Outlook Oil prices experienced remarkable volatility during 2008, as the West Texas Intermediate oil price began the year at $99.64 US/barrel and then rocketed up to $145.31 US/barrel on July 3, 2008. Prices have since fallen sharply, due primarily to declining demand brought on by the global financial crisis. The price of oil averaged $99.67 US/barrel in 2008, but ended the year at $44.60 US/barrel on December 31. With growing uncertainty over the direction of the global economy, oil prices are likely to remain volatile for some time. Metal and mineral prices saw strong increases through most of 2008, but have generally been on a declining trend in recent months. For example, copper prices averaged $3.69 US per pound during the first six months of the year, but only $2.62 US per pound during the final six months, concluding the year at $1.40 US per pound in December. Similar trends can be observed in the prices of other commodities such as silver, aluminum, lead and zinc. Outlook Real exports of goods and services are forecast to decrease by 2.4 per cent in 2009. Declining demand from the US for BC products combined with continued volatility in commodity prices are the central reasons for the expected weakness this year. Real export growth is forecast to return in 2010, reaching 2.6 per cent on the year, with the expectation of a recovery in demand from the US and other areas. Over the medium-term, average annual growth of 3.2 per cent is anticipated for real exports. Due to continued weakness in the US housing market, Western SPF prices are expected to remain weak through 2009, averaging $213 US per thousand board feet for the year, down from the $250 US that was assumed in the first Quarterly Report. As the US housing market gradually recovers, prices are forecast to average $250 US per thousand board feet in 2010 and then return to $300 US over the medium-term. Based on private sector forecasts, natural gas prices are expected to strengthen from 2008/09 levels over the forecast period. Between 2008/09 and 2012/13, prices are forecast to rise from $6.57 C/GJ to $7.21 C/GJ. The British Columbia goods and services export price deflator (the average price of BC goods and services exports) is forecast to grow by 2.5 per cent in 2009, largely due to the weakened Canadian dollar. The Ministry of Finance forecasts that the price of BC’s exports will decline by 0.8 per cent in 2010 as the value of the dollar recovers. The average annual export price growth is expected to be 2.4 per cent over the 2011 to 2013 period, as commodity prices stabilize and the Canadian dollar levels out around 88.6 US cents by 2013. Inflation Consumer price inflation (CPI) in British Columbia averaged 2.1 per cent in 2008, as higher consumer inflation in non-durables and services was offset by continued price deflation in durable and semi-durable goods. BC’s CPI inflation was below the Canadian average rate of inflation of 2.3 per cent in 2008. High gasoline, fuel oil and other fuel prices were partly responsible for the strength of non-durable inflation. Food prices rose 3.3 per cent during the year on average, while consumers saw the cost of automobiles fall by 6.9 per cent. Excluding food and energy, two of the most volatile components, BC consumer prices rose by 1.0 per cent in 2008. Budget and Fiscal Plan – 2009/10 to 2011/12 British Columbia Economic Review and Outlook 93 Outlook Consumer price inflation in BC is forecast to be 1.0 per cent in 2009, as slower consumer spending is expected to put downward pressure on some prices. CPI inflation is forecast at 2.2 per cent in 2010 and at 2.1 per cent per year on average in the medium-term. The Canadian rate of inflation is expected to average 0.8 per cent in 2009 and 2.0 per cent in 2010. Over the medium-term, national CPI inflation is expected to be 2.0 per cent, in line with the Bank of Canada’s inflation target. Risks to the Economic Outlook The balance of risks to the current economic forecast is weighted to the downside. The most significant risks to the BC outlook include: exports; However, there is also upside risk to the forecast resulting from the potential impact of Federal and Provincial fiscal stimulus measures. Budget and Fiscal Plan – 2009/10 to 2011/12 94 British Columbia Economic Review and Outlook Table 3.8 British Columbia Economic Review Budget 2008 Actual/ Actual Forecast Estimate 2007 2008 2008 Per cent change unless otherwise noted Real gross domestic product (per cent change) ………………………………… Consumer expenditure …………………………………………...…………… Capital investment ……………………………………………….…………… Government expenditure ………………………………………...…………… Exports of goods and services ………………………………...……………… Imports of goods and services ………………………………………………… Inventory investment (change in billions of constant 2002 dollars) .……… BC Economic Forecast Council – Real GDP growth …………………………… Gross domestic product (current dollars; per cent change) …………………… Population July 1 (per cent change) ………………………………………...…… Total net in-migration (thousands of persons) ……………………………….… Interprovincial ……………………………………………………...…………… International ………………………………………………………….………… Labour force (thousands of persons) ………………………………..…………… (per cent change) ……………………………………………………………… Employment (thousands of persons) ……………………………………………… (per cent change) ……………………………………………………………… Unemployment rate (per cent) ……………………………………………...……… Retail sales (millions of current dollars) ………………………………………… (per cent change) ………………………………………………………….…… Labour income 3 (millions of current dollars) ……………………………………… (per cent change) ……………………………………………………………… Corporate pre-tax profits (millions of current dollars) …………………………… (per cent change) ……………………………………………………………… Housing starts (units) ……………………………………………………………… (per cent change) ……………………………………………………………… Consumer Price Index (2002 = 100)……………………………………………… (per cent change) ……………………………………………………………… Key Assumptions: Economic growth (per cent change) Canada ………………………………………………………………………… United States …………………………………………………….…………… Japan …………………………………………………..……………………… Europe ………………………………………………..……………………… Housing starts (per cent change) Canada ……………………………………………………………………...… United States ……………………………………………………………….… Japan …………………………………………………………………...……… Industrial production (per cent change) United States ………………………………………………………………… Japan ………………………………………………………………………… Canadian consumer price index (per cent change) ………………………… Canadian interest rates (per cent; annual average) 3-month treasury bills ………………………………………………………… Government of Canada 10–year bonds ………………………………….. United States interest rates (per cent; annual average) 3-month treasury bills ………………………………………………………… Government 10–year bonds …………………………………………...….… US cents/Canadian dollar (annual average) ………………………………… BC goods and services export price deflator (Cdn$; per cent change) …… 1 2.4 3.4 3.6 2.2 1.3 3.4 0.9 2.8 4.2 1.4 48.9 13.2 35.7 2,416 2.1 2,304 1.7 4.7 59,112 5.3 103,307 4.7 21,858 0.4 34,597 -11.7 111.9 1.8 1.0 1.6 2.8 3.2 -1.4 0.0 0.5 1.3 3.9 1.7 56.1 6.0 50.1 2,426 2.5 2,314 2.1 4.6 57,193 1.5 105,688 5.8 20,521 -4.0 34,321 -12.4 112.3 2.1 1 2.7 2.0 2.4 2.7 1.9 1.7 1.2 1.6 0.6 1.2 0.3 0.9 1 -0.6 -26.0 -17.8 -14.6 -27.8 7.5 -7.6 -32.7 3.1 1.7 2.9 2.2 1.0 1.7 1.8 -1.7 -3.1 2.3 4.2 4.3 3.9 4.2 2.4 3.6 4.4 4.6 93.1 0.2 3.2 4.1 99.9 -2.4 1.4 3.7 93.7 5.7 Ministry of Finance estimate. 2 3.0 5.2 2.4 4.1 -0.3 3.9 1.8 n/a 5.4 1.6 58.3 15.5 42.8 2,366 2.7 2,266 3.2 4.2 56,365 6.7 99,894 6.3 21,385 -3.2 39,195 7.6 110.0 1.8 BC Stats estimate. Wages, salaries and supplementary labour income. 3 Budget and Fiscal Plan – 2009/10 to 2011/12 1 1 1 1 1 1 1 2 2 2 1 1 1 1 1 1 95 British Columbia Economic Review and Outlook Table 3.9.1 Gross Domestic Product: British Columbia 2007 2008 e 2009 2010 Forecast 2011 2012 2013 BRITISH COLUMBIA: Gross Domestic Product at Market Prices: – Real (2002 $ billion; chain-weighted) … (% change) ……………………………… 164.6 3.0 166.2 1.0 164.6 -0.9 168.6 2.4 173.0 2.6 177.6 2.6 182.3 2.6 – Current dollar ($ billion) …………………… (% change) ……………………………… 192.6 5.4 200.0 3.9 198.3 -0.9 206.7 4.2 216.1 4.6 226.4 4.8 237.4 4.8 – GDP price deflator (2002 = 100) ………… (% change) ……………………………… 117.0 2.3 120.4 2.9 120.4 0.1 122.6 1.8 124.9 1.9 127.5 2.1 130.2 2.1 Real GDP per person (2002 $; chain-weighted) ……………… 38,184 (% change) ……………………………… 1.4 37,925 -0.7 37,026 -2.4 37,400 1.0 37,870 1.3 38,352 1.3 38,835 1.3 Real GDP per employed person (% change) ……………………………… -0.2 -1.1 -0.4 1.1 1.1 1.1 1.0 Unit labour cost1 (% change) ………………… 3.2 4.8 2.1 1.4 2.3 2.2 2.2 Components of British Columbia Real GDP at Market Prices ($2002 billions; chain-weighted) Personal expenditure on Goods and services ……………………… (% change) ……………………………… 111.5 5.2 113.3 1.6 114.3 0.9 117.3 2.6 120.4 2.6 123.8 2.8 127.3 2.9 – Goods …………………………………… (% change) ……………………………… 46.7 5.2 47.0 0.6 47.3 0.8 48.5 2.4 49.8 2.6 51.1 2.7 52.5 2.7 – Services ………..………………………… (% change) ……………………………… 64.8 5.3 66.3 2.3 66.9 1.0 68.8 2.8 70.6 2.6 72.7 2.9 74.8 3.0 Government current expenditures on Goods and services ……..………………… (% change) ……………………………… 30.9 4.1 31.9 3.2 32.1 0.6 32.9 2.5 33.6 2.1 34.4 2.4 35.3 2.5 Investment in fixed capital …………...………… (% change) ……………………………… 39.8 2.4 40.9 2.8 38.3 -6.5 39.1 2.3 40.4 3.1 41.6 3.1 42.8 2.9 Final domestic demand …………………..… (% change) ……………………………… 182.3 4.4 186.2 2.1 184.5 -0.9 189.2 2.5 194.2 2.6 199.7 2.8 205.3 2.8 Exports goods and services …………………. (% change) …………………………… Imports goods and services …………………… (% change) ……………………………… 72.6 -0.3 93.0 3.9 71.6 -1.4 93.0 0.0 69.9 -2.4 91.0 -2.2 71.7 2.6 93.6 2.9 74.1 3.3 97.0 3.6 76.5 3.4 100.3 3.4 78.9 3.0 103.6 3.3 Inventory change ……………...……………… 1.8 0.5 0.2 0.2 0.7 0.7 0.6 Statistical discrepancy ………………………… 0.1 0.1 0.1 0.1 0.1 0.1 0.1 164.6 3.0 166.2 1.0 164.6 -0.9 168.6 2.4 173.0 2.6 177.6 2.6 182.3 2.6 Real GDP at market prices ………...………… (% change) ……………………………… 1 e Unit labour cost is the nominal cost of labour incurred to produce one unit of real output. Ministry of Finance estimate. Budget and Fiscal Plan – 2009/10 to 2011/12 96 British Columbia Economic Review and Outlook Table 3.9.2 Components of Nominal Income and Expenditure 2007 1 2008 2009 99,894 105,688 6.3 5.8 Personal income ($ million) ………………… 151,836 (% change) ……………………………… 6.8 159,568 5.1 Corporate profits before taxes ($ million) …… 21,385 -3.2 (% change) ……………………………… e 2010 Forecast 2011 2012 2013 106,938 110,997 116,600 122,356 128,347 1.2 3.8 5.0 4.9 4.9 e 162,215 1.7 167,914 3.5 175,104 4.3 182,935 4.5 191,133 4.5 20,521 -4.0 e 15,460 -24.7 15,699 1.5 16,204 3.2 16,914 4.4 17,662 4.4 Retail sales ($ million) ………………………… 56,365 6.7 (% change) ……………………………… 57,193 1.5 e 57,942 1.3 60,466 4.4 63,131 4.4 65,934 4.4 68,863 4.4 Housing starts ………………………………… 39,195 (% change) ……………………………… 7.6 34,321 -12.4 25,541 -25.6 26,783 4.9 27,800 3.8 28,430 2.3 29,248 2.9 19,095 Residential investment 2 ($ million) ………… (% change) ……………………………… 10.7 19,542 2.3 18,244 -6.6 19,744 8.2 21,198 7.4 22,670 6.9 24,153 6.5 113.5 1.0 116.0 2.2 118.5 2.1 120.9 2.1 123.4 2.1 Labour income ($ million) …………………… (% change) ……………………………… BC consumer price index (2001 = 100) …… (% change) ……………………………… 1 2 e 110.0 1.8 e 112.3 2.1 Domestic basis; wages, salaries and supplementary labour income. Includes renovations and improvements. Ministry of Finance estimate. Table 3.9.3 Labour Market Indicators 2007 2008 2009 2010 Forecast 2011 2012 2013 Population (on July 1) (000's) ………………… (% change) ………………………………… 4,310 1.6 4,382 1.7 4,447 1.5 4,508 1.4 4,569 1.4 4,631 1.4 4,694 1.4 Labour force population, 15+ Years (000's) … (% change) ………………………………… 3,571 1.7 3,642 2.0 3,704 1.7 3,763 1.6 3,821 1.5 3,876 1.5 3,931 1.4 – International 1,3 …………………………… 42.8 50.1 e 38.3 39.9 41.0 40.8 41.6 – Interprovincial 3 …………………………… 15.5 6.0 e 9.5 8.8 8.8 8.8 9.9 58.3 56.1 e 47.8 48.7 49.8 49.6 51.5 Participation rate (%) ………………………… 66.3 66.6 66.2 65.9 65.7 65.7 65.7 Labour force (000's) …………………………… (% change) ………………………………… 2,366 2.7 2,426 2.5 2,454 1.1 2,481 1.1 2,510 1.2 2,545 1.4 2,583 1.5 Employment (000's) …………………………… (% change) ………………………………… 2,266 3.2 2,314 2.1 2,303 -0.5 2,333 1.3 2,368 1.5 2,405 1.6 2,443 1.6 4.2 4.6 6.2 6.0 5.7 5.5 5.5 Net in-migration (000's) – Total ……………………………………… 2 Unemployment rate (%) ……………………… 1 International migration includes net non-permanent residents and returning emigrants less net temporary residents abroad. 2 Percentage of the population 15 years of age and over in the labour force. 3 Components may not sum to total due to rounding. e BC Stats estimate. Budget and Fiscal Plan – 2009/10 to 2011/12 97 British Columbia Economic Review and Outlook Table 3.9.4 Major Economic Assumptions 2007 GDP (billions) Canada real (2002 $; chain-weighted) …… (% change) ……………………………… 2008 1,320 2.7 1,328 0.6 11,524 2.0 562,940 0.3 2.7 0.9 US (2002 = 100) …………………………… (% change) ……………………………… 111.4 1.7 Japan (2000 = 100) ………………………… (% change) ……………………………… e 11,671 1.3 Japan real (2000 Yen; chain-weighted) … 561,403 (% change) ……………………………… 2.4 2009 2010 Forecast 2011 2012 2013 1,312 -1.2 1,337 1.9 1,370 2.5 1,404 2.5 1,439 2.5 11,405 -2.3 11,612 1.8 11,908 2.6 12,214 2.6 12,535 2.6 e 550,680 -2.2 554,073 0.6 562,689 1.6 572,893 1.8 583,119 1.8 e -1.9 0.5 2.0 2.0 2.0 109.5 -1.7 102.8 -6.1 104.2 1.4 106.8 2.6 109.6 2.6 112.4 2.6 107.3 2.9 103.9 -3.1 90.6 -12.8 91.1 0.5 92.5 1.6 94.2 1.8 95.9 1.8 Europe1 (2000 = 100) ……………………… (% change) ……………………………… 111.7 3.5 111.4 -0.3 105.3 -5.4 105.7 0.3 107.8 2.0 109.9 2.0 112.1 2.0 Housing starts2 (000's) Canada ……………………………………… (% change) ……………………………… 228 0.4 211 -7.6 160 -24.2 160 0.0 168 5.0 176 4.8 180 2.3 US …………………………………………… (% change) ……………………………… 1,341 -26.0 902 -32.7 650 -28.0 815 25.4 1,100 35.0 1,300 18.2 1,300 0.0 Japan ………………………………………… (% change) ……………………………… 1,061 -17.8 1,093 3.1 1,020 -6.7 1,020 0.0 1,047 2.6 1,065 1.7 1,065 0.0 Consumer price index Canada (2001 = 100) ……………………… (% change) ……………………………… 111.5 2.2 114.1 2.3 115.0 0.8 117.3 2.0 119.7 2.0 122.1 2.0 124.5 2.0 Canadian interest rates (%) 3-Month treasury bills ……………………… 10-year government bonds ……………… 4.2 4.3 2.4 3.6 0.9 2.9 1.7 3.4 2.9 4.0 3.9 4.9 4.8 5.8 United States interest rates (%) 3-Month treasury bills ……………………… 10-year government bonds ……………… 4.4 4.7 1.4 3.7 0.2 2.4 1.1 3.1 2.8 3.8 3.9 4.9 4.8 5.8 Exchange rate (US cents / Canadian $) …… 93.1 93.7 79.3 86.2 89.4 89.5 88.6 0.2 5.7 2.5 -0.8 1.8 2.2 3.1 US real (1996 US$; chain-weighted) …… (% change) ……………………………… Europe real 1 (% change) ………………… Industrial production index British Columbia goods and services Export price deflator (% change) ……… e e 1 Euro zone (12) is Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain. 2 British Columbia housing starts appear in Table 3.9.2. e Ministry of Finance estimate. Budget and Fiscal Plan – 2009/10 to 2011/12 98 British Columbia Economic Review and Outlook The Economic Forecast Council, 2009 Introduction The Budget Transparency and Accountability Act requires the Minister of Finance to consult the Economic Forecast Council (the Council) each year on the outlook for British Columbia’s economy. The Council is comprised of leading economists from several of Canada’s major banks and private research institutions. The consultation process occurs each December and the resulting forecasts are published the following February along with the provincial budget. The most recent meeting between the Minister and the Council was held on December 5, 2008, with the discussion focussing on Council members’ estimates for 2008 as well as their forecasts for 2009 and beyond. Participants each provided information for the individual years 2008, 2009 and 2010, as well as an average forecast for the years 2011 to 2013. Ten of the 12 Council members subsequently updated their forecasts in early January. Council members presented their views on BC’s near–term economic outlook and on factors that could affect the province’s medium–term outlook. Among the various topics discussed were: the sharp US economic downturn, the international credit crisis, falling commodity prices, government deficit financing, the potential effectiveness of government stimulus packages, the impact of the 2010 Olympics, as well as the outlook for BC’s construction and forestry sectors. Chart 1 – Economic Forecast Council Outlook for the BC Economy Real GDP Annual Per Cent Change July 2008 Survey Dec 2008 Survey (revised Jan 2009) 4 3 2.8 2.7 2.8 2.8 2.6 2.1 Forecast details from the Council surveys are summarized in the table at the end of this topic box. Overview Since the first Quarterly Report, Council members have significantly downgraded their forecasts for near–term economic growth in British Columbia. The Council’s estimates for BC’s real GDP growth in 2008 average 1.3 per cent, down from the 2.1 per cent projected in the first Quarterly Report. Forecasts for BC’s economic growth in 2009 have also been lowered, as the Council now projects an average change of 0.0 per cent (or no growth) this year – a substantial drop from the 2.7 per cent presented in the first Quarterly Report. The rapidly deteriorating US economy, slowing domestic demand, lower commodity prices and continued instability in global financial markets are the main reasons for their downward revisions. However, Council members expect BC’s economy to rebound significantly in 2010, as their average forecast projects real GDP growth at 2.8 per cent in that year. In the medium–term, the Council anticipates an average annual increase of 2.6 per cent in real GDP for the 2011 to 2013 period. Despite the softer outlook in the near–term, economic growth in BC is expected to outperform the national average in 2009 and 2010. Council members explained that BC will likely experience significantly lower economic growth in 2009 than it has in previous years due primarily to rapidly eroding demand from the troubled US economy. While participants agree that BC is in better shape than most other Canadian provinces to weather the ongoing economic storm, they caution that slowing domestic demand and weaker commodity prices will also contribute to BC’s expected economic weakness in 2009. 2 1.3 1 0.0 0 2008 2009 2010 2011-2013 Source: Average of Economic Forecast Council forecasts The Council encouraged the provincial government to increase its spending on infrastructure in the near-term in efforts to stimulate BC’s economy. Several Council NOTE: Forecast from July 2008 EFC for 2010 and 2011-2013 is the average growth for the years 2010-2012. Budget and Fiscal Plan – 2009/10 to 2011/12 99 British Columbia Economic Review and Outlook members also advised that running short-term fiscal deficits in times of economic weakness would also benefit economic growth in the province. The primary risk to the forecast noted by Council members is continued weakness in the US economy affecting prices and hindering demand for products from BC and Canada, as well as continued volatility in financial and commodity markets. Medium–term forecast risks include a prolonged US economic downturn, the potential effects of government stimulus packages, the impact of demographic trends on government programs, the effect of BC’s carbon tax and declining construction activity. US Outlook On average, the Council estimates that the US economy grew 1.1 per cent in 2008, and forecasts US real GDP to decline by 1.5 per cent for 2009. However, Council members expect a recovery in 2010 and beyond, with an average forecast of 2.2 per cent growth in US real GDP for 2010, and 2.8 per cent growth for the 2011 to 2013 period. Council members stressed the dismal outlook facing the US economy in 2009, and the monumental task lying before the US government to pull the country out of recession. Participants expressed concern about the rapidly deteriorating employment situation in the US that, combined with very tight credit conditions, could further depress consumer confidence and put greater downward pressure on consumer spending. However, some members felt that recent reductions in interest rates by the Federal Reserve and the planned fiscal stimulus by the US government will be effective at returning growth to the US economy. One Council member, on the other hand, cautioned that fiscal stimulus by the US government may not be effective if the economic downturn is far more severe than expected. Most participants agreed that the American economy will begin to improve in late 2009 or early 2010, with the loosening of credit conditions, improvement in consumer spending, a modest recovery in the housing market and a general rise in commodity prices. Outside of North America, Council members anticipate that global growth in 2009 will British Columbia Economic Forecast Council: Summary of Forecasts Participant Organization 2008 2009 2010 Average 2011-2013 Per cent change in real GDP 1 Bank of Montreal BC Business Council1 Central 1 Credit Union 1 CIBC1 Conference Board1 Global Insight1 Informetrica1 RBC Financial Group1 Scotiabank1 1.4 1.2 1.3 1.5 1.2 1.5 1.1 0.8 1.5 1.6 1.4 1.5 0.0 0.0 -1.0 0.7 -0.2 -0.7 0.8 0.6 -0.4 0.9 -1.0 0.2 2.0 2.8 2.0 2.0 3.3 3.0 3.2 3.5 2.6 3.8 3.6 1.5 2.5 2.6 2.9 2.8 3.1 2.9 2.0 2.5 2.5 2.6 2.5 2.8 Average 1.3 0.0 2.8 2.6 Standard Deviation 0.2 0.7 0.8 0.3 Doug Porter Jock Finlayson Helmut Pastrick Avery Shenfeld Marie-Christine Bernard Dale Orr Carl Sonnen Paul Ferley Mary Webb Ernie Stokes Derek Burleton David Baxter 1 Stokes Economic Consulting TD Bank1 Urban Futures Institute Updated subsequent to the December 5, 2008 meeting Budget and Fiscal Plan – 2009/10 to 2011/12 100 British Columbia Economic Review and Outlook slow from recent years, as all nations will likely experience effects of the worldwide economic downturn. Some participants noted that continued strong demand from China may provide some stability to commodity prices beyond 2009. Canadian Outlook As the US and Canadian economies are so closely linked, the Council expects economic weakness in Canada to persist as long as the US economy remains mired in recession. Several participants noted that shrinking US demand for Canadian products over the last few months has had a negative effect not only on Canada’s manufacturing sector but also on commodity prices – on which the resource-rich Canadian economy relies a great deal for its prosperity. Estimates for Canadian growth average 0.6 per cent for 2008, followed by a 0.7 per cent decline, on average, projected for 2009. Council members expect the economic downturn to be less severe in Canada than in the US, but also point out that the Canadian economy will likely feel the strong negative effects of dramatically reduced demand from US consumers for Canadian products. Along the same lines, the Council expects a Canadian recovery in 2010 to coincide with a turnaround in the US economy, and forecasts Canadian real GDP growth of 2.3 per cent in that year. Council members then expect the Canadian economy to return to more historic levels of growth in the medium-term, as they forecast an average of 2.7 per cent for the 2011 through 2013 period. Although the Canadian economy is likely to experience a decline in 2009, the Council was in agreement that Canada is in better shape to weather the current economic storm than many other countries, due to the resilience of the Canadian financial system and the federal government’s relatively healthy fiscal situation. Some Council members also pointed out that the recent decline in the value of the Canadian dollar will provide some relief to Canada’s exporters in the face of shrinking US demand – especially in central Canada, where the bulk of the nation’s manufacturers are located. The risks to Canadian economic growth in 2009 and 2010 include a long and severe US economic downturn, continued weakness in commodity prices and further volatility in global financial markets. Financial Markets Following a year in which the US intended federal funds rate was gradually reduced to almost zero, the Council now expects the Federal Reserve to keep the rate at a very low level going forward.1 In 2009, the Council members anticipate that the Fed Funds rate will average 0.25 per cent. Forecasts call for this rate to increase slightly in 2010, to 0.89 per cent on average, and to reach an average annual rate of 3.49 per cent for the 2011 to 2013 period. Several members emphasized the unprecedented nature of the current financial crisis, and expect the Fed to keep its key interest rate low in order to restore the flow of credit from American lenders to individuals and businesses. Council members were generally in agreement on their forecasts for the Bank of Canada’s overnight target rate in 2009. Similar to the Fed Funds rate in the US, the Council expects the Bank to keep its key interest rate low this year, with forecasts averaging 1.01 per cent. The rate is expected to rise to 1.79 per cent in 2010 with the anticipated Canadian economic recovery, and continue its rise in subsequent years to average 3.71 for the 2011 to 2013 period. Exchange rate forecasts average 83.3 US cents for 2009, a substantial drop from the 93.7 US cents observed in 2008, with predictions for the Canadian dollar ranging from a low of 78.0 US cents up to a high of 87.0 US cents. Average exchange rate forecasts 1 The intended federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. Budget and Fiscal Plan – 2009/10 to 2011/12 101 British Columbia Economic Review and Outlook for 2010 were 88.0 US cents with a low of 85.0 US cents and a high of 91.0 US cents. The Council expects the Canadian dollar to gain value vis-à-vis the US dollar by the medium-term, and average 90.3 US cents for the 2011–13 period. As in past years, Council members offer divergent views on the value of the Canadian dollar over the medium-term, with forecasts for the 2011 to 2013 period ranging from as low as 80.0 US cents up to 96.0 US cents. Chart 3 – Economic Forecast Council Outlook for BC and Canada Real GDP Annual Per Cent Change BC 4 2.8 3 US cents/ C$ 100.0 96.0 95.0 93.8 91.0 92.0 90.3 88.0 87.0 85.0 85.0 83.3 80.0 78.0 80.0 75.0 2008 2009 EFC (low) 2010 EFC (average) 2.7 2 1.3 1 0.6 0.0 0 -1 -0.7 2009 2010 2011-13 Note: Real GDP per cent change for BC and Canada represent the average of the Economic Forecast Council’s forecasts Chart 2 – Economic Forecast Council Outlook for the Exchange Rate 90.0 2.6 2.3 2008 96.0 Canada 2011-13 EFC (high) Several participants noted that the lower dollar will likely provide some relief to Canadian businesses who export to the US, after having dealt with a highly valued dollar hindering US demand for most of 2008. British Columbia Forecast Council estimates for BC’s economic growth average 1.3 per cent for 2008, and forecasts average 0.0 per cent (or no growth) for 2009, 2.8 per cent for 2010 and 2.6 per cent for the 2011 to 2013 period. Council members agreed on a much slower short-term outlook for BC than they forecast for the first Quarterly Report, largely due to the sharp downturn in the US economy combined with moderating domestic demand. In the first Quarterly Report, Council forecasts averaged 2.1 per cent for 2008, 2.7 per cent for 2009, and 2.8 per cent for the 2010 to 2012 period. The Council agreed that while BC’s outlook for 2009 is substantially lower than before, the province is still expected to outperform the national average in the near–term. Participants expect BC’s economy to experience significant weakness in 2009 compared to recent years, as the sharp economic downturn in the US hinders American demand for BC products. In particular, the Council noted that the dramatic decline of the US housing market has dampened demand for BC forest products and has also put downward pressure on lumber prices. Several members noted that these declines point to a bleak outlook for BC’s forestry sector in 2009, but some participants suggested that the situation could improve in 2010 as the American housing market begins to recover. The Council also expects BC’s usually robust domestic economy to experience slower growth in 2009, citing declining consumer confidence and tight credit conditions as factors behind the this year’s projected domestic weakness. Retail sales are forecast to increase by just 1.6 per cent on average in 2009, but to return to a more robust level of growth in 2010 at 4.6 per cent. Housing starts are also expected to slow in 2009 from the torrid pace they exhibited during the construction boom of the last few years. On average, the Council anticipates that housing starts will average 26,110 in 2009 and 26,484 in 2010. However, Council members forecast an increase in housing starts in the medium– term, with starts averaging 29,565 each year during the 2011 to 2013 period. Council members expect BC’s economy to improve significantly in 2010, with the anticipated recovery of US demand Budget and Fiscal Plan – 2009/10 to 2011/12 102 British Columbia Economic Review and Outlook (especially in the US housing sector) and the gradual rise of commodity prices. Also, members agreed that the 2010 Olympics will likely provide substantial economic stimulus to BC, and aid in the 2010 recovery. Government Initiatives Several participants recommended that the BC government increase capital spending in the near–term in order to provide stimulus to the provincial economy in the face of the current economic downturn. Two Council members further stressed the need for the provincial government to focus on small– scale, manageable infrastructure projects that can be completed in a relatively short time period. However, one other participant cautioned that BC does not necessarily have the excess capacity in its labour market to move large non–residential construction projects forward in an efficient timeframe. Several Council members also emphasized the economic benefits of the provincial government running short–term fiscal deficits in order to provide stimulus during the global downturn. These members pointed to BC’s strong record of reducing its debt-to-GDP ratio to a low level, and that the province is in a healthy economic position to take on more debt in order to increase short–term spending. The Council also discussed the potential impact of the carbon tax in the coming few years. They advised that BC should monitor carbon policy developments in other regions to ensure that BC companies remain on a competitive footing with neighbouring jurisdictions. One participant also pointed out that this tax may have compatibility issues with the incoming US administration, which favours a system of tradable emissions permits in its environmental policy. The Minister of Finance stated that British Columbia is working toward a tradable emissions system with several US states through the Western Climate Initiative and that the tax would be integrated with any cap and trade system. Other Issues Two Council members pointed out that expected declines in nominal GDP will significantly reduce the revenues that Canadian governments collect each year in order to fund programs. Two members commented on the US recession’s likely impact on BC’s tourism industry. They suggested that BC will likely see far fewer tourists in 2009 due to rising unemployment and declining consumer confidence among American citizens. Another two participants also cited concern over long–term health care spending in British Columbia due to expected demographic trends, suggesting that – similar to other provinces – rising health care costs could threaten the BC government’s strong fiscal position in the future. In the medium–term, some Council members noted that the Mountain Pine Beetle infestation will exacerbate the current troubles in BC’s forestry sector – particularly in the province’s interior. Budget and Fiscal Plan – 2009/10 to 2011/12 103 British Columbia Economic Review and Outlook Forecast Survey – Participants’ Opinions All figures are based on annual averages 2008 Range Average1 2009 Range Average1 2010 Range Average1 2011 to 2013 Range Average2 United States 0.2 – 1.3 1.1 (12)3 -2.5 – -0.2 -1.5 (12) Intended Federal Funds rate (%) ………………………… 1.53 – 2.13 Housing starts (million units) …… 0.90 – 0.95 1.90 (11) 0.91 (11) 0.00 – 1.00 0.59 – 0.90 0.25 (11) 0.70 (11) Real GDP (% change) …………… 3.7 2.2 (12) 0.00 – 1.50 0.70 – 1.28 0.89 (11) 0.94 (11) 0.8 3.6 2.8 (12) 1.80 – 4.35 1.00 – 1.63 3.49 (11) 1.32 (11) 2.2 Canada Real GDP (% change) …………… 0.1 0.9 0.6 (12) Bank of Canada Overnight Target rate (%) ………………… 2.42 – 3.78 3.01 (11) Exchange rate (US cents/C$) …… 92.0 – 96.0 93.8 (12) 0.6 -0.7 (12) 0.50 – 1.80 78.0 – 87.0 -1.5 3.6 2.3 (12) 1.01 (11) 83.3 (12) 1.00 – 2.90 85.0 – 91.0 1.0 3.5 2.7 (12) 1.79 (11) 88.0 (12) 2.80 – 4.60 80.0 – 96.0 3.71 (11) 90.3 (12) 2.1 2.3 – 2.8 2.5 (12) 0.5 – 1.8 1.0 (12) 1.5 – 3.2 2.0 (12) 1.8 – 2.3 2.0 (12) Real GDP (% change) …………… 0.8 – 1.6 1.3 (12) -1.0 – 0.9 0.0 (12) 1.5 – 3.8 2.8 (12) 2.0 – 3.1 2.6 (12) Nominal GDP (% change) ……… 2.3 – 5.7 4.0 (11) -2.8 – 2.2 0.3 (11) 1.9 – 6.5 4.9 (11) 3.9 – 5.7 4.9 (11) GDP Deflator (% change) ……… 1.5 – 4.1 2.6 (11) -1.8 – 2.0 0.3 (11) -0.1 – 2.9 1.9 (11) 1.6 – 3.2 2.3 (11) Personal Income (% change) …… 3.8 – 6.8 5.3 (8) -1.9 – 3.2 2.0 (8) -0.4 – 7.5 4.1 (8) 4.1 – 6.6 5.1 (8) Net Migration (thousand persons) ………………………… 40.5 – 60.2 51.0 (10) 1.8 – 2.4 2.2 (11) Employment (% change) ………… 33.0 – 59.8 -1.8 – 1.2 46.9 (10) -0.1 (11) 35.0 – 60.5 -0.3 – 2.8 47.9 (10) 1.4 (11) 38.0 – 60.9 1.0 – 2.5 50.8 (9) 1.6 (11) Consumer price index (% chg)… British Columbia 4.3 – 4.9 4.5 (12) 5.3 – 6.7 5.8 (12) 4.7 – 7.5 5.8 (12) 4.3 – 6.4 5.1 (11) Corporate pre-tax profits (% change) ……………………… -20.0 – 7.3 -1.2 (8) -35.0 – -2.6 -11.4 (8) -3.3 – 20.0 9.3 (8) -1.0 – 10.6 6.2 (8) 33.8 – 36.9 35.6 (12) 1.3 – 7.1 2.6 (12) 16.6 – 33.0 -2.2 – 4.3 26.1 (12) 1.6 (12) 17.4 – 32.3 0.7 – 6.8 26.5 (12) 4.6 (12) 26.0 – 33.5 2.3 – 6.1 29.6 (10) 4.3 (11) 0.4 – 1.7 1.1 (12) 1.3 – 3.2 2.1 (12) 1.7 – 2.3 2.0 (12) Unemployment rate (%) ………… Housing starts (thousand units) …………………………… Retail sales (% change) ………… Consumer price index (% chg)… 2.1 – 2.6 2.2 (12) 1 Based on responses from participants providing forecasts. Participants provided an average forecast for 2011 to 2013. 3 Number of respondents shown in parenthesis. 2 Budget and Fiscal Plan – 2009/10 to 2011/12 104 British Columbia Economic Review and Outlook Economic Downturns in BC Since 1980 Introduction British Columbia is currently experiencing a period of significant economic weakness. Slowing domestic demand, plunging commodity prices, and the rapid erosion of global demand for BC products all threaten to push BC’s economy into recession for the first time in many years. As such, the Ministry of Finance forecasts BC’s economy to contract by 0.9 per cent in 2009. The extent of the current downturn can be better understood when compared to other periods of economic weakness in BC throughout the past 30 years. This topic box compares BC’s projected economic performance in 2009 with previous downturns that occurred in 1982, 1991 and 2001. Real GDP BC Real GDP Annual Per Cent Change 2 +0.6 +0.2 0 -2 -0.9f -4 -6 -6.1 -8 1982 1991 2001 but posted very slow growth of 0.2 per cent and 0.6 per cent, respectively. The current weakness in BC’s economy is expected to result in real GDP contracting by 0.9 per cent in 2009 – the first annual contraction since 1982, though not as drastic in scope. However, economic growth is projected to return in 2010, due in part to stimulus provided by the Olympic Games. BC’s forest industry was hit especially hard during the 1982 recession, when real GDP from forestry and related industries declined 13.3 per cent compared to 1981. In the same year, real GDP from BC’s manufacturing industry dropped 16.6 per cent and construction GDP declined 7.3 per cent. The 2001 slowdown saw forestry GDP fall by 11.8 per cent, while manufacturing GDP slipped by 5.7 per cent and construction GDP actually rose by 3.9 per cent. Data on forestry and manufacturing GDP from 1991 is unavailable due to confidentiality issues, but GDP from the construction industry held steady in that year, rising just 0.1 per cent from 1990. Note that quarterly real GDP data for provinces does not exist, but that annual real GDP growth of less than 0.5 per cent is indicative of an economy in recession. 2009 Source: BC Stats Employment f: Budget 2009, Ministry of Finance Forecast In terms of year-over-year changes in BC’s real GDP, 1982 saw a contraction of 6.1 per cent compared to the previous year. The decline in real GDP only lasted just one year, but weak growth of less than one per cent per year followed in 1983 and 1984. BC’s subsequent economic slowdowns in 1991 and 2001 avoided contractions in real GDP, Total employment in British Columbia is forecast to decrease by 0.5 per cent in 2009. This projected decline is not as severe as the employment losses that occurred in 1982, when total employment fell by 5.0 per cent (or 66,200 jobs). Major job losses in 1982 occurred in the manufacturing (23,800 job losses), construction Comparing economic downturns 2009f 1982 1991 2001 Per cent change unless otherwise noted Real GDP…………………………...…………………………… -6.1 Employment …………………………...……………………… -5.0 Unemployment rate (per cent)…………………………...…… 12.1 Retail sales…………………………...………………………… -1.7 Housing starts (units)…………………………...……………… 19,807 Real exports …………………………...……………………… -5.4 f 0.2 1.1 9.9 -2.4 31,875 1.9 Ministry of Finance forecast. Budget and Fiscal Plan – 2009/10 to 2011/12 0.6 -0.5 7.7 5.9 17,234 -1.8 -0.9 -0.5 6.2 1.3 25,541 -2.4 British Columbia Economic Review and Outlook (19,000 job losses) and forestry, fishing, mining, oil and gas sectors (16,300 job losses). In fact, employment in the forestry, fishing, mining, oil and gas sectors employed nearly 75,000 British Columbians in January of 1981, but this number fell to about 48,000 workers by December 1982. Total employment in BC actually increased during the 1991 economic slowdown, although it grew by only 1.1 per cent that year (or an increase of 17,900 jobs). Significant losses in the construction (6,500 job losses) and manufacturing (6,100 job losses) sectors in 1991 were offset by a strong increase in the number of service sector jobs. Employment growth fell into negative territory again in 2001, as total employment in BC declined by 0.5 per cent (or 9,700 job losses). Major losses in 2001 included a 12,000 job decline in the forestry, fishing, mining, oil and gas sectors as well as 7,500 jobs lost in the manufacturing industry. Consumer Behaviour For 2009, the Ministry of Finance forecasts retail sales in BC to grow by 1.3 per cent, marking a significant slowdown from recent years. The Ministry also projects substantial weakening in the housing sector, with housing starts forecast to reach 25,541 units – 25.6 per cent lower than 2008 levels. Helping to drive the expected weakness in 2009 is a low level of consumer confidence among British Columbians heading into the year. The Conference Board index of consumer confidence (2002 = 100) reached a quarterly rate of 77.1 in the final three months of 2008 – the lowest level observed since the 1982 recession. Domestic demand shrank under the weight of economic weakness in 1982, with retail sales contracting by 1.7 per cent and housing starts falling by a remarkable 52.4 per cent to reach 19,807 units for the year. The consumer confidence index fell to average 85.1 for 1982, down from 91.0 in 1981. However, the quarterly rate of consumer confidence dropped a historic low of 74.4 in the April to June quarter of 1982. 105 Retail sales fell by an even greater rate in 1991, declining 2.4 per cent from the previous year, and housing starts dropped 13.2 per cent to reach 31,875 on the year. However, consumer confidence actually climbed in 1991, with an annual average of 102.4 – up from 98.3 in 1990. The domestic sector saw healthy growth through 2001, as retail sales expanded by 5.9 per cent and housing starts grew by 19.5 per cent (although they averaged a very low 17,234 units for the year). The consumer confidence index rose slightly in 2001 to 100.4, an increase of 1.8 percentage points from 2000. Exports Due primarily to rapidly declining US demand for BC products, real exports of goods and services from BC are forecast to fall by 2.4 per cent in 2009. Greater weakness was observed in 1982, however, when real exports experienced an annual drop of 5.4 per cent. The 1991 slowdown actually saw an increase of 1.9 per cent in exports, while 2001 saw a decline of 1.8 per cent. Conclusion The current economic slowdown has its origins in the US housing market, where excessive lending practices and rampant speculation over the past few years created a major asset bubble that finally burst in 2007 as housing prices began to decline. British Columbia is certainly feeling the effects of the US downturn, as BC’s economic activity is being hindered by slowing US demand for BC products and falling consumer confidence among BC residents due to global economic uncertainty. The downturn going into 2009 is unlike the 1982 recession, which was caused by the US Federal Reserve instituting a contractionary monetary policy in order to rein in high inflation. The present economic weakness in the global economy threatens to continue for several years, with risks to the Ministry of Finance’s current forecast weighted to the downside. A prolonged slowdown would be unlike the downturns observed in 1991 and 2001, which both saw quick returns to economic growth in subsequent years. Budget and Fiscal Plan – 2009/10 to 2011/12 Part 4: 2008/09 REVISED FINANCIAL FORECAST (THIRD QUARTERLY REPORT) 2008/09 Fiscal Year in Review Table 4.1 Budget 2008 and Quarterly Updates February 19 Budget ($ millions) Revenue …………………………………………… Expense …………….....…....………………..…… Surplus before forecast allowance …………… Forecast allowance ………………………………… Surplus ……………………………………………… First Quarterly Report Second Quarterly Report 38,490 (37,690) 39,693 (37,923) 38,889 (37,939) 800 (750) 50 1,770 (750) 1,020 950 (500) 450 Third Quarterly Report 38,455 (38,405) 50 50 The surplus for 2008/09 is projected at $50 million, unchanged from Budget 2008. Government revenue is forecast to be $35 million lower than the projection in Budget 2008, reflecting lower than anticipated revenue from taxation sources ($445 million) and other miscellaneous sources including fees and investment earnings ($149 million), partially offset by improvements in natural resource revenues ($288 million), commercial Crown corporation net income ($164 million) and federal government contributions ($107 million). The 2008/09 forecast allowance has been reduced by $750 million since the start of the year. The reduced forecast allowance allows government to allocate $622 million towards a number of priority initiatives including strategic investments to support communities, provide additional health care funding, and to acquire social housing. Further details on the changes from Budget 2008 are provided in Table 4.2. Chart 4.1 Progress of 2008/09 financial forecasts Budget and Fiscal Plan – 2009/10 to 2011/12 108 2008/09 Revised Financial Forecast (Third Quarterly Report) Table 4.2 2008/09 Forecast Update Q1 Updates ($ millions) 2008/09 surplus – Budget 2008 Fiscal Plan (February 19, 2008) ……………… Q3 Updates 50 Total Changes 50 1,020 2008/09 surplus – first Quarterly Report (September 12, 2008) ………………… 2008/09 surplus – second Quarterly Report (November 24, 2008) …………… Revenue increases (decreases): Taxation revenue: Personal income tax – advancing tax cuts previously planned in 2009 and weaker 2007 tax assessments ……………………………………………… Corporate income tax – mainly stronger 2007 tax assessment data, partly offset by advancing small business tax cuts previously planned in 2010 and 2011 and lower federal government advances …………………… Social service tax – lower personal and business sales growth ………………… Property transfer tax – slower BC housing sales ………………………………… Other taxes – slowing demand and year-to-date activity ………………………… Natural resource revenue: Forest revenue – lower harvest volumes and average stumpage rates ………… Natural gas royalties – volatile natural gas prices ………………………………… Bonus bids – mainly changes in average bid price/hectare ……………………… Other natural resources – mainly volatile electricity, oil, coal and metal prices … Other taxpayer-supported ……………………………………………………………… Federal contributions: Health and social transfers – changes in population share, effects of 2006 Census undercount, partly offset by higher 2008 share ………………… Other transfers – mainly Community Development Trust, Labour Market Agreement and Police Officers Recruitment Fund ……………………………… Commercial Crown corporation net income: ICBC – lower claims costs, partially offset by lower investment income ……… Other Crown corporation changes – mainly timing of BCRC asset dispositions Q2 Updates 450 (102) (310) (69) (481) 383 (52) (120) (29) 128 (110) (150) (61) 183 (124) (15) 3 694 (286) (285) (87) (262) 567 396 276 67 (38) (144) (50) (81) (36) (65) (212) (66) (33) (180) (365) 211 280 162 (149) (150) 58 (9 ) (101) 184 18 6 208 56 (11) (15) (13) 146 1 187 (23) Total revenue changes ………………………………………………………… 1,203 Less: expense increases (decreases): 120 Priority Spending ……………………………………………………………………… BC Timber Sales – mainly reduced harvest volumes ………………….………… (60) Forests – higher forest fire-fighting costs ………………….……………………… Other spending changes – mainly additional spending funded from federal trust allocations …………………………………………………………… 248 Net ministry savings………………….……………………………………………… (75) Debt servicing costs – mainly lower debt levels ………………….……………… 233 Total expense changes ……………………………………………………… Forecast allowance changes ………………………………………………………… 970 Net change ……………………….…………………………………………………… (804) (434) (35) 24 502 - 622 (60) 24 24 (32) 5 (49) 8 277 (49) (99) 16 (250) (570) 466 (500) (400) 715 (750) - 50 50 2008/09 surplus – first Quarterly Report …………………………………………… 1,020 2008/09 surplus – second Quarterly Report ……………………………………… 2008/09 surplus – third Quarterly Report …………………………………………… Budget and Fiscal Plan – 2009/10 to 2011/12 450 2008/09 Revised Financial Forecast (Third Quarterly Report) 109 Changes since the Second Quarterly Report The surplus forecast for 2008/09 has been reduced by $400 million from the second Quarterly Report forecast, primarily due to revenue declines and reduced forecast allowance, offset by funding of priority initiatives. Since the second Quarterly Report in November: corporations, decreased $434 million. – Taxpayer-supported revenue is down $581 million, reflecting lower revenue from natural resources, social service tax and other taxpayer supported sources, partially offset by improvements in corporate income tax revenue. – Income from commercial Crown corporations increased by $147 million, primarily due to the positive impact of lower claims cost projections on ICBC’s financial results. increased spending on priority initiatives partially offset by ministry savings. 2008/09 Priority Spending The Provincial government intends to seek approval of the Legislature for Supplementary Estimates that authorize additional funding for the following priority spending initiatives for 2008/09. Strategic Investment in Communities As part of a wide range of initiatives the Province is taking to stimulate the economy, Budget 2009 provides a total of $208 million for strategic investments in communities before the end of 2008/09. In collaboration with the Union of British Columbia Municipalities (UBCM) and its members, the government plans to restructure current provincial/local funding arrangements to provide local governments with increased financial certainty in uncertain economic times. As part of this restructuring arrangement, an additional $151 million will be provided to local governments in 2008/09. This initiative will support local government priorities and will provide greater flexibility to address immediate needs, including community safety. Other planned investments in communities include: Towns for Tomorrow ($30 million) – This additional funding will provide $30 million for capital infrastructure projects with long term benefits (cost-shared with local governments). This is in addition to $7 million already provided for in existing base funding, for a total provincial investment of $37 million in 2008/09. significant road maintenance and rehabilitation projects across the province. Budget and Fiscal Plan – 2009/10 to 2011/12 110 2008/09 Revised Financial Forecast (Third Quarterly Report) Table 4.3 2008/09 Priority Initiatives (Operating) Supplementary ($ millions) Estimates Strategic Investment in Communities Local government priorities, including community safety ………… Towns for Tomorrow …………………………………………………… Local transportation projects ………………………………………… Carbon tax rebates for local governments …………………………… Trees for Tomorrow …………………………………………………… Internet connectivity for rural communities ………………………… 151 30 20 3 2 2 Health Additional health authorities funding …………………….…………… 120 Housing Acquisition of properties to protect social housing ………………… 30 2010 Olympics Olympic Games security ………………………..……………………… Paralympics …………………………………………………………… 64 20 Arts, Culture, and Heritage Arts, culture and heritage grants ………………………..…………… 15 Liability Valuation Adjustment Long-term disability plan ……………………...……………………… 40 Contingencies Supplement to contingencies …………………….…………………… 125 Total priority initiatives (operating) ………………………… 622 provided beginning in 2008/09 to local governments who committed to becoming carbon neutral by 2012. Trees for Tomorrow ($2 million) – This funding is part of the provincial government’s $13 million commitment to plant four million trees in schoolyards, hospital grounds, civic parks and other public spaces in British Columbia over the next five years. a grant program to encourage “last mile” delivery of broadband internet connectivity and cell phone coverage for homes and businesses in rural and remote communities. Health government will provide for an additional $120 million in 2008/09 for the public health care system to meet increased demands and pressures across the system, and to ensure that the province continues to build upon record levels of surgeries and diagnostic procedures. Housing Funding for the acquisition and renovation of 8 rental buildings including single room occupancy hotels to provide a range of housing options to help break the cycle of homelessness for people most in need. Budget and Fiscal Plan – 2009/10 to 2011/12 111 2008/09 Revised Financial Forecast (Third Quarterly Report) Olympics Arts, Culture and Heritage Liability Valuation Adjustment Contingencies Supplementary Estimates Table 4.4 2008/09 Priority Initiatives (Capital) Supplementary ($ millions) Estimates Capital contingencies – to fund additional priority capital initiatives ………… 2008/09 Notional Contingencies Allocations Budget and Fiscal Plan – 2009/10 to 2011/12 80 112 2008/09 Revised Financial Forecast (Third Quarterly Report) Table 4.5 2008/09 Notional Allocations to Contingencies ($ millions) 1 Lower Mainland Innovation and Integration Fund …………………………… Olympic community engagement and leveraging ……………………………… BC Ferry Services fare reductions ……………………………………………… RCMP salaries and pensions ……………………………………………………… Long term disability pressures …………………………………………………… Major trials …………………………………………………………………………… Marketing for Vancouver Convention Centre …………………………………… First Nations connectivity ………………………………………………………… Correctional officers and sheriffs' wage adjustment …………………………… BC-Canada Pavilion in Beijing …………………………………………………… In car (police) digital video cameras ……………………………………………… Contribution for earthquake relief in China ……………………………………… Closed circuit cameras in high crime areas (pilot)……………………………… Subtotal notional allocations ………………………………………………… Other allocations for the outcome of current negotiations, natural disasters, caseload pressures and other contingent items ………………… 142 Total contingencies …………………………………………………………… 1 33 23 20 14 14 10 6 6 6 5 2 2 1 375 233 $50 million contingency for LMIIF partially funded by Ministry of Health Services base budget. Capital Spending and Provincial Debt Updated capital spending of $5.9 billion is up $185 million from Budget 2008, reflecting higher capital spending by the BC Transportation Financing Authority and government ministries, but down $156 million from the second Quarterly Report forecast due to changes in the timing of capital expenditures. The main changes since the second Quarterly Report are shown in Table 4.6, and further details on capital spending are shown in Table 4.12. Table 4.6 2008/09 Capital Spending Update Q1 Updates ($ millions) Capital spending – Budget 2008 Fiscal Plan (February 19, 2008) …………… Capital spending – first Quarterly Report (September 12, 2008) ……………… Capital spending – second Quarterly Report (November 24, 2008) ………… Taxpayer-supported changes: Post-secondary education – mainly timing of capital spending Health – mainly timing of capital spending BCTFA – mainly timing of capital spending and accelerated capital investments within the capital plan ………………………………………………… Government ministries – mainly Supplementary Estimates and use of capital contingencies ………………………………………………………………… Accelerated infrastructure projects …………………………………………………… Other …………………………………………………………………………………… Total taxpayer-supported ………………………………………………… Q2 Updates Q3 Updates 5,766 Total Changes 5,766 6,263 6,107 117 126 (74) (32) (83) (108) (40) (14) 212 (7) (133) 72 7 (106) 150 55 50 (69) 150 55 51 274 (32) (18) (50) (156) (67) (20) (87) (156) (67) (20) (2) (89) 185 (6) 449 Self-supported changes: BC Hydro – mainly reduced independent power producer projects and approval delays for the Central Vancouver Island transmission line ……… BC Railway Company – mainly timing of Port Subdivision land acquisition …… 32 16 Other …………………………………………………………………………………… 48 Total self-supported ………………………………..……………………… 497 Total changes …………………………………………………………………………… Capital spending – first Quarterly Report ………………………………………… 6,263 Capital spending – second Quarterly Report …………………………………… Capital spending – third Quarterly Report ………………………………………… Budget and Fiscal Plan – 2009/10 to 2011/12 6,107 5,951 5,951 113 2008/09 Revised Financial Forecast (Third Quarterly Report) Provincial debt is forecast to total $37.5 billion at year-end – up $1 billion from the second Quarterly Report forecast, but $254 million below the Budget 2008 amount. The increase from the second Quarterly Report reflects $1 billion of borrowings to support early commencement of the accelerated capital projects expected over the next few years. Significant changes in debt since the second Quarterly Report are shown in Table 4.7, and further details on the provincial debt forecast are shown in Table 4.13. Table 4.7 2008/09 Provincial Debt Update Q1 Updates ($ millions) Q2 Updates Q3 Updates Provincial debt – Budget 2008 Fiscal Plan (February 19, 2008) ……………… 37,741 Provincial debt – first Quarterly Report (September 12, 2008) ……………… Provincial debt – second Quarterly Report (November 24, 2008) …………… Taxpayer-supported changes: Government operating – mainly cash (bonus bids) and revenue improvements ……………………………………………………………………… (1,071) Education facilities – mainly lower opening debt at March 31, 2008 and updated capital spending …………………………………………………… (54) Health facilities – mainly lower opening debt at March 31, 2008 and updated capital spending …………………………………………………… (86) Transportation – mainly lower opening debt at March 31, 2008 and updated capital spending …………………………………………………… 22 Other changes – updated capital spending and capital spending contingencies ……………………………………………………………………… 46 Accelerated capital projects ………………………………………………………… Total taxpayer-supported ……………………………………………………… (1,143) Self-supported changes: BC Hydro – mainly impact of cash flows from operations ………………….…… BC Transmission – impact of improved cash flows ………………….…………… Columbia River power projects – impact of improved cash flows ……………… Post-secondary institutions' subsidiaries – higher debt balance at March 31, 2008 ………………………………………………………………… Warehouse borrowing program …………………………………………………… Total self-supported …………………………………………………………… Forecast allowance – reduction to match income statement ………………….… Total Changes 37,741 36,721 36,452 - 100 (971) 20 (29) (63) 35 (74) (125) 32 (156) (102) (1) - 167 1,000 212 1,000 86 1,008 (49) 101 (34) (98) (6) - 126 - 129 (6) (34) 56 - (1) - 1 400 56 400 123 - (105) (250) 527 (500) 545 (750) Total changes ………………………………………………………………………… (1,020) Provincial debt – first Quarterly Report ………………………………………… 36,721 Provincial debt – second Quarterly Report ……………………………………… Provincial debt – third Quarterly Report ………………………………………… Budget and Fiscal Plan – 2009/10 to 2011/12 (269) 1,035 (254) 36,452 37,487 37,487 114 2008/09 Revised Financial Forecast (Third Quarterly Report) Table 4.8 2008/09 Operating Statement Year-to-Date to December 31 2008/09 Actual Budget Actual Variance 2007/08 ($ millions) Revenue ………………………………………… 28,506 Expense …………….....…....………………..… (27,424) 28,801 (27,217) 295 207 29,065 (25,682) Budget 38,490 (37,690) Full Year 2008/09 Forecast Variance 38,455 (38,405) Actual 2007/08 (35) (715) 39,831 (36,945) (750) 750 2,886 - Surplus before forecast allowance ……… Forecast allowance …………………………… Surplus …………………………………………… 1,082 - 1,584 - 502 - 3,383 - 800 (750) 50 - 1,082 1,584 502 3,383 50 50 - 2,886 Accumulated surplus beginning of the year … 5,793 7,086 1,293 4,076 5,793 7,086 1,293 4,200 6,875 8,670 1,795 7,459 5,843 7,136 1,293 7,086 Accumulated surplus before comprehensive income ……………………… Accumulated other comprehensive income from self-supported Crown agencies ……… Accumulated surplus end of period ………… 447 88 7,322 8,758 (359) 1,436 338 447 163 7,797 6,290 7,299 (284) 365 1,009 7,451 Table 4.9 2008/09 Revenue by Source Year-to-Date to December 31 2008/09 Actual ($ millions) Budget Variance 2007/08 4,674 1,059 3,824 684 192 520 1,377 622 508 13,460 (305) (6) (188) (37) (28) (30) (7) (196) 32 (765) 4,998 1,055 3,862 713 549 1,313 859 472 13,821 845 710 1,198 2,753 1,212 494 1,654 3,360 367 (216) 456 607 1,179 1,808 336 1,845 5,168 1,185 1,786 593 1,826 5,390 Contributions from the federal government Health and social transfers …………………… 3,595 707 Other federal contributions 5………………… 4,302 3,518 730 4,248 Taxation Personal income ………………………………… Corporate income ……………………………… Social service …………………………………… Fuel ……………………………………………… Carbon …………………………………………… Tobacco ………………………………………… Property ………………………………………… Property transfer ………………………………… Other 1 …………………………………………… Natural resources Natural gas royalties ……..…………………...… Forests …………………………………………… Other natural resource 2………………………… Other revenue Medical Services Plan premiums ……………… Other fees 3……………………………………… Investment earnings …………………………… Miscellaneous 4 ………………………………… Commercial Crown corporation net income BC Hydro ………………………………………… Liquor Distribution Branch ……………………… BC Lotteries (net of payments to the federal government) ………………………… ICBC 6………………………………….………… Other ……………………………………………… Total revenue …………………………………… Actual 4,979 1,065 4,012 721 220 550 1,384 818 476 14,225 Full Year 2008/09 Actual Forecast Variance 6,700 1,343 5,284 957 338 705 1,861 1,020 601 18,809 6,219 2,037 4,998 912 300 713 1,840 735 610 18,364 (481) 694 (286) (45) (38) 8 (21) (285) 9 (445) 6,956 2,250 5,072 935 692 1,795 1,068 638 19,406 811 810 1,159 2,780 1,165 952 1,606 3,723 1,376 587 2,048 4,011 211 (365) 442 288 1,132 1,087 1,559 3,778 6 (22) 257 (19) 222 1,165 1,737 764 1,854 5,520 1,571 2,505 884 2,509 7,469 1,577 2,430 839 2,474 7,320 6 (75) (45) (35) (149) 1,557 2,429 1,139 2,617 7,742 (77) 23 (54) 3,686 840 4,526 4,794 1,015 5,809 4,693 1,223 5,916 (101) 208 107 4,614 1,317 5,931 351 690 358 854 357 867 (1) 13 370 858 114 20 Budget 2007/08 255 693 369 713 819 220 71 2,058 807 396 58 2,343 (12) 176 (13) 285 812 531 34 2,418 1,101 272 95 2,680 1,101 459 60 2,844 187 (35) 164 1,080 633 33 2,974 28,506 28,801 295 29,065 38,490 38,455 (35) 39,831 1 Corporation capital, insurance premium and hotel room taxes. 2 Columbia River Treaty, Land sales/bonus bids, other energy and minerals, water rental and other resources. Post-secondary, healthcare-related, motor vehicle, and other fees. 3 4 Includes asset dispositions, reimbursements for health care and other services provided to external agencies, and other recoveries. 5 Includes contributions for health, education, community development, housing and social service programs, and transportation projects. 6 The year to date figures reflect ICBC's budget and results for the April to December period. The full-year forecast represents ICBC's earnings during government's fiscal year. On ICBC's fiscal year basis (December), the outlook is - 2008 (budget): $272 milion; 2008 (forecast): $498 million. Budget and Fiscal Plan – 2009/10 to 2011/12 115 2008/09 Revised Financial Forecast (Third Quarterly Report) Table 4.10 2008/09 Expense By Function 1 Year-to-Date to December 31 2008/09 ($ millions) Budget Full Year 2008/09 Actual Actual Variance 2007/08 Budget Actual Forecast Variance 2007/08 Health: 2,418 2,645 814 806 2,326 3,375 3,367 (8) 764 1,018 1,018 - 6,982 535 7,112 642 955 130 107 6,553 619 9,630 861 9,675 1,011 45 150 9,038 996 10,749 11,205 456 10,262 14,884 15,071 187 14,236 Elementary and secondary …………………… 3,972 4,058 86 3,840 5,711 5,687 (24) 5,521 Post-secondary ………………………………… 3,068 120 3,211 47 143 (73) 3,055 114 4,322 173 4,418 133 96 (40) 4,303 165 7,160 7,316 156 7,009 10,206 10,238 32 9,989 Social assistance 2,3…………………………… 1,126 1,116 (10) 1,374 1,349 1,343 (6) 1,297 Childcare services 2…………………………… Community living and other services ………… 1,025 318 1,003 257 (22) (61) 782 68 1,142 802 1,103 901 (39) 99 992 757 Medical Services Plan ………………………… Pharmacare …………………………………… Regional services ……………………………… Other healthcare expenses 2………………… 227 (8) 3,247 Education: Other education expenses 3…………………… Social services: 2,469 2,376 (93) 2,224 3,293 3,347 54 3,046 Protection of persons and property …………… 1,192 1,128 (64) 1,067 1,509 1,519 10 1,579 Transportation …………………………………… 1,011 998 (13) 988 1,348 1,429 81 1,379 1,324 1,131 (193) 1,192 1,766 1,670 (96) 1,974 Other ………………………………..…………… 1,316 994 (322) 842 1,429 1,821 392 1,398 Contingencies …………………………………… - - 4 325 467 142 509 1,694 470 1,599 (39) (95) 447 1,647 672 2,258 684 2,159 12 (99) 669 2,231 Subtotal ……………………………………… 27,424 27,217 (207) 25,682 37,690 38,405 715 36,501 Climate Action Dividend ………………………… - - - - - - 440 4 Total expense …………………………………… 27,424 27,217 25,682 37,690 38,405 715 36,945 Natural resources and economic development …………………………………… General government …………………………… Debt servicing costs ……………………………… Negotiating Framework incentive payments … - (207) 1 Amounts have been restated to reflect government's accounting policies in effect at March 31, 2008. 2 Payments for healthcare services by the Ministry of Housing and Social Development and the Ministry of Children and Family Development made on behalf of their clients are reported in the Health function. 3 Payments for training costs by the Ministry of Housing and Social Development made on behalf of its clients are reported in the Education function. Budget and Fiscal Plan – 2009/10 to 2011/12 - 116 2008/09 Revised Financial Forecast (Third Quarterly Report) Table 4.11 2008/09 Expense by Ministry, Program and Agency Year-to-Date to December 31 2008/09 Actual ($ millions) Budget Actual Variance 2007/08 Full Year 2008/09 Budget Forecast Variance 10 39 10 36 (3) 10 30 14 62 14 62 1,652 133 414 989 199 3,930 56 189 164 593 10,301 49 1,981 82 463 1,615 152 405 983 176 3,912 41 168 153 552 10,312 47 1,974 56 479 (37) 19 (9) (6) (23) (18) (15) (21) (11) (41) 11 (2) (7) (26) 16 1,544 122 382 902 155 3,810 32 142 160 691 9,500 40 1,823 50 478 2,206 289 546 1,326 238 5,313 73 271 229 806 13,530 72 2,665 102 625 2,187 249 546 1,326 238 5,311 72 259 226 770 13,530 66 2,665 102 625 (19) (40) (2) (1) (12) (3) (36) (6) - 2,087 234 500 1,237 241 5,141 67 228 229 941 12,783 79 2,507 87 695 52 305 630 35 335 612 (17) 30 (18) 39 54 564 67 353 841 67 349 841 (4) - 71 74 761 Total ministries and Office of the Premier … 22,231 Management of public funds and debt …………… 948 Contingencies ……………………………………… 91 Legislative and other appropriations ……………… 22,053 902 4 90 (178) (46) 4 (1) 20,528 908 4 59 29,628 1,262 375 142 29,505 1,212 375 142 (123) (50) - 28,062 1,142 91 112 23,270 - 23,049 - (221) - 21,499 - 31,407 - 31,234 622 (173) 622 29,407 885 Consolidated revenue fund total expense …… 23,270 Expenses recovered from external entities …… 1,414 Externally-funded service delivery agency expense: School districts ……………………………………… 40 Post-secondary institutions ……………………… 1,660 295 Health authorities and hospital societies ………… 745 Other service delivery agencies ………………… 2,740 Total expense ……………………………………… 27,424 23,049 1,460 (221) 46 21,499 1,496 31,407 1,885 31,856 2,186 449 301 30,292 2,282 131 1,544 360 673 2,708 27,217 91 (116) 65 (72) (32) (207) 37 1,402 366 882 2,687 25,682 410 2,254 619 1,115 4,398 37,690 378 2,224 650 1,111 4,363 38,405 (32) (30) 31 (4) (35) 715 380 1,904 767 1,320 4,371 36,945 Office of the Premier ……………………………… Aboriginal Relations and Reconciliation ………… Advanced Education and Labour Market Development …………………………………… Agriculture and Lands ……………………………… Attorney General …………………………………… Children and Family Development ……………… Community Development ………………………… Education …………………………………………… Energy, Mines and Petroleum Resources ……… Environment ………………………………………… Finance ……………………………………………… Forests and Range ………………………………… Health Services …………………………………… Healthy Living and Sport ………………………… Housing and Social Development ………………… Labour and Citizens' Services …………………… Public Safety and Solicitor General ……………… Small Business, Technology, and Economic Development ……………………… Tourism, Culture and the Arts …………………… Transportation and Infrastructure ………………… Subtotal ………………………………………… Priority spending initiatives ………………………… Budget and Fiscal Plan – 2009/10 to 2011/12 - Actual 2007/08 13 87 117 2008/09 Revised Financial Forecast (Third Quarterly Report) Table 4.12 2008/09 Capital Spending Year-to-Date to December 31 2008/09 ($ millions) Budget Full Year 2008/09 Actual Actual Variance 2007/08 Budget Actual Forecast Variance 2007/08 Taxpayer-supported Education Schools (K–12) ……………………………… 331 307 (24) 285 441 442 1 Post-secondary …………………………… 530 417 (113) 529 706 666 (40) 782 Health ………………………………………… 417 372 (45) 343 924 910 (14) 881 BC Transportation Financing Authority …… 663 706 43 658 884 956 72 884 Transportation Investment Corporation …… - - - - - - - - 56 56 - 20 74 74 - 37 225 186 43 187 13 183 78 183 158 75 288 286 56 251 38 436 125 Capital spending contingencies …………… - - - 200 55 180 Total taxpayer-supported ………………… 2,451 2,319 (132) 2,251 3,859 4,133 274 3,672 Liquor Distribution Branch …………………… 1,260 15 28 23 27 93 16 1,032 12 26 9 22 71 7 (228) (3) (2) (14) (5) (22) (9) 788 58 12 19 20 46 7 1,663 21 19 30 30 124 20 1,596 18 38 10 25 112 19 (67) (3) 19 (20) (5) (12) (1) 1,072 70 29 20 23 60 18 Total self-supported ………………………… 1,462 1,179 (283) 950 1,907 1,818 (89) 1,292 Total capital spending ……………………… 3,913 3,498 (415) 3,201 5,766 5,951 185 4,964 BC Transit …………………………………… Vancouver Convention Centre expansion project …………………………… BC Place rejuvenation ……………………… Government ministries ……………………… Other 2………………………………………… Accelerated infrastructure projects ………… Self-supported BC Hydro ……………………………………… BC Transmission Corporation ……………… Columbia River power projects 3…………… BC Rail ………………………………………… ICBC …………………………………………… BC Lotteries …………………………………… (38) 13 (3) 35 - 1 380 (37) 38 150 69 251 335 122 55 (20) - 1 Includes Supplementary Estimates of $80 million. 2 Includes BC Housing Management Commission, Provincial Rental Housing Corporation, Rapid Transit Project 2000, BC Transit and other service delivery agencies. Joint ventures of the Columbia Power Corporation and Columbia Basin Trust. 3 Budget and Fiscal Plan – 2009/10 to 2011/12 118 2008/09 Revised Financial Forecast (Third Quarterly Report) Table 4.13 2008/09 Provincial Debt 1 Year-to-Date to December 31 2008/09 ($ millions) Budget Taxpayer-supported debt Provincial government operating …… Other taxpayer-supported debt (mainly capital) Education 2 Schools ………………………………… Post-secondary institutions …………… Actual Variance Full Year 2008/09 Actual 2007/08 Budget Forecast Actual Variance 2007/08 (2,356) 8,126 7,408 6,437 (971) 8,264 5,166 3,472 8,638 3,804 5,084 3,407 8,491 3,447 (82) (65) (147) (357) 4,862 3,163 8,025 3,057 5,235 3,520 8,755 3,945 5,195 3,497 8,692 3,820 (40) (23) (63) (125) 4,906 3,314 8,220 3,345 4,564 940 1,153 91 4,322 920 1,153 95 (242) (20) 4 3,744 913 1,153 92 4,722 950 1,153 91 4,638 930 1,153 93 (84) (20) 2 3,948 897 1,153 84 6,490 (258) 5,902 6,916 6,814 (102) 6,082 212 163 321 - 307 147 346 - 95 (16) 25 - 217 121 291 - 211 173 333 - 309 149 471 1,000 98 (24) 138 1,000 218 132 318 - 696 Other Social housing 3………………………… Homeowner Protection Office ………… Other 4…………………………………… Accelerated capital projects …………… 5,261 6,748 Health 2……………………………………… Highways and public transit BC Transportation Financing Authority ……………………………… Public transit …………………………… SkyTrain extension …………………… BC Transit ……………………………… 7,617 800 104 629 717 1,929 1,212 668 Total other taxpayer-supported …… 19,886 19,228 (658) 17,613 20,333 21,255 922 18,315 Total taxpayer-supported debt ………… 27,503 24,489 (3,014) 25,739 27,741 27,692 (49) 26,579 Self-supported debt Commercial Crown corporations BC Hydro ………………………………… BC Transmission Corporation ………… Columbia River power projects 5……… Liquor Distribution Branch …………… Post-secondary institutions' subsidiaries …………………………… 8,351 83 236 2 8,813 74 208 2 462 (9) (28) - 7,645 85 224 2 8,876 79 241 1 9,005 73 207 1 129 (6) (34) - 7,633 86 219 2 53 109 56 53 53 109 56 108 Warehouse borrowing program ………… 8,725 - 9,206 1,051 481 1,051 8,009 55 9,250 - 9,395 400 145 400 8,048 - Total self-supported debt ………………… Forecast allowance ……………………… 8,725 - 10,257 - 1,532 - 8,064 - 9,250 750 9,795 - 545 (750) 8,048 - Total provincial debt ……………………… 36,228 34,746 (1,482) 33,803 37,741 37,487 (254) 34,627 1 2 3 4 5 Debt is after deduction of sinking funds and unamortized discounts, and excludes accrued interest. Government direct and fiscal agency accrued interest is reported in the government's accounts as an accounts payable. Includes debt and guarantees incurred by the government on behalf of school districts, universities, colleges and health authorities/hospital societies (SUCH), and debt directly incurred by these entities. Includes the BC Housing Management Commission and the Provincial Rental Housing Corporation. Includes debt of other taxpayer-supported Crown corporations and agencies and fiscal agency loans to local governments. Also includes student loan guarantees, loan guarantees to agricultural producers, guarantees under economic development and home mortgage assistance programs, and loan guarantee provisions. Joint ventures of the Columbia Power Corporation and Columbia Basin Trust. Budget and Fiscal Plan – 2009/10 to 2011/12 119 2008/09 Revised Financial Forecast (Third Quarterly Report) Table 4.14 2008/09 Statement of Financial Position Actual March 31, 2008 ($ millions) Financial assets Cash and temporary investments ………………………………………………… Other financial assets ……………………………………………………………… Sinking funds ………………………………………………………………………… Investments in commercial Crown corporations: Retained earnings ………………………………………………………………… Recoverable capital loans ………………………………………………………… Liabilities Accounts payable and accrued liabilities ………………………………………… Deferred revenue …………………………………………………………………… Debt: Taxpayer-supported debt ………………………………………………………… Self-supported debt ……………………………………………………………… Forecast allowance ……………………………………………………………… Total provincial debt ………………………………………………………………… Add: debt offset by sinking funds ……………………………………………… Less : guarantees and non-guaranteed debt …………………………………… Financial statement debt …………………………………………………………… Net liabilities ………………………………………………………………………… Capital and other non-financial assets Tangible capital assets ……………………………………………………………… Other non-financial assets ………………………………………………………… Accumulated surplus (deficit) ……………………………..……………………… Year-to-Date December 31, 2008 Forecast March 31, 2009 5,951 8,233 2,649 5,252 8,684 2,139 6,028 8,572 2,152 5,090 7,719 12,809 29,642 5,636 8,889 14,525 30,600 5,718 9,080 14,798 31,550 7,955 7,136 7,097 9,190 8,104 8,757 26,579 8,048 34,627 2,649 (442) 36,834 51,925 (22,283) 24,489 10,257 34,746 2,139 (425) 36,460 52,747 (22,147) 27,692 9,795 37,487 2,152 (422) 39,217 56,078 (24,528) 28,933 801 29,734 7,451 30,009 896 30,905 8,758 30,980 847 31,827 7,299 Changes in Financial Position Year-to-Date December 31, 2008 ($ millions) (Surplus) deficit for the year ………………………………………………………………………… Comprehensive income (increase) decrease ……………………………………………………… (Increase) decrease in accumulated surplus …………………………………………………………… Capital and other non-financial asset changes: Increase in taxpayer-supported capital investments ……………………………………………… Less: amortization and other accounting changes ……………………………………………… Change in net capital assets ……………………………………………………………………… Increase (decrease) in other non-financial assets ………………………………………………… Increase (decrease) in net liabilities ....................................................................................... Investment and working capital changes: Increase (reduction) in cash and temporary investments ………………………………………… Increase in total investment in commercial Crown corporations: Increase (decrease) in retained earnings ………………………………………………………… Self-supported capital investments ……………………………………………………………… Less: loan repayments and other accounting changes ………………………………………… Other working capital changes ……………………………………………………………………… Increase (decrease) in financial statement debt ………………………………………………… (Increase) decrease in sinking fund debt …………………………………………………………… Increase (decrease) in guarantees and non-guaranteed debt …………………………………… Increase (decrease) in total provincial debt ……………………………………………………… Budget and Fiscal Plan – 2009/10 to 2011/12 Forecast March 31, 2009 (1,584) 277 (1,307) (50) 202 152 2,319 (1,243) 1,076 95 1,171 (136) 4,133 (2,086) 2,047 46 2,093 2,245 (699) 77 546 1,179 (9) 1,716 (1,255) (238) 628 1,818 (457) 1,989 (1,928) 138 (374) 510 (17) 119 2,383 497 (20) 2,860 APPENDICES Tables: Tax Expenditures ..................................................................................................................................122 A1.1 Social and Income Transfer Programs – Tax Expenditure ...................................................124 A1.2 Economic Development and Business Programs – Tax Expenditure .................................126 A1.3 Environmental Protection Programs – Tax Expenditure ......................................................126 A2 Interprovincial Comparisons of Tax Rates – 2009 .......................................................................127 A3 Comparison of Provincial and Federal Taxes by Province – 2009 .............................................128 A4 Interprovincial Comparisons of Provincial Personal Income Taxes Payable – 2009.................130 A5 Summary of Revenue Measures from July 30, 2001 to February 17, 2009 ................................131 A6 Operating Statement – 2005/06 to 2011/12 .................................................................................135 A7 Revenue by Source – 2005/06 to 2011/12 ...................................................................................136 A8 Expense by Function – 2005/06 to 2011/12 ................................................................................137 A9 Service Delivery Agency Operating Results – 2005/06 to 2011/12 ............................................138 A10 Material Assumptions – Revenue.................................................................................................140 A11 Natural Gas Price Forecasts: 2009/10 to 2011/12 .......................................................................145 A12 Material Assumptions – Expense .................................................................................................146 A13 Full-Time Equivalents (FTEs) – 2005/06 to 2011/12 ..................................................................148 A14 Capital Spending – 2005/06 to 2011/12 ......................................................................................149 A15 Statement of Financial Position – 2005/06 to 2011/12 ...............................................................150 A15a Changes in Financial Position – 2005/06 to 2011/12 .................................................................151 A16 Provincial Debt Summary – 2005/06 to 2011/12 ........................................................................152 A17 Key Provincial Debt Indicators – 2005/06 to 2011/12................................................................153 Budget and Fiscal Plan – 2009/10 to 2011/12 122 Appendices A1: Tax Expenditures Introduction A tax expenditure is the reduction in revenues from delivering government programs or benefits through the tax system rather than through voted budget appropriations. Tax expenditures are usually made by offering special tax rates, exemptions, or tax credits. Governments introduce tax expenditures primarily to achieve social policy objectives such as transfers to lower income families or to promote economic development and job creation. Reporting tax expenditures improves government accountability by providing a more complete picture of government activities. The tax expenditure appendix outlines major tax expenditures for the 2008/09 fiscal year. It does not include tax expenditures introduced or expanded in Budget 2009. These are described in Part 2: Tax Measures. The Role of Tax Expenditure Programs Using the tax system to deliver programs can reduce administration costs and compliance costs for recipients. In certain situations, the tax system allows intended beneficiaries to be readily identified from information that is already collected. In these cases setting up a separate expenditure program would result in costly overlap and duplication of effort. An example is the provincial sales tax credit, which is delivered through the income tax system. If this were a direct provincial expenditure program, a provincial agency or office would have to be established to duplicate much of the work already done by the Canada Revenue Agency. In addition, it would require individuals to undertake a separate, time-consuming application process in order to qualify for the benefit. There are, however, several potential drawbacks to tax expenditure programs. First, their overall cost often receives less public scrutiny than is the case for spending programs because annual budget appropriations by the legislature are not typically required. Second, tax expenditure programs do not always effectively target those who are intended to benefit from them. Some expenditure programs that are intended to provide tax relief for low income earners may, in reality, confer the greatest benefit on high income earners who pay the most taxes. Sales tax exemptions, for example, often provide a greater absolute benefit to those with higher incomes because they have more to spend on consumer products. Finally, costs are often more difficult to control under a tax expenditure program because the benefits tend to be more open ended and enforcement is often more difficult than for spending programs. Tax Expenditure Reporting Not all tax reductions, credits and exemptions are classed as tax expenditures. Three criteria were used to choose those features of the tax system that should be reported as tax expenditures. First, the emphasis is on tax reductions, exemptions and refunds that are close equivalents to spending programs. By implication, the list does not include tax measures designed to meet broad tax policy objectives such as improving fairness in the tax system, or measures designed to simplify the administration of the tax. The list also does not include items that are generally excluded from a particular tax base. For example, most services are excluded from provincial sales taxes, which are primarily designed to apply to purchases of goods. Budget and Fiscal Plan – 2009/10 to 2011/12 Appendices 123 Second, revenues raised under provincial government authority that are turned over to agencies outside of government are not reported as tax expenditures in this appendix. This includes, for example, the hotel room tax revenues transferred to Tourism BC. Third, smaller items of less than $2 million are generally not included. Where practical, smaller items have been presented together as an aggregate figure. British Columbia Tax Expenditure Programs The following tables report tax expenditure estimates. For presentation purposes, British Columbia tax expenditures have been broken into three broad categories. : These include tax expenditures that are offered as part of government’s mix of health, education, housing, income transfer and family related programs. Examples include the BC Family Bonus, the home owner grant, the sales tax exemption for children’s clothing and the income tax credit for medical expenses. : This category includes tax preferences for small businesses and measures to encourage new private sector investment. : There are relatively few tax expenditures in this category because environmental protection is now generally based on the principle of “polluter pay”, such as the lead-acid battery levy. However, environmental tax expenditures include, for example, a sales tax exemption for bicycles and a fuel tax exemption for certain alternative fuels. Each category has its own table of tax expenditure estimates. Within each table, the list of tax expenditures delivered through the income tax system has been separated into two sub-categories. Provincial Measures: This includes all major tax expenditures that are under provincial policy control. Federal Measures: British Columbia shares the cost of some federal income tax expenditure programs because, under the tax collection agreement between British Columbia and the federal government, the province has agreed to maintain a consistent income tax base with the federal government in the interest of reducing administrative and compliance costs. The cost of individual tax expenditures cannot be added together to reach a total tax expenditure figure for two reasons: program could increase or decrease the cost of another; and make, which in turn would affect the cost estimates. The estimates for each tax expenditure are based on a static analysis of the costs and do not take into account any behavioural changes which could change the cost over time. In addition, all estimates are recalculated each year using current data sources and using refinements to the methods of estimation which can result in significant changes to the value of a given tax expenditure from prior years’ reports. Budget and Fiscal Plan – 2009/10 to 2011/12 124 Appendices Table A1.1 Social and Income Transfer Programs – Tax Expenditure 2008/09 Estimated Cost ($ millions) 1 Provincial Sales Tax Exemptions for the following items: • Food (basic groceries, snack foods, candies, soft drinks and restaurant meals) ………………………. • Residential fuels (electricity, natural gas, fuel oil, etc.) ..................………………………………………… • Prescription and non-prescription drugs, vitamins and certain other health care products and appliances …………………………………………………………………………………………………. • Children's clothing and footwear ....................................………………………………………………….… • Clothing patterns, fabrics and notions ....................................................………………………………… • Specified school supplies ......................................................................…………………………………… • Books, magazines and newspapers .......................................................………………………………… • Basic telephone and cable service .........................................................………………………………… • "1-800" and equivalent telephone services .........................................…………………………………… • Specified safety equipment .......................................................................……………………………… • Labour to repair major household appliances, clothing and footwear ....………………………………… • Miscellaneous consumer exemptions (e.g. used clothing under $100) …………………………………. • Livestock for human consumption and feed, seed and fertilizer …………………………………………… 991 211 165 34 4 55 63 82 9 11 8 4 47 Personal Income Tax Provincial Measures BC Family Bonus 2................................................................…………………………………………………… BC Low Income Climate Action Tax Credit ……………………………………………………………………… Sales Tax Credit .......................................................................................…………………………………… Political contributions tax credit ..............................................................……………………………………… Provincial Non-Refundable Credits: 3 • Charitable donations tax credit .....................................................………………………………………… • Tax credits for tuition and education ..........….........................……………………………………………… • Tax credits for disabilities and medical expenses ..................................………………………………… • Pension income tax credit ......................................................................………………………………… • Credit for persons older than 65 years ...................................................………………………………… • Married and equivalent-to-married credits ..............................................………………………………… • Tax credit for Canada Pension Plan contributions .................................………………………………… • Tax credit for Employment Insurance premiums paid ............................………………………………… Budget and Fiscal Plan – 2009/10 to 2011/12 12 106 53 1 174 44 59 22 50 70 122 41 125 Appendices Table A1.1 Social and Income Transfer Programs – Tax Expenditure – Continued 2008/09 Estimated Cost ($ millions) 4 Federal Measures • Deduction and inclusion of alimony and child support payments ...........………………………………… • Child care expense deduction ..............................................................…………………………………… • Exemption from capital gains up to $500,000 for small businesses and family farms .......................... • Deduction for residents of northern and isolated areas .........................………………………………… • Non-taxation of employer-paid insurance premiums for group private health and welfare plans ......... • Tax Free Savings Accounts …………………………………………………………………………………… • Registered Retirement Savings Plans: 5 • exemption for – contributions …………………………………………………………………… 354 – investment earnings ….....……………………..…...….......………………… 346 • taxation of – withdrawals ......……………………….........…...….....……..………………… (202) Total ...........................………..............................................…………..……………… • Registered Pension Plans: 5 • exemption for – contributions …………………………………………………………………… 380 – investment earnings …………………………………………………………… 624 • taxation of – withdrawals ……………………………………………………………………… (295) Total ..........................................................................…………..……………………… Corporation Income Tax 6 Charitable donations deduction ...................................................................…………………………………… School and Rural Area Property Tax 7 Home Owner Grant ..........................................................................….........…………………………………… Exemption for places of worship ..............................................................……………………………………… Property Transfer Tax Exemption for first-time home buyers .......................................................……………………………………… Exemptions for the following: • Property transfers between related individuals .................................…………………………………….….. • Property transfers to municipalities, regional districts, hospital districts, library boards, school boards, water districts and educational institutions ……………………………………………………… • Property transfers to charities registered under the Income Tax Act (Canada) .......................................... 5 31 38 6 115 1 498 709 20 678 9 66 68 12 8 1 Estimates of the cost of sales tax measures are based on most current information available. 2 The $12 million represents the tax expenditure portion of the program's cost. The tax expenditure portion represents family bonus payments that effectively reduce the recipient's personal income tax. The remaining cost of the program, including recoveries and administration costs, of $12 million for 2008/09, is presented in the BC Family Bonus Vote because it represents payments to families which exceed their provincial income tax liabilities. In 2008/09, the total program cost was $24 million. 3 Provincial non-refundable credits are generally based on estimates of credit claims by British Columbia residents. 4 The estimates show provincial revenue losses only. They are based on estimates of projected federal losses contained in Government of Canada: Tax Expenditures and Evaluations, 2008. British Columbia personal income tax expenditures for the federal measures are based on the amounts claimed by British Columbia residents for the measure and the relevant provincial tax rates for the period. Certain tax expenditure items have been excluded where no data were available or the amounts were immaterial. 5 Registered retirement savings plans and registered pension plans are treated in the same way as in the federal tax expenditure report. The tax expenditure associated with these schemes is presented as the amount of tax that would otherwise be paid in the year of deferral, were the deferral not available. However, this type of estimate overstates the true costs of these preferences because taxes are eventually paid, including tax on investment earnings. An estimate that does not overstate these costs would, however, be difficult to develop and would require some largely speculative assumptions. 6 The deduction offered for corporate charitable donations is a federal measure, but the estimate shows only the provincial revenue loss. This is calculated from the federal revenue loss by applying British Columbia's share of corporate taxable income and the relevant tax rates to the federal estimate. 7 The property tax estimate is for the 2008 calendar year, and includes only school and rural area property taxes levied by the province. The home owner grant cost is shown for the 2008/09 fiscal year. Budget and Fiscal Plan – 2009/10 to 2011/12 126 Appendices Table A1.2 Economic Development and Business Programs – Tax Expenditure 2008/09 Estimated Cost ($ millions) Fuel Tax Tax exemption for international flights carrying cargo .................................………………………………… Tax exemption for family farm trucks (on road) .………………………………………………………………… Tax exemption for compressor fuel used to transmit natural gas from wellhead to processing plant ........ 2 5 14 Personal Income Tax Training tax credit …………………………………………………………………………………………………… Venture capital tax credit .............................................................................………………………………… Employee venture capital tax credit ..........................................................…………………………………… BC mining flow-through tax credit ………………………………………………………………………………… 15 25 2 16 Corporation Income Tax Provincial Measures Training tax credit …………………………………………………………………………………………………… Film and video tax credit ……...…...………..................................................………………………………… Production services tax credit ….....………..................................................………………………………… International financial activities tax refund 1................................................…………………………………… Scientific Research and Experimental Development Tax Credit ……………………………………………… Mining Exploration Tax Credit ……………………………………………………………………………………. 5 76 116 20 136 10 School and Rural Area Property Taxation 2 Assessment exemption of $10,000 for industrial and business properties .…………………………………. Overnight tourist accommodation assessment relief .........................……………………………………....... Exemption for property used for pollution abatement 3................................................……………………… 1 Includes employee income tax refunds. 2 8 3 6 Estimates are for the 2008 calendar year and include only school and rural area property taxes levied by the province. 3 The property tax exemption for most land and improvements used in pollution abatement equipment was removed for 1997, but existing properties which were exempt in 1996 remain exempt under grandparenting provisions. Table A1.3 Environmental Protection Programs – Tax Expenditure 2008/09 Estimated Cost ($ millions) Provincial Sales Tax Exemptions for the following items: • Bicycles ………………………………………...................................…………………………………….…. • Specified energy conservation equipment 1.................................................……………………………… • Hybrid electric and fuel efficient passenger vehicles ……….......................................................……… 8 26 27 Fuel Tax Tax exemption for alternative fuels ............................................................…………………………………… 1 Includes all energy conservation/energy efficient equipment: ENERGY STAR items, energy efficient water heaters, insulation material, polystyrene forming blocks used in construction industry and similar material that prevents heat loss from a building. Budget and Fiscal Plan – 2009/10 to 2011/12 17 127 Appendices Table A2 Interprovincial Comparisons of Tax Rates – 2009 (Rates known as of February 6, 2009) 1 Tax British Columbia Alberta Saskatchewan Manitoba Ontario Quebec New Brunswick Nova Scotia Prince Edward Island Newfoundland 11 11 2.5 10 10 3 12 10 4.5 13 13 1 14 12 5.5 11.9 11.9 8.0 13 13 5 16 16 5 16 16 3.2 14 5 5 400 460 500 400 500 400 500 400 400 400 Nil Nil Nil .7/3.25 .1/.3 3.0 .225 .54/.675 .24 .48 Nil 3.0 .25 4.0 Nil 5.0 Nil 4.0 Corporation income tax (per cent of taxable income) 2 General rate………………… Manufacturing rate…………. Small business rate………… Small business threshold 3 ($000s)………………..…… Corporation capital tax 4 Non-financial………………… Nil Financial…………………….. .67/2.0 Health care premiums 5 Individual/family……………… 54/108 Nil Nil Nil Nil Nil Nil Nil Nil Nil Payroll tax 6 (per cent)…………. Nil Nil 2.15 1.95 4.26 Nil Nil Nil 2.0 Insurance premium tax (per cent) 7……………………..… 2-4.4 2-3 3-4 2-3 2-3.5 2-3 2-3 3-4 3.5 4 Fuel tax (cents per litre) 8 Gasoline ………….………… 16.84 Diesel…………………..……… 17.69 9.0 9.0 15.0 15.0 11.5 11.5 14.7 14.3 20.4 22.7 15.7 23.6 20.6 21.6 15.8 20.2 22.4 23.3 Sales tax (per cent) 9 General rate………………… Liquor 10……………………… Meals……………………….… Accommodation……………… Nil Nil Nil 4 5 10 Nil 5 7 7 7 7 8 10, 12 8 5 7.5 7.5 7.5 7.5 8 8 8 8 8 8 8 8 10 37.5 10 10 8 8 8 8 37.00 40.30 40.00 24.70 20.60 28.30 36.60 39.90 41.80 Nil 7 10 Nil 8 Tobacco tax (dollars per carton of 200 cigarettes) 11…..… 37.00 1 2 3 4 5 6 7 8 9 10 11 Rates shown are those known as of February 6, 2009 and that are in effect for 2009. British Columbia's general corporate income tax rate is reduced to 10.5 per cent effective January 1, 2010 and 10 per cent effective January 1, 2011. Manitoba's general corporate income tax rate is reduced to 12 per cent effective July 1, 2009. Prince Edward Island's small business rate is reduced to 2.1 per cent effective April 1, 2009 and to 1 per cent effective April 1, 2010. Effective March 31, 2009, Alberta's small business threshold is increased to $500,000. Ontario's general corporation capital tax no longer applies to corporations primarily engaged in manufacturing and processing and those in the resource sectors. Provinces eliminating their general corporation capital taxes include Manitoba, effective December 31, 2010, Ontario, effective July 1, 2010, and Quebec, effective January 1, 2011. Provinces eliminating their capital tax on financial institutions include British Columbia, effective April 1, 2010 and Ontario, effective July 1, 2010. British Columbia's rate for financial institutions is reduced to 0.33 per cent and 1 per cent effective April 1, 2009 and to nil effective April 1, 2010. British Columbia has a two-person rate of $96 and offers premium assistance in the form of lower rates or an exemption from premiums for lower income individuals and families. Ontario and Quebec levy health care contributions as additions to provincial personal income taxes payable. Provinces with payroll taxes provide payroll tax relief for small businesses. The lower rate applies to premiums for life, sickness and accident insurance; the higher rate applies to premiums for property insurance including automobile insurance. In Ontario and Quebec specific sales taxes also apply to insurance premiums, except those related to individual life and health. Tax rates are provincial rates for fuel used on highways. The British Columbia rate includes 6.75 cents per litre dedicated to the BC Transportation Financing Authority and the carbon tax rates of 2.34 cents per litre for gasoline and 2.69 cents per litre for diesel, increasing to 3.51 cents per litre for gasoline and 4.04 cents per litre for diesel effective July 1, 2009. The British Columbia rates do not include regional taxes that effectively increase the gasoline and diesel tax rates by 6 cents per litre in the South Coast British Columbia transportation service area and by 3.5 cents per litre in the Captial Regional District. The Quebec gasoline rate does not include the 1.5 cent per litre tax collected in the Metropolitan Montreal region. The tax rates for Quebec, New Brunswick, Nova Scotia and Newfoundland include provincial sales tax based on current pump prices. The rates shown are statutory rates. Quebec and PEI impose tax on the purchase price including GST. In Ontario, sellers of liquor at licensed establishments are generally required to charge sales tax at the rate of 10 per cent; however, a rate of 12 per cent applies to liquor purchased at beer manufacturers' outlets, Brewers Retail stores, government liquor stores and wine stores. The British Columbia rate is increased to $37.00 from $35.80 per carton of 200 cigarettes effective February 18, 2009. Tax rates for Saskatchewan, Manitoba, New Brunswick, Nova Scotia and Newfoundland include provincial sales tax. Budget and Fiscal Plan – 2009/10 to 2011/12 128 Appendices Table A3 Comparison of Provincial and Federal Taxes by Province – 2009 British Columbia Alberta Saskatchewan Manitoba Ontario 1. Provincial Income Tax……………… Net Child Benefits…………………… 2. Property Tax - Gross………………… - Net…………………… 3. Sales Tax……………………………… 4. Fuel Tax……………………………… 5. Net Carbon Tax ……………………… 6. Provincial Direct Taxes……………… 7. Health Care Premiums/Payroll Tax… 8. Total Provincial Tax…………………… 9. Federal Income Tax………………… 10. Net Federal GST……………………… 11. Total Tax……………………………… 3,565 4,520 0 113 3,092 2,343 2,522 2,343 1,253 15 218 135 (93) -7,465 7,126 1,296 0 8,761 7,126 8,160 8,160 1,290 1,379 18,211 16,665 4,784 0 4,226 4,226 970 225 -10,205 -10,205 8,160 1,306 19,671 6,811 -3,094 2,494 1,359 173 -10,837 1,935 12,772 8,160 1,230 22,162 Two Income Family of Four - $60,000 1. Provincial Income Tax……………… Net Child Benefits…………………… 2. Property Tax - Gross………………… - Net…………………… 3. Sales Tax……………………………… 4. Fuel Tax……………………………… 5. Net Carbon Tax ……………………… 6. Provincial Direct Taxes……………… 7. Health Care Premiums/Payroll Tax… 8. Total Provincial Tax…………………… 9. Federal Income Tax………………… 10. Net Federal GST……………………… 11. Total Tax……………………………… 1,594 0 2,251 1,681 983 218 (13) 4,463 1,296 5,759 3,980 1,012 10,751 1,989 1,878 (283) 0 1,901 2,816 1,901 2,816 13 782 135 225 --3,755 5,701 0 -3,755 5,701 3,980 3,980 1,151 1,052 8,886 10,733 3,640 -2,501 1,901 1,089 173 -6,803 1,290 8,093 3,980 985 13,058 Two Income Family of Four - $30,000 1. Provincial Income Tax……………… Net Child Benefits…………………… 2. Property Tax - Gross………………… - Net…………………… 3. Sales Tax……………………………… 4. Fuel Tax……………………………… 5. Net Carbon Tax ……………………… 6. Provincial Direct Taxes……………… 7. Health Care Premiums/Payroll Tax… 8. Total Provincial Tax…………………… 9. Federal Income Tax………………… 10. Net Federal GST……………………… 11. Total Tax……………………………… 0 0 2,251 1,681 740 145 (207) 2,359 0 2,359 523 6 2,888 Tax Two Income Family of Four - $90,000 Prince NewEdward foundland Island New Brunswick Nova Scotia 4,876 7,917 0 (1,637) 4,461 4,523 4,461 4,523 1,728 2,045 221 306 -- -11,286 13,154 1,755 3,834 13,041 16,988 8,160 8,160 1,273 1,252 22,474 26,400 6,908 0 4,080 4,080 1,920 236 -13,144 -13,144 8,160 1,200 22,504 6,949 0 3,577 3,577 1,919 309 -12,754 -12,754 8,160 1,199 22,113 6,894 -2,813 2,813 1,625 237 -11,569 -11,569 8,160 1,215 20,944 5,987 0 2,382 2,382 1,959 336 -10,664 1,800 12,464 8,160 1,225 21,849 2,131 0 3,188 3,188 1,385 221 -6,925 1,170 8,095 3,980 1,021 13,096 3,464 0 2,269 2,269 1,549 236 -7,518 -7,518 3,980 968 12,466 3,627 0 2,245 2,245 1,542 309 -7,723 -7,723 3,980 964 12,667 3,797 -2,237 2,237 1,298 237 -7,569 -7,569 3,980 970 12,519 3,205 0 1,640 1,640 1,561 336 -6,742 1,200 7,942 3,980 976 12,898 Quebec ($) Unattached Individual - $25,000 1. Provincial Income Tax……………… 498 -2. Property Tax…………...……………… 3. Sales Tax……………………………… 412 4. Fuel Tax……………………………… 145 5. Net Carbon Tax ……………………… (80) 6. Provincial Direct Taxes……………… 975 7. Health Care Premiums/Payroll Tax… 130 8. Total Provincial Tax…………………… 1,105 9. Federal Income Tax………………… 1,618 10. Net Federal GST……………………… 90 11. Total Tax……………………………… 2,813 3,975 (2,737) 3,109 3,109 1,742 306 -6,395 2,556 8,951 3,980 1,067 13,998 0 (1,212) 1,901 1,901 10 90 -789 0 789 523 154 1,466 0 0 2,816 2,816 335 150 -3,301 -3,301 523 21 3,845 503 -2,501 1,901 822 115 -3,341 645 3,986 523 (13) 4,496 158 (735) (287) (3,174) 3,188 3,109 3,188 3,109 1,026 1,447 147 204 -- -4,232 851 585 1,278 4,817 2,129 523 523 0 130 5,340 2,782 0 0 2,269 2,269 1,186 157 -3,612 -3,612 523 (15) 4,120 765 0 2,245 2,245 1,152 206 -4,368 -4,368 523 (36) 4,855 863 -2,237 2,237 971 158 -4,229 -4,229 523 (31) 4,721 997 0 1,640 1,640 1,141 224 -4,002 600 4,602 523 (43) 5,082 538 -5 90 -633 0 633 1,618 112 2,363 977 -333 150 -1,460 -1,460 1,618 86 3,164 914 -487 115 -1,516 538 2,054 1,618 77 3,749 965 -591 147 -- 1,703 488 2,191 1,618 73 3,882 1,253 -696 157 -2,106 -2,106 1,618 57 3,781 1,246 -696 206 -2,148 -2,148 1,618 57 3,823 1,416 -571 158 -2,145 -2,145 1,618 58 3,821 1,107 -703 224 -2,034 500 2,534 1,618 61 4,213 708 -730 204 -1,642 1,065 2,707 1,618 74 4,399 Budget and Fiscal Plan – 2009/10 to 2011/12 129 Appendices Table A3 Comparison of Provincial and Federal Taxes by Province – 2009 – Continued British Columbia Tax Unattached Individual - $80,000 1. Provincial Income Tax……………… 2. Property Tax - Gross………………… - Net…………………… 3. Sales Tax……………………………… 4. Fuel Tax……………………………… 5. Net Carbon Tax ……………………… 6. Provincial Direct Taxes……………… 7. Health Care Premiums/Payroll Tax… 8. Total Provincial Tax…………………… 9. Federal Income Tax………………… 10. Net Federal GST……………………… 11. Total Tax……………………………… Alberta Saskatchewan Manitoba Ontario 4,406 5,407 1,540 1,882 970 1,882 1,039 12 218 135 (140) -6,493 7,436 648 0 7,141 7,436 11,231 11,231 1,181 1,218 19,553 19,885 7,006 3,055 3,055 655 225 -10,941 -10,941 11,231 1,130 23,302 7,917 3,676 3,076 1,159 173 -12,325 1,720 14,045 11,231 1,084 26,360 ($) 5,768 9,203 3,089 4,127 3,089 4,127 1,495 1,652 221 306 -- -10,573 15,288 1,560 3,408 12,133 18,696 11,231 11,231 1,142 1,024 24,506 30,951 Quebec Prince NewEdward foundland Island New Brunswick Nova Scotia 8,366 1,845 1,845 1,673 236 -12,120 -12,120 11,231 1,046 24,397 8,493 2,948 2,948 1,667 309 -13,417 -13,417 11,231 1,042 25,690 8,139 2,062 2,062 1,398 237 -11,836 -11,836 11,231 1,066 24,133 7,344 1,683 1,683 1,721 336 -11,084 1,600 12,684 11,231 1,076 24,991 0 2,269 2,269 1,293 157 -3,719 -3,719 0 312 4,031 355 2,245 2,245 1,278 206 -4,084 -4,084 0 303 4,387 378 2,237 2,237 1,045 158 -3,818 -3,818 0 313 4,131 390 1,640 1,640 1,304 224 -3,558 -3,558 0 319 3,877 Senior Couple with Equal Pension Incomes - $30,000 1. Provincial Income Tax……………… 2. Property Tax - Gross………………… - Net…………………… 3. Sales Tax……………………………… 4. Fuel Tax……………………………… 5. Net Carbon Tax ……………………… 6. Provincial Direct Taxes……………… 7. Health Care Premiums/Payroll Tax… 8. Total Provincial Tax…………………… 9. Federal Income Tax………………… 10. Net Federal GST……………………… 11. Total Tax……………………………… 0 2,251 1,406 756 145 (146) 2,161 230 2,391 0 356 2,747 0 1,901 1,901 9 90 -2,000 0 2,000 0 384 2,384 0 2,816 2,816 576 150 -3,542 -3,542 0 334 3,876 (316) 2,501 1,901 871 115 -2,571 -2,571 0 353 2,924 (897) 3,188 3,188 1,041 147 -- 3,479 -3,479 0 327 3,806 (659) 3,109 3,109 1,299 204 -3,953 -3,953 0 310 4,263 Personal Income Tax • Income tax is based on basic personal credits, applicable provincial credits, and typical major deductions at each income level. Quebec residents pay federal income tax less an abatement of 16.5 per cent of basic federal tax. This abatement has been used to reduce Quebec provincial tax rather than federal tax, for comparative purposes. The two income family of four with $60,000 annual income is assumed to have one spouse earning $40,000 and the other $20,000, the family with $90,000 income is assumed to have one spouse earning $50,000 and the other $40,000, the family with $30,000 is assumed to have each spouse earning $15,000 and each senior is assumed to receive $15,000. All representative families are assumed to have employment income except the senior couple. British Columbia personal income tax has been calculated using the 2008 tax rates in effect prior to the implementation of the rate cuts in the government's plan to recycle carbon tax revenues. The benefit of the rate cuts is shown as a reduction in carbon taxes payable. Net Child Benefits • Net child benefits are provincial measures affecting payments to families with children. Provincial child benefit measures are available in British Columbia (BC Family Bonus), Alberta (Family Employment Credit), Saskatchewan (Child Benefit), Ontario (Child Care Supplement for Working Families), Quebec (Child Assistance Payments), New Brunswick (Child Tax Benefit), Nova Scotia (Child Benefit) and Newfoundland (Child Benefit). In addition, the Alberta government has chosen to vary the amount of the basic federal child tax benefit that its residents receive (shown as a net amount). Property Tax • It is assumed that the individual at $25,000 rents accommodation; the family at $30,000 and at $55,000 and the senior couple own bungalows; the family at $90,000 owns a two-story executive style home; and the single at $80,000 owns a luxury condominium, in a major city for each province. Net local and provincial property taxes are estimated as taxes owing after credits provided through the property tax system are subtracted. Sales, Fuel and Carbon Tax Estimates • • • Includes sales tax on meals, liquor and accommodation. Estimates are based on expenditure patterns from the Survey of Household Spending. In estimating individual and family taxable consumption, disposable income is reduced by 20 per cent to reflect housing (mortgage and property taxes or rent) costs. The senior couple is assumed to own their home and have no mortgage costs. For each province, disposable income is further reduced by estimated federal income taxes, estimated provincial income taxes and health care premiums if applicable. In addition, the single individual with $80,000 annual income and the family with $90,000 annual income are assumed to have savings equal to 5 per cent of their disposable income. For each family, disposable income is distributed among expenditures using the consumption pattern of a typical family with the relevant characteristics as estimated by the family expenditure survey. The provincial retail sales tax and the federal goods and services tax (GST) components of these expenditures are then calculated. GST estimates have been reduced by the GST credit, where applicable. Fuel tax is based on annual consumption: 1,000 litres of unleaded fuel for the single at $25,000, the family at $30,000 and the senior couple; others are assumed to consume 1,500 litres. Carbon tax applies in British Columbia to household consumption of gasoline, diesel, natural gas and home heating fuel. Estimated carbon tax liabilities are based on natural gas and home heating fuel consumption amounts from the Survey of Household Spending and the assumed fuel tax consumption noted above. Net carbon tax is estimated as carbon tax liabilities less the value of the personal income tax cuts and the BC Low income Climate Action Tax Credit (where applicable) as reported in the Government's plan to recycle carbon tax revenues. Health Care Premiums/Payroll Tax • A health care premium is levied in British Columbia only. Approximately 50 per cent of British Columbia premiums are paid by employers on behalf of their employees with the remainder paid by individuals, either by employees or by residents who are not employed. Payroll taxes, in the four provinces that levy them, are paid by the employer. The cost to employers of payroll taxes and health care premiums paid on behalf of employees is generally reflected in reduced wages. Effective Tax Rates • British Columbia taxes have been calculated using rates in effect for 2009. Taxes for other provinces were calculated using rates that were announced prior to February 6, 2009, and that come into effect during 2009. Budget and Fiscal Plan – 2009/10 to 2011/12 130 Appendices Table A4 Interprovincial Comparisons of Provincial Personal Income Taxes Payable 1 – 2009 (Rates known as of February 6, 2009) Taxable income 2 British Alberta Columbia SaskatManitoba Ontario chewan Quebec3 New Brunswick Nova Scotia Prince NewEdward foundland Island Annual provincial taxes payable4 ($) $10,000……………… 0 0 0 $20,000……………… 177 206 613 $30,000……………… 951 1,139 1,639 $40,000……………… 1,536 2,073 2,666 $50,000……………… 2,289 3,037 3,925 $60,000……………… 3,059 4,037 5,225 $70,000……………… 3,829 5,037 6,525 $80,000……………… 4,838 6,037 7,825 $100,000…………… 7,270 8,037 10,425 $125,000…………… 10,945 10,537 13,882 $150,000…………… 14,620 13,037 17,632 22 0 1,127 602 2,164 1,467 3,347 2,279 4,584 3,323 5,859 4,238 7,274 5,212 9,014 6,693 12,494 10,175 16,844 14,527 21,194 18,880 0 761 2,130 3,523 5,178 6,816 8,454 10,179 14,130 19,058 23,868 0 0 0 734 904 1,091 1,980 1,800 2,005 3,154 3,236 3,240 4,667 4,700 4,586 6,215 6,209 5,966 7,763 7,876 7,521 9,424 9,543 9,191 12,784 13,229 12,534 17,086 18,041 17,126 21,574 22,854 21,719 0 852 1,570 2,745 3,998 5,278 6,770 8,320 11,420 15,295 19,170 Provincial personal income taxes as a per cent of taxable income (%) $10,000……………… $20,000……………… $30,000……………… $40,000……………… $50,000……………… $60,000……………… $70,000……………… $80,000……………… $100,000…………… $125,000…………… $150,000…………… 1 2 3 4 0.0 0.9 3.2 3.8 4.6 5.1 5.5 6.0 7.3 8.8 9.7 0.0 1.0 3.8 5.2 6.1 6.7 7.2 7.5 8.0 8.4 8.7 0.0 3.1 5.5 6.7 7.9 8.7 9.3 9.8 10.4 11.1 11.8 0.2 5.6 7.2 8.4 9.2 9.8 10.4 11.3 12.5 13.5 14.1 0.0 3.0 4.9 5.7 6.6 7.1 7.4 8.4 10.2 11.6 12.6 0.0 3.8 7.1 8.8 10.4 11.4 12.1 12.7 14.1 15.2 15.9 0.0 3.7 6.6 7.9 9.3 10.4 11.1 11.8 12.8 13.7 14.4 0.0 4.5 6.0 8.1 9.4 10.3 11.3 11.9 13.2 14.4 15.2 0.0 5.5 6.7 8.1 9.2 9.9 10.7 11.5 12.5 13.7 14.5 0.0 4.3 5.2 6.9 8.0 8.8 9.7 10.4 11.4 12.2 12.8 Calculated for a single individual with wage income and claiming credits for Canada Pension Plan and Quebec Pension Plan contributions, Employment Insurance premiums, Quebec Parental Insurance Plan premiums, and the basic personal amount. Taxable income, total income less allowable deductions, is defined by federal legislation in all provinces except Quebec. In the table it is assumed that federally defined taxable income is equal to Quebec taxable income. Quebec residents pay federal tax less an abatement of 16.5 per cent of federal tax. In the table, the Quebec abatement has been used to reduce Quebec provincial personal income tax for comparative purposes. Includes provincial low income reductions (all provinces except Alberta and Saskatchewan), surtaxes payable in Ontario, Nova Scotia and Prince Edward Island, and the Ontario Health Premium tax. Excludes credits for sales and property tax credits. Budget and Fiscal Plan – 2009/10 to 2011/12 131 Appendices Table A5 Summary of Revenue Measures from July 30, 2001 to February 17, 2009 1 July 30, 2001 Economic and Fiscal Update Effective Date Income Tax January 1, 2001 • 25 per cent personal income tax cut ……………………………………………………………………… • Dividend tax credit rates reduced ………………………………………………………………………… January 1, 2001 • General corporate income tax rate reduced to 13.5 per cent from 16.5 per cent …………………… January 1, 2002 • Manufacturing and processing tax credit repealed ……………………………………………………… July 31, 2001 Corporation Capital Tax • Tax phased-out for general corporations ………………………………………………………………… September 1, 2001 Social Service Tax July 31, 2001 • Tax exemption for production machinery equipment …………………………………………………… • Vehicle surtax threshold for passenger vehicles increased …………………………………………… July 31, 2001 Motor Fuel Tax August 1, 2001 • Tax exemption provided for marine bunker fuel ………………………………………………………… • Domestic jet fuel and aviation fuel tax rates reduced to 2 cents/litre ………………………………… August 1, 2001 Budget 2002 Income Tax • Increase sales tax credit …………………………………………………………………………………… • Adjust BC Family Bonus …………………………………………………………………………………… • Raise small business threshold to $300,000 …………………………………………………………… Medical Services Plan Premiums • Increase premiums and enhance premium assistance ………………………………………………… Social Service Tax • Increase provincial sales tax rate to 7.5 per cent from 7 per cent …………………………………… • Expand machinery and equipment tax exemption to include repair parts …………………………… Tobacco Tax • Increase tobacco tax rate to $30 from $22 per carton ………………………………………………… School and Rural Area Property Taxes • Increase average gross residential rural and school property taxes by 2 per cent ………………… Miscellaneous measures • Disability credits; sales tax exemptions for farmers and refunds to Parent Advisory Councils …… January 1, 2002 July 1, 2002 April 1, 2002 May 1, 2002 February 20, 2002 February 20, 2002 February 20, 2002 January 1, 2002 various Budget 2003 Income Tax • Increase budget for labour sponsored venture capital tax credits …………………………………… • Introduce an equity tax credit for new media …………………………………………………………… • Provide an enhanced regional incentive for film credits ………………………………………………… • Introduce a Digital Animation or Visual Effects tax credit ……………………………………………… • Extend the BC Mining Flow-Through Share Tax Credit ………………………………………………… • Extend the Mining Exploration Tax Credit for three years ……………………………………………… • Introduce a book publishing tax credit …………………………………………………………………… Corporation Capital Tax • Increase the capital tax exemption threshold for small financial institutions to $10 million from $5 million ……………………………………………………………………………… Motor Fuel Tax • Provide exemption for marine gas oil used in gas turbine powered commercial vessels …………… BC Transportation Financing Authority Revenue • Increase the clear fuel tax rate levied on behalf of BC Transportation Financing Authority by 3.5 cents/litre …………………………………………………………………………………………… Tobacco Tax • Increase the tobacco tax rate to $32 from $30 per carton and to 16 cents from 15 cents per gram of fine-cut tobacco ………………………………………………………………………………………… School and Rural Area Property Taxes • Increase average gross residential rural and school property taxes by inflation …………………… Insurance Premium Tax • Increase tax on property insurance to 4.4 per cent from 4 per cent to offset forest fire suppression costs …………………………………………………………………………………………… • Clarify the definition of taxable insurers ………………………………………………………………… Property Transfer Tax • Enhance fairness and effectiveness of First Time Home Buyers' exemption ………………………… Budget and Fiscal Plan – 2009/10 to 2011/12 April 1, 2003 April 1, 2003 April 1, 2003 April 1, 2003 January 1, 2004 August 1, 2003 October 1, 2002 April 1, 2003 February 19, 2003 March 1, 2003 February 19, 2003 January 1, 2003 January 1, 2004 February 19, 2003 February 19, 2003 132 Appendices Table A5 Summary of Revenue Measures from July 30, 2001 to February 17, 2009 1 – Continued Budget 2004 Effective Date Income Tax • Reduce BC Family Bonus and BC Earned Income amounts ………………………………………… July 1, 2004 • Extend Scientific Research and Experimental Development Tax Credit ……………………………… September 1, 2004 International Financial Business Tax Refund • Allow non-financial institutions to register, expand the list of qualifying activities and eliminate the employee tax refund ………………………………………………………………………… September 1, 2004 Tobacco Tax • Increase tobacco tax rate to $35.80 from $32.00 per carton and to 17.9 cents per gram for fine-cut tobacco ……………………………………………………………………………………………… December 20, 2003 Home Owner Grant Act January 1, 2004 • Increase the threshold for the home owner grant phase-out to $585,000 from $525,000 ………… Ports Property Tax Act • Reduce property taxes on major BC port facilities and provide compensation to municipalities …… January 1, 2004 Budget 2005 – February 15, 2005 Income Tax • Introduce the BC Tax Reduction, a non-refundable personal income tax credit …………………… • Extend the Mining Exploration Tax Credit to 2016 ……………………………………………………… • Increase the Film Incentive BC and Production Services tax credit rates …………………………… • Increase corporate income tax small business threshold to $400,000 from $300,000 ……………… Social Service Tax • Reduce provincial sales tax rate to 7 per cent from 7.5 per cent ……………………………………… • Increase incentives for purchases of hybrid passenger vehicles on a time-limited basis …………… • Provide time-limited exemption for ENERGY STAR residential heating equipment ………………… • Increase vehicle surtax threshold for passenger vehicles to $49,000 from $47,000 ………………… Property Transfer Tax • Increase thresholds for First Time Home Buyers' program …………………………………………… Medicare Protection Act • Enhance Medical Services Plan premium assistance ………………………………………………… Home Owner Grant Act • Increase threshold for home owner grant phase-out and reduce reduction rate …………………… School Act • Exempt specified improvements of eligible hydroelectric projects …………………………………… January 1, 2005 August 1, 2006 January 1, 2005 January 1, 2005 October 21, 2004 February 16, 2005 February 16, 2005 February 16, 2005 February 16, 2005 July 1, 2005 2005 tax year 2005 tax year September Update (September 14, 2005) Income Tax • Reduce the general corporate income tax rate to 12 per cent from 13.5 per cent …………………… International Financial Activity Act • Provide tax refunds for the exploitation of life science related patents ……………………………… July 1, 2005 January 1, 2006 Budget 2006 Income Tax • Introduce an enhanced dividend tax credit to parallel new federal credit …………………………… • Extend the BC Mining Flow-through Share Tax Credit to December 31, 2008 ……………………… • Extend the enhanced tax credit rates for the Film Incentive BC and Production Services tax credits to 2008 …………………………………………………………………………………………… Social Service Tax • Exempt services to maintain or modify software ………………………………………………………… • Clarify and expand eligibility for machinery and equipment exemption ………………………...…… • Increase vehicle surtax threshold for passenger vehicles to $55,000 from $49,000 ………………… • Provide authority to repeal tire levy when industry stewardship program introduced ……………… Motor Fuel Tax • Expand eligible coloured fuel uses ………………………………………………………………………… Home Owner Grant Act • Increase the basic home owner grant to $570 from $470 and the grant for seniors, veterans and the disabled to $845 from $745 ...…………………………………………………………………… • Increase the threshold for the home owner grant phase out …………………………………………… Small Business Venture Capital Act • Increase the tax credit budget to $25 million from $20 million ………………………………………… Budget and Fiscal Plan – 2009/10 to 2011/12 January 1, 2006 January 1, 2006 April 1, 2006 February 22, 2006 February 22, 2006 February 22, 2006 January 1, 2007 February 22, 2006 2006 tax year 2006 tax year April 1, 2006 133 Appendices Table A5 Summary of Revenue Measures from July 30, 2001 to February 17, 2009 1 – Continued Budget 2007 Effective Date Income Tax • Introduce a 10 per cent tax cut up to $100,000 in income …………..…………………….……..……… • Introduce an adoption expense tax credit ……………………………………….………………………… • Enhance the Mining Exploration Tax Credit for exploration activity in Mountain Pine Beetle affected areas ……………………………...…….……….………………………………………………… • Extend the Book Publishing Tax Credit for five more years to 2012 …………………………………… • Extend the Scientific Research and Experimental Tax Credit for five more years to 2014 ………… • Implement the BC Training Tax Credit program …………….……...……..…………………………… Mineral Tax Act • Extend the new mine allowance to 2016 ………..………………………………………………………… Social Service Tax Act • Restructure the exemption for multi-glazed windows/doors to apply only to ENERGY STAR windows, doors (including side panels) and skylights ………….………………………...……………… • Extend the expiry date for ENERGY STAR furnaces, boilers and heat pumps to various dates …. • Extend the tax relief for hybrid passenger vehicles to 2011 …..……….…………….……..…..……… • Provide a tax refund on eligible medical equipment purchased by charities ………………………… Motor Fuel Tax Act • Classify all biodiesel fuel as alternative motor fuel ……………………………………………………… Property Transfer Tax Act • Set the First Time Home Buyers' exemption threshold at $375,000 province-wide ………………… Home Owner Grant Act • Increase the threshold for the home owner grant phase-out ……………………...…………………… • Extend home owner grant eligibility to certain low-income homeowners with homes assessed above the phase-out threshold …………………………………………………………………………… Land Tax Deferment Act • Extend eligibility to homeowners age 55 and over from 60 and over ………………………………… Police Act • New property tax to help fund police services in rural areas and communities under 5,000 population ……………………………………………………………………………………… January 1, 2007 January 1, 2007 February 21, 2007 April 1, 2007 September 1, 2009 January 1, 2007 February 21, 2007 February 21, 2007 February 21, 2007 February 21, 2007 February 21, 2007 February 21, 2007 February 21, 2007 2007 tax year 2007 tax year 2007 tax year 2007 tax year Provincial Sales Tax Review Various Consumption Tax Statutes • Changes to consumption tax statutes to reduce compliance burden for businesses and simplify specific exemptions ………….……..……..….…......…...……………………………………… various Budget 2008 Revenue Neutral Climate Action Measures Climate Action Act • Government to introduce a broadly based revenue neutral carbon tax on the purchase July 1, 2008 or use of fossil fuels subject to approval by the Legislature …………………………………………… Income Tax Act - Revenue Neutral Tax Reductions July 1, 2008 • Introduce a Low Income Climate Action Tax Credit ……………………………………………………… • Reduce first two personal income tax bracket rates by 2 per cent for 2008 and by 5 per cent for 2009 January 1, 2008 and subsequent years ……………………………………………………………………………………… July 1, 2008 • Reduce general corporate income tax rate to 11 per cent from from 12 per cent …………………… July 1, 2008 • Reduce corporate income tax small business rate to 3.5 per cent from 4.5 per cent ………………… Income Tax Act - One-time Payment • Provide a one-time Climate Action Dividend Payment of $100 to each person resident in BC on December 31, 2007 ……………………………………………………………………………………… December 31, 2007 Other Climate Action Initiatives Small Business Venture Capital Act • Increase equity tax credit budget by $5 million per year and set a tax credit budget of $7.5 million for clean technology …………………………………………………………………………… International Financial Activity Act • Expand eligible intellectual property to include green-related patents ………………………………… Budget and Fiscal Plan – 2009/10 to 2011/12 April 1, 2008 March 1, 2008 134 Appendices Table A5 Summary of Revenue Measures from July 30, 2001 to February 17, 2009 1 – Continued Budget 2008 - (Continued) Effective Date Social Service Tax Act • Provide time-limited point-of-sale tax reduction for conventional fuel efficient vehicles ……………… • Exempt ENERGY STAR qualified residential refrigerators, clothes washers and freezers to March 31, 2010 …………………………………………………………………………………………… • Exempt energy efficient residential gas-fired water heaters to December 31, 2009 ………………… • Exempt production machinery and equipment for local governments for power production and cogeneration …………………………………………………………………………………………… • Expand the exemption for bicycles to include electric power-assisted two and three wheel cycles and non-motorized tricycles ………………………………………………………………………… • Exempt electric motorcycles to March 31, 2011 ………………………………………………………… • Reduce tax payable on hydrogen fuel cell buses ………………………………………………………… • Exempt biodiesel fuel or portion of biodiesel for heating ………………………………………………… • Impose tax on coal and coke except for residential use ………………………………………………… February 20, 2008 February 20, 2008 February 20, 2008 February 20, 2008 February 20, 2008 February 20, 2008 February 20, 2008 February 20, 2008 February 20, 2008 Other Revenue Measures Income Tax Act January 1, 2009 • Reduce dividend tax credit rates for ordinary and enhanced dividends ……………………………… various • Extend film tax credits for five more years to 2013 from 2008 ………………………………………… • Increase basic Film Incentive BC Tax Credit rate to 35 per cent from 30 per cent and basic January 1, 2008 Production Services Tax Credit rate to 25 per cent from 18 per cent for two years ………………… • Enhance regional film tax credit for productions in distant locations …………………………………… February 20, 2008 Corporation Capital Tax Act • Phase-out Corporation Capital Tax and replace it with a new financial institutions minimum tax … April 1, 2008 Ports Property Tax Act various • Extend ports competitiveness initiative for ten years …………………………………………………… Property Transfer Tax Act • Increase First Time Home Buyers' threshold to $425,000 from $375,000 …………………………… February 20, 2008 • Remove First Time Home Buyers' 70 percent financing requirement ………………………………… February 20, 2008 Home Owner Grant Act 2008 tax year • Increase in the home owner grant phase-out threshold ………………………………………………… School Act 2008 tax year • Reduce the non-residential school tax rate for major industrial property ……………………………… Provincial Sales Tax Review Various Consumption Tax Statutes • Changes to consumption tax statutes to reduce compliance burden for businesses and simplify specific exemptions ………….……..……..….…......…...……………………………………… various October 22 and November 1, 2008 Income Tax Act January 1, 2008 • Reduce personal income tax rates for the first two tax brackets by 3 per cent ……….…………...… • Reduce small business corporate income tax rate to 2.5 per cent from 3.5 per cent ………………… December 1, 2008 Land Tax Deferment Act 2009 tax year • Introduce 2 year temporary financial hardship property tax deferment program ………………….… Social Service Tax Act and Hotel Room Tax Act • Double maximum commission paid to business for provincial sales tax and hotel room tax collection and remittance ……………………………………………………………………………… November 1, 2008 School Act • Provide an Industrial Property Tax Credit of 50 per cent of provincial school property tax 2009 tax year on major industrial (class 4) and light industrial (class 5) properties …………………………………… Budget and Fiscal Plan – 2009/10 to 2011/12 135 Appendices Table A5 Summary of Revenue Measures from July 30, 2001 to February 17, 2009 1 – Continued Budget 2009 Income Tax Act • Reduce the dividend tax credit for ordinary dividends………….………………………………………… • Extend the BC Mining Flow-through Share Tax Credit to December 31, 2009 …………………..…… • Reduce general corporate income tax rate from 11 per cent to 10.5 per cent effective January 1, 2010 and to 10 per cent effective January 1, 2011 ………………………………………… • Remove expiry dates for film tax credits ………………………...………………………………………… • Eligibility requirement for Film Incentive BC expanded …………………………...…………………… International Financial Activity Act • Expand the list of prescribed patents to include wastewater treatment and fuel cell technology …… Social Service Tax Act • Extend exemption for ENERGY STAR qualified residential heating equipment to 2011 …………… • Extend exemption for ENERGY STAR qualified windows, doors and skylights to 2011 …………… • Extend exemption for energy efficient residential gas-fired water heaters to 2011…………………… • Provide exemption for energy efficient commercial boilers to 2011 …………………………………… • Provide exemption for devices which reduce idling by commercial vehicles to 2012 ………………… • Expand exemption for aerodynamic devices for commercial vehicles ………………………………… • Provide exemption for equipment to produce energy from ocean currents, tides and waves ……… • Expand exemption for production machinery and equipment ………………………………………… Motor Fuel Tax Act • Classify and exempt hydrogen as an alternative motor fuel when purchased for use in fuel cell vehicles ………………………………………………………………………………..…………… Tobacco Tax Act • Increase tobacco tax rate from $35.80 to $37 per carton of 200 cigarettes …………………………… Home Owner Grant Act • Maintain home owner grant phase-out threshold at 2008 level …………………………………….… 1 January 1, 2010 January 1, 2009 January 1, 2010 various January 1, 2009 April 1, 2009 February 18, 2009 February 18, 2009 February 18, 2009 February 18, 2009 February 18, 2009 February 18, 2009 February 18, 2009 February 18, 2009 February 18, 2009 February 18, 2009 2009 tax year Measures with no material revenue impact are excluded. For details of these measures see the revenue measures section of each budget publication. Table A6 Operating Statement – 2005/06 to 2011/12 Actual 2005/06 ($ millions) Revenue ……………………………………… 35,974 Expense …………….....…....……………….. (32,151) Negotiating Framework incentive payments …………….....…....……………… (710) Climate Action Dividend ……………………… Surplus (deficit) ……………………………… 3,113 Actual 2006/07 Actual 2007/08 Revised Forecast 2008/09 Budget Estimate 2009/10 Plan 2010/11 Plan 2011/12 38,505 (34,162) 39,831 (36,501) 38,455 (38,405) 38,812 (39,307) 39,795 (40,040) 41,182 (41,182) (264) - (4) (440) 4,079 2,886 50 Budget and Fiscal Plan – 2009/10 to 2011/12 (495) (245) - 136 Appendices Table A7 Revenue by Source – 2005/06 to 2011/12 Actual 2005/06 Actual 2006/07 Actual 2007/08 Revised Forecast 2008/09 Budget Estimate 2009/10 Plan 2010/11 Plan 2011/12 5,838 1,426 4,367 911 701 1,717 843 161 465 6,905 1,538 4,714 901 726 1,732 914 104 484 6,956 2,250 5,072 935 692 1,795 1,068 117 521 6,219 2,037 4,998 912 300 713 1,840 735 80 530 6,562 1,529 5,087 914 546 687 1,881 685 54 540 6,942 1,072 5,299 920 754 687 1,936 720 553 7,366 923 5,533 928 968 687 1,967 750 570 16,429 18,018 19,406 18,364 18,485 18,883 19,692 Natural resource revenue Natural gas royalties ………………………… 1,921 405 Bonus bids, permits and fees ……………… Forests ………………………………………… 1,214 Other natural resources ……………………… 1,027 4,567 1,207 479 1,276 1,020 3,982 1,132 607 1,087 952 3,778 1,376 862 587 1,186 4,011 1,014 889 609 1,118 3,630 1,156 932 707 1,114 3,909 1,281 952 700 1,078 4,011 1,524 928 1,360 1,032 2,589 1,557 979 1,450 1,139 2,617 1,577 997 1,433 839 2,474 1,591 1,029 1,489 918 2,475 1,613 1,055 1,446 1,005 2,503 1,635 1,079 1,440 1,095 2,562 7,433 7,742 7,320 7,502 7,622 7,811 4,220 590 1,015 4,473 459 1,454 4,614 1,317 4,693 1,223 4,910 1,460 5,110 1,408 5,316 1,396 5,825 6,386 5,931 5,916 6,370 6,518 6,712 266 800 407 840 370 858 357 867 452 896 493 918 542 938 914 191 50 2,221 1,011 381 47 2,686 1,080 633 33 2,974 1,101 459 60 2,844 1,154 260 63 2,825 1,198 192 62 2,863 1,228 217 31 2,956 Total revenue …………………………………… 35,974 38,505 39,831 38,455 38,812 39,795 41,182 ($ millions) Taxation revenue Personal income ……………………………… Corporate income …………………………… Social service ………………………………… Fuel …………………………………………… Carbon ………………………………………… Tobacco ……………………………………… Property ……………………………………… Property transfer ……………………………… Corporation capital …………………………… Other 1 ………………………………………… Other revenue Medical Services Plan premiums …………… 1,482 Post secondary education fees …………… 892 Other fees and licences ……………………… 1,313 949 Investment earnings ………………………… Miscellaneous 2 ……………………………… 2,296 6,932 Contributions from the federal government Health and social transfers ………………… Equalization …………………………………… Other cost shared agreements 3 …………… Commercial Crown corporation net income BC Hydro ……………………………………… Liquor Distribution Branch …………………… BCLC (net of payments to the federal government) ……………… ICBC 4 ………………………..………………… Other …………………………………………… 1 Includes revenue from insurance premium and hotel room taxes. 2 Includes asset dispositions, reimbursements for health care and other services provided to external agencies, and other recoveries. 3 Includes contributions for health, education, housing and social service programs, for transportation projects, and for coastal ferry services. 4 Amounts represent earnings during government's fiscal year. Budget and Fiscal Plan – 2009/10 to 2011/12 137 Appendices Table A8 Expense by Function – 2005/06 to 2011/12 Actual 2005/06 ($ millions) Actual 2006/07 Actual 2007/08 Revised Forecast 2008/09 1 Budget Estimate 2009/10 Plan 2010/11 Plan 2011/12 2,696 2,969 3,247 3,367 3,576 3,689 3,810 Health Medical Services Plan ………………………… Pharmacare ……………………………………… 868 914 955 1,018 1,062 1,110 1,157 8,112 754 8,500 867 9,038 996 9,675 1,011 10,052 1,032 10,729 1,046 11,468 1,078 12,430 13,250 14,236 15,071 15,722 16,574 17,513 4,829 3,906 182 5,272 4,056 159 5,521 4,303 165 5,687 4,418 133 5,774 4,582 438 5,812 4,670 438 5,836 4,762 438 8,917 9,487 9,989 10,238 10,794 10,920 11,036 1,151 1,277 1,297 1,343 1,391 1,391 1,356 892 681 1,027 588 992 757 1,103 901 1,094 925 1,104 935 1,101 936 2,724 2,892 3,046 3,347 3,410 3,430 3,393 Protection of persons and property ………… 1,379 1,326 1,579 1,519 1,544 1,492 1,460 Transportation …………………………………… 1,196 1,251 1,379 1,429 1,402 1,457 1,569 Natural resources & economic development 1,570 1,641 1,974 1,670 1,836 1,637 1,667 Other …………………………………………… Contingencies 5………………………………… 1,089 1,278 1,398 1,821 1,265 1,236 1,279 - - - 467 385 300 250 General government ……………………………… 644 2,202 768 2,269 669 2,231 684 2,159 747 2,202 710 2,409 691 2,574 Subtotal ………………………………………… 32,151 34,162 36,501 38,405 39,307 40,165 41,432 710 - 264 - 4 440 - - - - Subtotal expense ………………………………… 32,861 34,426 36,945 38,405 39,307 40,165 41,432 - - - - - Total expense ……………………………………… 32,861 34,426 36,945 38,405 39,307 1 Regional services ……………………………… Other healthcare expenses 2 ……………………… Education Elementary and secondary …………………… Post-secondary ………………………………… Other education expenses 3…………………… Social services Social assistance 2,3……………………………… 2 Child welfare …………………………………… Community living and other services ………… 4 Debt servicing costs …………………………… Negotiating Framework incentive payments … Climate Action Dividend ………………………… Fiscal efficiencies ……………………………… (125) 40,040 (250) 41,182 1 Includes Supplementary Estimates funding of $622 million. 2 Payments for healthcare services by the Ministry of Housing and Social Development and the Ministry of Children and Family Development made on behalf of their clients are reported in the Health function. 3 Payments for training costs by the Ministry of Housing and Social Development made on behalf of its clients are reported in the Education function. 4 The Other function has been restated from the printed version of the Budget and Fiscal Plan 2009/10-2011/12 to correct a presentation error with respect to disclosure of capital funding, which is now removed. There is no change to total expense or the fiscal plan due to this restatement, as this was a correction in presentation only and did not affect the substance of the projections incorporated into the fiscal plan. 5 The Contingencies vote is allocated to functions according to actual results for 2004/05 to 2007/08 and revised forecast for 2008/09. Budget and Fiscal Plan – 2009/10 to 2011/12 138 Appendices Table A9 Service Delivery Agency Operating Results 1 – 2005/06 to 2011/12 Actual 2005/06 ($millions) Actual 2006/07 Actual 2007/08 Revised Forecast 2008/09 Budget Estimate 2009/10 Plan 2010/11 Plan 2011/12 School districts Revenue ………………………………… Expense ………………………………… 4,812 (4,612) 200 24 224 5,178 (5,041) 137 61 198 5,243 (5,133) 110 51 161 5,399 (5,308) 91 132 223 5,488 (5,394) 94 135 229 5,508 (5,437) 71 131 202 5,514 (5,450) 64 106 170 3,902 (3,678) 224 133 357 4,129 (3,903) 226 117 343 4,178 (4,133) 45 329 374 4,161 (4,376) (215) 264 49 4,625 (4,548) 77 106 183 4,731 (4,704) 27 17 44 4,793 (4,798) (5) (75) (80) 8,245 (8,243) 2 16 18 8,857 (8,892) (35) (88) (123) 9,467 (9,495) (28) (33) (61) 10,155 (10,194) (39) 187 148 10,454 (10,454) (33) (33) 11,016 (11,016) 8 8 11,667 (11,667) (61) (61) 439 (439) 4 4 631 (631) 1 1 687 (687) - 717 (717) 1 1 722 (722) - 691 (691) (1) (1) 691 (691) (1) (1) 657 (604) 53 (168) (115) 618 (585) 33 (155) (122) 651 (722) (71) (171) (242) 591 (733) (142) (137) (279) 602 (809) (207) (130) (337) 621 (790) (169) (124) (293) 669 (914) (245) (120) (365) Revenue ………………………………… Expense ………………………………… 37 (37) 39 (39) 70 (41) 51 (50) 89 (97) 83 (104) 94 (111) Accounting adjustments …………… Net impact …………………………… 97 97 105 105 29 26 55 1 306 307 (8) 2 (6) (21) 8 (13) (17) (6) (23) Accounting adjustments …………… Net impact ………………………… Post-secondary institutions Revenue ………………………………… Expense ………………………………… Accounting adjustments …………… Net impact …………………………… Health authorities and hospital societies Revenue ………………………………… Expense ………………………………… Accounting adjustments …………… Net impact …………………………… Community Living BC Revenue ………………………………… Expense ………………………………… Accounting adjustments …………… Net impact …………………………… BC Transportation Financing Authority Revenue ………………………………… Expense ………………………………… Accounting adjustments …………… Net impact …………………………… BC Pavilion Corporation Budget and Fiscal Plan – 2009/10 to 2011/12 139 Appendices Table A9 Service Delivery Agency Operating Results 1 – 2005/06 to 2011/12 – Continued Actual 2005/06 ($millions) Actual 2006/07 Actual 2007/08 Updated Forecast 2008/09 Budget Estimate 2009/10 Plan 2009/11 Plan 2011/12 British Columbia Housing Management Commission Revenue ………………………………… Expense ………………………………… 343 (343) 5 5 497 (497) (15) (15) 540 (540) (4) (4) 608 (608) - 504 (504) - 499 (499) - 500 (500) - 155 (155) 6 6 165 (167) (2) (2) 188 (187) 1 2 3 231 (232) (1) (4) (5) 259 (259) 52 52 293 (293) (38) (38) 332 (332) (37) (37) 58 (57) 1 (1) - 60 (59) 1 7 8 61 (63) (2) (1) (3) 67 (67) - 66 (66) - 67 (67) - 69 (69) - Accounting adjustments …………… Net impact …………………………… 1,098 (964) 134 (5) 129 683 (610) 73 50 123 705 (662) 43 48 91 878 (678) 200 (124) 76 720 (716) 4 517 521 800 (788) 12 555 567 833 (818) 10 404 414 Total net impact ………………………… 725 516 374 520 609 476 17 Accounting adjustments …………… Net impact …………………………… British Columbia Transit Revenue ………………………………… Expense ………………………………… Accounting adjustments …………… Net impact …………………………… Tourism British Columbia Revenue ………………………………… Expense ………………………………… Accounting adjustments …………… Net impact …………………………… Other service delivery agencies Revenue ………………………………… Expense ………………………………… Total service delivery agency operating results: Revenue ………………………………… Accounting adjustments …………… 19,746 105 19,851 20,857 73 20,930 21,790 240 22,030 22,858 632 23,490 23,529 649 24,178 24,309 556 24,865 25,162 205 25,367 Expense ………………………………… (19,132) (20,424) (21,663) (22,963) (23,569) (24,389) (25,350) 6 Accounting adjustments …………… (19,126) 10 (20,414) 7 (21,656) (7) (22,970) (23,569) (24,389) (25,350) 725 516 374 520 609 476 17 Total net impact ………………………… 1 Revenue and expense are shown as reported in the entity financial statements and service plans, before consolidation and accounting adjustments. Budget and Fiscal Plan – 2009/10 to 2011/12 140 Appendices Table A10 Material Assumptions – Revenue Personal income tax Revised Budget Forecast 2008/09 Plan 2009/10 Plan 2010/11 Plan 2011/12 $6,700 Revenue Source and Assumptions ($ millions unless otherwise specified) $6,562 $6,942 $7,366 $6,219 Current calendar year assumptions Personal income growth ...................................... 4.4% 5.1% 1.7% 3.5% 4.3% 5.8% 1.2% 3.8% 5.0% Labour income growth ......................................... 4.7% 4.5% 1.3% 4.1% 5.3% Tax base growth .................................................. 5.4% 5.28% 5.35% 5.41% 5.45% Average tax yield ................................................. 5.45% Current-year tax .................................................. $6,662 $6,401 $6,580 $6,926 $7,341 BC Tax Reduction ............................................... -$116 -$130 -$131 -$134 -$137 Low income climate action tax credit .................. -$90 -$70 -$145 -$146 -$154 Refundable sales tax credit ................................ -$56 -$53 -$53 -$53 -$53 Other tax credits and refunds .............................. -$99 -$110 -$106 -$98 -$93 Policy neutral elasticity * ..................................... 1.4 1.0 1.3 1.4 1.4 Fiscal year assumptions Prior-year adjustment .......................................... $0 -$151 Family Bonus offset ............................................. -$14 -$12 -$9 -$6 -$4 2007 Assumptions Previous calendar year assumptions Personal income growth ...................................... 5.3% 6.8% 6.3% Labour income growth ......................................... 6.0% Tax base growth .................................................. 8.0% 8.3% 5.64% Average 2007 tax yield ........................................ 5.70% 2007 tax .............................................................. $6,609 $6,550 2006 and previous years tax ............................... $300 $422 BC Tax Reduction ............................................... -$114 -$127 Refundable sales tax credit ................................. -$56 -$53 Other tax credits and refunds .............................. -$98 -$108 Policy neutral elasticity *...................................... 1.8 1.3 * Ratio of annual per cent change in current-year revenue to annual per cent change in personal income. Corporate income tax $1,343 $2,037 $1,529 $1,072 Sensitivities 2009/10 +/- 1% change in 2009 BC personal income growth equals +/- $50 to $100 million +/- 1% change in 2008 BC personal or taxable income growth equals +/- $50 to $100 million one-time effect (prior-year adjustment) and could result in an additional +/- $50 to $100 million base change in 2009/10 $923 Components of revenue Advance instalments (fiscal year) ....................... $1,382 $1,386 $1,302 $1,257 $1,209 International Financial Activity Act refunds ......... -$27 -$20 -$20 -$20 -$20 Prior-year adjustment .......................................... -$12 $671 $247 -$165 -$266 Current year assumptions National tax base ($ billions) ............................... $205.3 $199.9 $177.2 $186.4 $203.8 BC instalment share of national tax base ............ 10.0% 10.0% 12.1% 11.7% 10.8% Effective tax rates (general/small business) ........ 11.5 / 4.0 11.5 / 3.92 11.0 / 2.5 10.5 / 2.5 10.0 / 2.5 BC tax base growth ............................................. 0.5% -5.0% -18.2% 1.6% 3.6% BC corporate profits growth ................................ 0.4% -4.0% -24.7% 1.5% 3.2% BC Tax credits Film, Television and Production Services ……… -$204 -$192 -$202 -$212 -$222 Scientific Research and Experimental Development …… -$135 -$136 -$146 -$156 -$166 Other ……………………………………………… -$44 -$21 -$15 -$20 -$24 Previous calendar year assumptions 2007 Assumptions 6.8% National tax base growth ..................................... 5.7% 12.1% BC instalment share of national tax base ............ 9.6% 5.0% 3.3% National corporate profits growth ........................ 11.3% BC tax base growth ............................................. -12.6% 2.1% -3.2% BC corporate profits growth ................................ $2,364 Gross 2007 tax .................................................... $1,789 2006 and previous years tax ............................... $0 $100 BC Tax credits -$144 Film, Television and Production Services ……… -$146 Scientific Research and Experimental Development …… -$125 -$126 Other ……………………………………………… -$44 -$36 +/- 1% change in the 2009 national tax base equals +/- $15 to $20 million in 2009/10 +/- 1% change in the 2008 BC tax base equals +/- $15 to $25 million in 2009/10 Revenue is recorded on a cash basis. Due to lags in the federal collection and instalment systems, changes to the BC corporate profits and tax base forecasts affect revenue in the succeeding year. For example, 2009/10 instalments from the federal government are based on BC's share of the national tax base for the 2007 tax year (assessed as of December 31, 2008) and a forecast of the 2009 national tax base. Cash adjustments for any under/over payments from the federal government in respect of 2009 will be received/paid on March 31, 2010. Budget and Fiscal Plan – 2009/10 to 2011/12 141 Appendices Table A10 Material Assumptions – Revenue – Continued Revised Budget Forecast 2008/09 Plan 2009/10 Plan 2010/11 Plan 2011/12 $5,284 $4,998 $5,087 $5,299 $5,533 Nominal durable consumer expenditure ............. Nominal consumer expenditure .......................... 3.0% 5.0% -5.1% 3.7% 0.3% 1.9% 2.3% 4.8% 2.5% 4.7% Nominal business investment ............................. 5.4% 4.6% -0.5% 5.4% 4.8% Other nominal taxable expenditure ..................... -0.7% 5.1% 0.0% 2.4% 4.6% Components of revenue Consolidated Revenue Fund ............................... $5,212 $14 BC Transportation Financing Authority ............... $58 Recovery to vote ................................................. $4,927 $14 $57 $5,012 $14 $61 $5,224 $14 $61 $5,458 $14 $61 $1,295 $1,212 $1,460 $1,674 $1,896 2.4% 1.0% -2.7% -5.7% -0.9% 0.0% 2.0% 2.4% 0.0% 2.0% 2.6% 0.0% 2.0% Revenue Source and Assumptions ($ millions unless otherwise specified) Social service tax Sensitivities 2009/10 Calendar Year Fuel and carbon taxes Calendar Year Real GDP ............................................................ Gasoline volumes ................................................ Diesel volumes .................................................... Gasoline and diesel volumes .............................. Natural gas volumes ........................................... 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Carbon tax rates (July 1) $10 Carbon dioxide equivalent emissions ($/tonne)...... Gasoline (cents/litre) ………………………………… 2.41¢ Diesel & heating fuel oil (cents/litre) ………………… 2.76¢ Natural gas (cents/gigajoule) ……………………… 49.88¢ $10 2.34¢ 2.69¢ 49.66¢ $15 3.51¢ 4.04¢ 74.49¢ $20 4.68¢ 5.38¢ 99.32¢ $25 5.85¢ 6.73¢ 124.15¢ Carbon tax revenue…………………………………… $338 $300 $546 $754 $968 $506 $12 $439 $957 $476 $12 $424 $912 $476 $12 $426 $914 $479 $12 $429 $920 +/- 1% change in 2008 growth equals up to +/- $25 million +/- 1% change in 2008 growth equals up to +/- $10 million +/- 1% change in 2008 growth equals up to +/- $10 million $485 $12 $431 $928 Fuel tax revenue Consolidated Revenue Fund ........................... BC Transit ........................................................ BC Transportation Financing Authority ........... Property taxes $1,861 $1,840 $1,881 $1,936 $1,967 Calendar Year BC Consumer Price Index ................................... 1.8% Housing starts ..................................................... 34,597 Home owner grants (fiscal year) ............................ -$683 1.8% 34,808 -$678 2.3% 25,541 -$695 1.0% 26,783 -$733 2.2% 27,800 -$814 Components of revenue Residential (net of home owner grants) .............. $635 Non-residential .................................................... $1,012 Rural area ........................................................... $91 Police .................................................................. $19 BC Assessment Authority ................................... $69 BC Transit ........................................................... $37 Commissions ....................................................... ($2) $663 $971 $78 $20 $69 $42 ($3) $702 $962 $78 $20 $72 $49 ($2) $704 $998 $81 $20 $76 $59 ($2) $683 $1,030 $85 $20 $80 $71 ($2) Budget and Fiscal Plan – 2009/10 to 2011/12 +/- 1% change in new construction and inflation equals up to +/- $5 million in residential property taxation revenue +/- 1% change in nonresidential assessed values equals up to +/- $5 million 142 Appendices Table A10 Material Assumptions – Revenue – Continued Revised Budget Forecast 2008/09 Plan 2009/10 Plan 2010/11 Plan 2011/12 $2,326 $2,058 $1,966 $1,960 $2,007 Calendar Year Population ........................................................... 1.4% BC Consumer Price Index ................................... 1.8% Housing starts ..................................................... -11.7% Nominal GDP ...................................................... 4.2% Real GDP ............................................................ 2.4% 1.7% 2.3% -11.2% 3.9% 1.0% 1.5% 1.0% -26.6% -0.9% -0.9% 1.4% 2.2% 4.9% 4.2% 2.4% 1.4% 2.1% 3.8% 4.6% 2.6% $735 $713 $80 $383 $685 $687 $54 $393 $720 $687 $0 $403 $750 $687 $0 $413 $88 $59 $88 $59 $90 $60 $94 $63 $2,376 $3,010 $2,646 $2,814 $2,919 $5.65 $7.12 $6.57 $7.26 $5.87 $5.96 $6.21 $6.80 $6.61 $7.31 669 400 1,069 0.1% 689 400 1,089 2.3% 584 509 1,093 0.4% 524 572 1,096 0.3% 465 634 1,099 0.3% Revenue Source and Assumptions ($ millions unless otherwise specified) Other taxes Components of revenue Property transfer ................................................. $1,020 Tobacco .............................................................. $705 Corporation capital .............................................. $69 Insurance premium ............................................. $372 Hotel room Consolidated Revenue Fund ........................... $97 Tourism British Columbia ................................ $63 Energy, sales of Crown land tenures, metals, minerals and other Natural gas price Plant inlet, $Cdn/gigajoule ………………………… Sumas, $US/ MMBtu ……………………………… Natural gas volumes (petajoules) Base gas production ……………………………… Incremental gas production ……………………… Total gas volume production ……………………… Annual per cent change …………………………… Oil price ($US/bbl at Cushing, Ok) ………………… $84.02 $88.34 $56.39 $71.88 $80.80 Auctioned land base (000 hectares) ……………… Average bid price/hectare ($) ……………………… Cash sales of Crown land tenures ………………… Metallurgical coal price ($US/tonne, fob west coast) … Copper price ($US/lb) ............................................ 642 $710 $455 $105 $3.19 672 $3,659 $2,459 $237 $2.65 666 $794 $529 $172 $1.73 654 $954 $624 $158 $2.44 4.0 4.0 4.5 4.6 4.5 $65 $61 $61 $67 $67 99.9 93.7 79.3 86.2 89.4 Components of revenue Natural gas royalties ……………………………… $1,165 Bonus bids, fees and rentals ……………………… $582 Petroleum royalties ………………………………… $113 Columbia River Treaty electricity sales …………… $245 Coal ………………………………………………… $112 Minerals, metals and other ………………………… $130 Oil and Gas Commission fees and levies ………… $29 $1,376 $862 $117 $255 $306 $68 $26 $1,014 $889 $74 $325 $274 $37 $33 $1,156 $932 $82 $330 $191 $88 $35 $1,281 $952 $85 $310 $179 $76 $36 Royalty programs and infrastructure credits Summer drilling ……………………………………… Deep drilling ………………………………………… Marginal, low productivity and ultramarginal …… Road and pipeline infrastructure ………………… Total ………………………………………………… -$48 -$63 -$138 -$78 -$327 -$35 -$105 -$229 -$90 -$459 -$37 -$134 -$237 -$131 -$539 -$37 -$150 -$244 -$74 -$505 -$39 -$166 -$251 -$51 -$507 Implicit natural gas royalty rate ……………………… 19.3% 18.7% 15.8% 16.9% +/- $1.00 change in the natural gas price equals +/- $275 to $325 million +/- 1% change in natural gas volumes equals +/- $10 to $20 million +/- 1 cent change in the exchange rate equals +/- $15 to $25 million on natural gas royalties 642 $1,226 $787 $160 $2.38 Annual electricity volumes set by treaty …………… (million mega-watt hours) Mid-Columbia electricity price ……………………… ($US/mega-watt hour) Sensitivities 2009/10 17.6% Exchange rate (US¢/ Cdn$, calendar year) ……… +/- 10% change in the average Mid-Columbia electricity price equals +/- $25 to $30 million Based on a recommendation from the Auditor General to be consistent with generally accepted accounting principles, bonus bid revenue recognition reflects eight-year deferral of cash receipts from the sale of Crown land tenures Royalty program (marginal, low productivity and ultra marginal drilling) adjustments reflect reduced royalty rates. Budget and Fiscal Plan – 2009/10 to 2011/12 143 Appendices Table A10 Material Assumptions – Revenue – Continued Revenue Source and Assumptions ($ millions unless otherwise specified) Forests Revised Budget Forecast 2008/09 Plan 2009/10 Plan 2010/11 Plan 2011/12 $952 Prices (calendar year average) SPF 2x4 ($US/1000 bd ft) ………………………… Random Lengths Composite ($US/thousand board feet) ................................ Hemlock price ($US/1000 bd ft) …………………… Pulp ($US/tonne) …………………………………… Coastal log ($Cdn/cubic metre) (Vancouver Log Market, fiscal year) ……………… $587 $609 $707 $213 $219 $213 $250 $300 $248 $600 $844 $252 $723 $851 $248 $700 $606 $285 $650 $650 $335 $600 $700 $96 $84 $64 $67 $71 15.0% $219 15.0% $219 11.3% $269 5.0% $300 $250 $254 $304 $335 39.3 8.3 6.6 34.0 7.2 6.3 37.4 7.9 7.9 43.3 9.2 9.2 Sensitivities 2009/10 $700 Fiscal Year Trade Assumptions Export tax rate (effective rate) ............................. 15.0% SPF 2x4 ($US/1000 bd ft) ………………………… $225 Random Lengths Composite price ($US/thousand board feet) ................................ $260 Lumber shipments and consumption (billion board feet) U.S. lumber consumption ……………………... 40.6 BC surge trigger volumes ……………………..… 8.6 BC lumber exports to US ………………………… 8.0 +/- US$50 change in SPF price equals +/- $50 to $100 million +/- US$100 change in hemlock price equals +/- $10 to $20 million +/- US$50 change in pulp price equals +/-$5 to $10 million +/- Cdn$10 change in average log price equals +/-$40 to $60 million +/- 1 cent change in exchange rate equals +/- $10 to $12 million on stumpage revenue 49.0 10.0 59.0 11.5 40.3 10.7 51.0 9.8 42.4 9.6 52.0 10.0 44.6 10.4 55.0 10.7 48.4 11.6 60.0 10.9 +/- 10% change in Interior harvest volumes equals +/- $20 to $30 million +/- 10% change in Coastal harvest volumes equals +/- $9 to $12 million Components of revenue Tenures ……………………………………………… $434 BC Timber Sales …………………………………… $240 Border tax (SLA 2006) ……………………………… $253 Logging tax ………………………………………… $5 Other CRF revenue ………………………………… $9 Recoveries to vote ………………………………… $11 $270 $135 $187 -$27 $11 $11 $210 $137 $238 $2 $11 $11 $257 $167 $240 $20 $12 $11 $331 $188 $129 $30 $11 $11 The above sensitivities relate to stumpage revenue only. Depending on market conditions, changes in stumpage revenues may be offset by changes in border tax revenues. $395 $414 $375 $388 $392 $327 $50 $18 $0 $346 $50 $11 $7 $310 $47 $11 $7 $323 $47 $11 $7 $327 $47 $11 $7 Crown harvest volumes (million cubic metres) Interior ……………………………………………… Coast ………………………………………………… Total ………………………………………………… BC Timber Sales (included in above) …………… Other natural resources Components of revenue Water rental and licences ………………………… BC Hydro remission (Water Use Plans) ………… Angling & hunting permits and licences ………… Recoveries to vote ………………………………… Forecast for water rentals and licences includes BC Hydro rate increases approved by the BC Utilities Commission. Other revenue $7,469 Components of revenue Other fees and licences Consolidated revenue fund ............................. $2,460 Recoveries to vote ........................................... $114 Crown corporations and agencies ................... $113 Other service delivery agencies ...................... $1,389 Investment earnings Consolidated revenue fund ............................. $58 Recoveries to vote and gross ups ................... $614 Crown corporations and agencies.................... $41 Other service delivery agencies ...................... $171 Sales of goods and services ……………………… $688 Miscellaneous Consolidated revenue fund ............................. $213 Recoveries to vote ........................................... $418 Crown corporations and agencies ................... $78 Other service delivery agencies ...................... $1,112 $7,320 $7,502 $7,622 $7,811 $2,377 $138 $107 $1,385 $2,446 $131 $108 $1,424 $2,426 $119 $117 $1,452 $2,427 $120 $130 $1,477 $64 $666 $43 $66 $706 $58 $658 $41 $161 $740 $68 $727 $47 $163 $754 $75 $804 $51 $165 $784 $208 $431 $64 $1,065 $201 $415 $79 $1,040 $203 $417 $74 $1,055 $210 $418 $73 $1,077 Budget and Fiscal Plan – 2009/10 to 2011/12 144 Appendices Table A10 Material Assumptions – Revenue – Continued Plan 2009/10 Plan 2010/11 Plan 2011/12 $4,693 $4,910 $5,110 $5,316 $22,629 — $10,537 13.15% $23,987 $250 $10,853 13.23% $25,426 $250 $11,178 13.31% $26,952 $250 $11,514 13.38% $3,243 — $1,407 — $3,168 — $1,385 -$5 $3,373 $33 $1,436 — $3,536 $33 $1,488 — $3,719 $33 $1,541 — $79 $16 $7 $14 $28 $79 $17 $7 $14 $28 — $17 $7 $13 $31 — $16 $7 $13 $17 — $16 $7 — — $1,015 $1,223 $1,460 $1,408 $1,396 $154 $37 — — — — $261 $153 $410 $165 $37 $10 $87 $66 $48 $275 $159 $376 $156 $37 $25 $32 $66 $290 $298 $173 $383 $149 — $15 $9 $66 $290 $290 $200 $389 $133 — $3 — $66 $290 $290 $220 $394 $4,818 $4,617 $4,814 $4,936 $5,078 $518 $2,405 $646 $490 $759 $491 $2,223 $667 $454 $782 $502 $2,358 $653 $469 $832 $498 $2,423 $661 $479 $875 $499 $2,484 $666 $491 $938 $2,680 Health and social transfers Revised Budget Forecast 2008/09 $4,794 Revenue Source and Assumptions ($ millions unless otherwise specified) $2,844 $2,825 $2,863 $2,956 $357 97% $452 100% $493 100% $542 100% 8.09 8.19 60.50 60.99 6.56% 2.00% 6.75% 1.00% National Cash Transfers Canada Health Transfer (CHT) ........................... $22,629 Wait Time ............................................................ — Canada Social Transfer (CST) ............................ $10,537 BC share of national population (June 1) ………… 13.35% BC health and social transfers revenue CHT ..................................................................... Wait time ............................................................. CST ..................................................................... Prior-year adjustments ........................................ Health deferral Wait times ........................................................ Diagnostic and Medical Equipment ................. Medical Equipment Trust ................................. Human Papillomavirus Immunization Trust ..... Patient Wait Times Guarantee Trust ............... Other federal contributions Components of revenue Consolidated revenue fund ................................. Millennium Scholarship Fund .............................. Police Officer's Recruitment Fund ....................... Community Development Trust ........................... Labour Market Agreement .................................. Labour Market Development Agreement ............ Other recoveries to vote ...................................... Crown corporations and agencies ....................... Other service delivery agencies .......................... Service delivery agency direct revenue School districts ……………………………………… Post-secondary institutions ……………………… Health authorities and hospital societies …………… BC Transportation Financing Authority …………… Other service delivery agencies ............................ Commercial Crown corporation net income BC Hydro ……………………………………………… $358 reservoir water inflows ……………………………… 100% mean gas price ……………………………………… 7.55 7.94 7.64 (Sumas, $US/MMbtu - BC Hydro forecast based on NYMEX forward selling prices) electricity prices ........…………………………....... 59.72 55.62 55.71 (Mid-C, $US/MWh) assumed rate increases: - base rate ……………………………………… 6.56% 6.56% 7.50% - rate rider ………………………………………… 0.50% 0.50% 0.00% Sensitivities 2009/10 +/- 0.1% change in BC's population share equals +/- $45 to $50 million +/-1% in hydro generation = +/-$25 million +/-10% = -/+$20 million +/-$1/MWh in electricity trade margins = +/-$40 million Assumed rate increases reflect the notional annual increases that would be required for BC Hydro to earn its allowed return on equity as mandated by the BCUC. These increases are included for planning purposes only. Actual rate increases in these years will be determined by future applications to the BCUC. ICBC ………………………………………………….. vehicle growth ..................................................... claims cost trend ................................................. investment return …………………………………… $272 +2.6% +4.6% 4.8% $459 +1.6% -0.3% 2.8% $260 +1.0% +3.5% 3.5% $192 +1.3% +2.5% 3.5% $217 +1.6% +3.4% 4.2% loss ratio .............................................................. 87.0% 77.2% 84.7% 86.2% 87.6% Budget and Fiscal Plan – 2009/10 to 2011/12 +/-1% = +/-$37 million +/-1% = -/+$27 million +/-1% return = +/-$99 to $103 million 145 Appendices Table A11 Natural Gas Price Forecasts – 2009/10 to 2011/12 Adjusted to fiscal years and $C/gigajoule at plant inlet Private sector forecasts (calendar year) 2009 2010 2011 2009/10 2010/11 2011/12 GLJ Henry Hub US$/MMBtu (Jan 1,09)……………………………………… 7.00 7.50 7.32 7.75 7.65 7.94 7.56 8.00 8.05 6.95 7.56 7.54 6.51 7.80 7.75 7.50 7.26 6.44 6.63 7.00 7.35 7.50 7.00 8.00 7.56 8.60 8.30 8.34 7.84 8.45 8.20 7.45 7.84 7.94 6.79 8.25 7.90 8.10 7.57 7.05 5.90 6.85 5.90 7.07 6.02 6.53 6.03 7.06 5.52 6.64 5.67 6.31 5.72 7.17 5.63 4.95 5.13 5.76 6.43 6.26 5.97 6.42 6.15 6.80 6.33 6.99 6.59 7.06 6.75 6.51 6.09 6.58 6.25 6.84 6.45 6.57 6.32 6.88 6.46 7.51 7.02 7.36 6.93 7.46 7.06 6.98 6.43 6.94 6.58 7.23 6.75 7.11 6.68 NYMEX Forward Market converted to Plant Inlet CDN$/GJ (Jan 7, 09) ………………………………………… 6.04 6.24 6.16 Average all minus high/low …….……………...…………………………………………………… 6.19 Average one forecast per consultant minus high/low …………………………………………… 6.03 6.54 6.53 6.96 6.88 Natural gas royalty price forecast …………………………………………………………………… 5.87 6.21 6.61 Sproule Henry Hub US$/MMBtu (Dec 31,08)………………………………… 6.30 McDaniel Henry Hub US$/MMBtu (Jan 1, 09)……………………………… 7.25 AJM Henry Hub US$/Mcf (Dec 31,08)………………………………………… 6.50 GLJ Alberta AECO-C Spot CDN$/MMBtu (Jan 1, 09)……………………… 7.58 Sproule Alberta AECO-C Spot CDN$/MMBtu (Dec 31,08)………………… 6.82 McDaniel AECO-C Spot C$GJ (Jan 1, 09)…………………………………… 7.40 AJM AECO-C Spot C$/Mcf (Dec 31,08)……………………………………… 7.00 GLJ Sumas Spot US$/MMBtu (Jan 1, 09)…………………………………… 6.45 Sproule Sumas Spot CDN$/MMBtu (Dec 31, 08)…………………………… 6.82 GLJ BC Spot Plant Gate CDN$/MMBtu (Jan 1, 09)………………………… 7.17 Sproule BC Plant Inlet CDN$/MMBtu (Dec 31, 08)………………………… McDaniel BC Spot Plant Gate C$MMBtu (Jan 1, 09)……………………… AJM BC Spot Plant Gate C$/Mcf (Dec 31, 08)……………………………… GLJ Midwest Chicago US$/MMBtu (Jan 1, 09)……………………………… Sproule Alliance Plant Gate CDN$/MMBtu (Dec 31, 08)…………………… EIA US$/MMBtu Henry Hub (Jan 13, 09)…………………………………… TD Economics Henry Hub FuturesUS$/MMBtu (Dec 16, 08)……………… Scotiabank Group Henry Hub US$/MMBtu (Dec 17, 08)…………………… BMO Alberta Empress US$/MMBtu (Dec 19, 08)…………………………… RBC Financial Henry Hub US$/MMBtu (Dec 15, 08)……………………… Exports Development Canada Henry Hub US$/MMBtu (Jan 1, 09)……… Tristone Capital Henry Hub US$/MMBtu (Jan 5, 09)……………………… Petro-Canada AECO-C Spot CDN$/Mcf (Sep 29, 08)……………………… GLJ: Gilbert Laustsen Jung Petroleum Consultants Ltd AJM: Ashton Jenkins Mann Petroleum Consultants 5.77 7.20 6.70 7.00 6.37 5.61 5.73 6.25 5.70 7.00 6.50 7.00 7.75 7.75 US EIA: US Energy Information Administration McDaniel: McDaniel & Associates Consultants Ltd Cdn$/GJ, plant inlet Budget 2009 Forecast June/08: $9.33 $6.61 $6.57 Actual 10 $6.21 $5.87 AECO: Alberta Energy Company Budget 2009 price forecast is based on the private sector average adjusted for more current year-to-date information in 2008/09. Natural Gas Prices 12 6.44 8 rose 33 per cent from March to June 2008 and declined 49 per cent over the last seven months. 6 4 Jan/09: $4.79 2 0 2005 2006 2007 2008 2009 2010 2011 2012 Budget and Fiscal Plan – 2009/10 to 2011/12 to remain volatile and influenced by economic demand, hurricane activity, winter weather and other energy prices. 146 Appendices Table A12 Material Assumptions – Expense Revised Budget 1 Forecast Budget Estimate 2009/10 Plan 2010/11 2,056 2,260 2,262 193,329 205,396 206,357 546 556 549 295,000 295,000 295,000 25 25 25 25 Children and Family Development …………… 1,389 1,389 1,403 1,414 1,414 Average children-in-care ………………………… 9,100 caseload (#) Average annual residential ……………………… 29,200 cost per child in care ($) 9,100 9,000 9,000 9,000 31,100 31,400 31,400 31,400 5,115 5,179 5,215 5,231 Ministry Programs and Assumptions ($ millions unless otherwise specified) 2008/09 Plan 2011/12 Sensitivities 2009/10 Advanced Education and Labour Market Development …………………………………… 2,075 Student spaces in public institutions 2 ………… 199,627 (# of FTEs) Attorney General ………………………………… 546 New cases filed/processed ……………………… 295,000 (# for all courts) Crown Proceeding Act (CPA) ………………… 25 Education ………………………………………… 5,117 Student Enrolment (# of FTEs)………………… 555,833 The number of student spaces may vary depending on the 206,626 financial and other policies of post secondary institutions. 2,237 The number of recommended criminal cases brought forward 295,000 by the various police departments, resulting in charges being laid by the Crown, the number of civil litigation cases, the number of traffic fines disputed and the number of family cases. 534 The number and size of litigation brought against the province, as well as the effectiveness of mitigation strategies and legal defence. A 1% increase in the cost per case or a 1% increase in the average caseload will affect expenditures by approximately $2.7 million. 555,575 551,169 549,543 547,929 806 770 768 692 696 56 80 62 52 52 Over the past 11 years, fire fighting costs have ranged from a low of $19 million in 1997 to a high of $372 million in 2003. BC Timber Sales …………………………….…… 219 159 175 174 180 Targets can be impacted by changes to actual inventory costs incurred. There is a lag of approximately 2 years between when inventory costs are incurred and when they are expensed. Volume harvested can also impact targets. For example, if volume harvested is less than projected in any year then capitalized expenses will also be reduced in that year. Forests and Range …………………...….......... Direct Fire Fighting ……………………………… 1 2 The 2008/09 budget estimate and updated forecast have been restated to reflect government's current organization and accounting policies. Beginning in 2008/09 the student space forecasts include apprentice training FTEs delivered by the Industry Training Authority. Budget and Fiscal Plan – 2009/10 to 2011/12 147 Appendices Table A12 Material Assumptions – Expense – Continued Ministry Programs and Assumptions ($ millions unless otherwise specified) Revised Budget 1 Forecast 2008/09 Health Services ............................................... 13,329 Additional health authority funding …………… 13,329 - Budget Estimate 2009/10 Plan 2010/11 14,901 14,095 120 Plan 2011/12 15,821 - - Sensitivities 2009/10 - Pharmacare ……………………………………… 1,016 Demand/cost growth …………………………… 3.7% (per cent change) 995 3.7% 1,105 3.7% 1,105 3.7% 1,157 3.7% Medical Services Plan (MSP) ………………… 3,188 3,222 3,394 3,503 3,620 Regional Health Sector funding ………………… 8,629 Housing and Social Development …………… 2,602 8,735 2,602 9,138 2,641 9,759 2,651 10,484 2,617 Temporary Assistance …………………………. 41,840 annual average caseload (#) 42,185 44,659 44,173 40,491 Disability Assistance …………………………… 67,190 annual average caseload (#) 67,917 70,561 71,009 71,019 Total annual average…………………………… 109,030 caseload (#) 110,102 115,220 115,182 A 1% change in utilization or drug prices affects costs by approximately $10 million. 111,510 A 1% increase in volume of services provided by fee-forservice physicians affects costs by approximately $20 million. The expected to work caseload is sensitive to fluctuations in economic and employment trends in the service sector. A 1% change in the Temporary Assistance annual average caseload or average cost per case will affect expenditures by approximately $3.5 million annually. The caseload for persons with disabilities is sensitive to the aging of the population and longer life expectancy for individuals with disabilities and significant health issues. A 1% change in the Disability Assistance annual average caseload or average cost per case will affect expenditures by approximately $7 million annually. The average cost per case is sensitive to the composition of the caseload, and reported income. Adult Community Living: Residential Services: Average caseload (#) ………………………… 5,469 Average cost per client ($) …………………… 68,200 5,412 68,500 5,646 66,300 5,896 63,500 Day Programs: Average caseload (#) ………………………… 11,113 Average cost per client ($) …………………… 19,200 1 5,233 67,900 11,704 18,800 12,429 19,800 13,181 18,900 13,925 17,900 The adult community living caseload is sensitive to the pressures of an aging population. A 1% increase in the adult caseload will increase expenditures by approximately $2.9 million. The 2008/09 budget estimate and updated forecast have been restated to reflect government's current organization and accounting policies. Budget and Fiscal Plan – 2009/10 to 2011/12 148 Appendices Table A12 Material Assumptions – Expense – Continued Ministry Programs and Assumptions Revised Budget 1 Forecast 2008/09 ($ millions unless otherwise specified) Public Safety and Solicitor General ………… 624 624 Budget Estimate 2009/10 Plan 2010/11 Plan 2011/12 647 630 625 Sensitivities 2009/10 The volume and severity of criminal activity and the number of inmate beds occupied. Emergency Program Act (EPA) ………………… 16 21 16 16 16 Funding remains constant on a year-to-year basis. Management of Public Funds and Debt …… Interest rates for new provincial borrowing: Short-term ……………………………………… Long-term ……………………………………… CDN/US exchange rate (cents) ………………… 1,262 1,212 1,200 1,292 1,330 4.30% 5.04% 100.1 1.99% 4.85% 112.1 1.02% 4.49% 124.3 2.10% 4.67% 114.1 3.23% 5.30% 111.9 4,097 4,205 4,460 268 2,174 520 733 402 273 2,176 686 808 262 296 2,378 653 791 342 1 Full year impact on MoPD on interest costs of a 1% change in interest rates equals $36 million; $100 million increase in debt level equals $4 million. 5,061 329 2,564 727 916 525 Service delivery agency net spending ……… 4,059 School districts …………………………………… Post-secondary institutions …………………… Health authorities and hospital societies ……… BC Transportation Financing Authority ……… Other service delivery agencies ……………… The number and severity of natural disasters. 301 2,185 427 646 500 The 2008/09 budget estimate and updated forecast have been restated to reflect government's current organization and accounting policies. Table A13 Full-Time Equivalents (FTEs) 1 – 2005/06 to 2011/12 Actual 2005/06 Actual 2006/07 Actual 2007/08 Revised Forecast 2008/09 Budget Estimate 2009/10 Plan 2010/11 Plan 2011/12 Ministries and special offices (CRF) …………… 27,129 Service delivery agencies 2 ……………………… 3,992 28,647 3,917 30,224 4,128 31,870 4,335 32,214 4,350 32,133 4,315 31,872 4,360 Total FTEs ………………………………………… 31,121 32,564 34,352 36,205 36,564 36,448 36,232 1 Full-time equivalents (FTEs) are a measure of staff employment. FTEs are calculated by dividing the total hours of employment paid for in a given period by the number of hours an individual, full-time person would normally work in that period. This does not equate to the physical number of employees. For example, two half-time employees would equal one FTE, or alternatively, three FTEs may represent two full-time employees who have worked sufficient overtime hours to equal an additional FTE. 2 Service delivery agency FTE amounts do not include SUCH sector staff employment. Budget and Fiscal Plan – 2009/10 to 2011/12 149 Appendices Table A14 Capital Spending – 2005/06 to 2011/12 1 Actual 2006/07 Actual 2007/08 Revised Forecast 2008/09 Budget Estimate 2009/10 Plan 2010/11 Plan 2011/12 286 790 848 713 24 322 874 760 821 13 380 782 881 884 37 442 666 910 956 74 458 619 886 1,000 154 438 551 998 981 110 414 487 619 762 114 85 320 87 - 105 355 159 - 251 335 122 - 251 38 436 125 55 180 37 125 279 43 885 260 51 160 335 36 720 270 42 248 31 340 325 3,153 3,409 3,672 4,133 4,746 4,650 3,382 Self-supported BC Hydro ………………………………………… BC Transmission Corporation ………………… Columbia River power projects 4……………… BC Railway Company …………………………… ICBC 5……………………………………………… BC Lotteries ……………………………………… Liquor Distribution Branch ……………………… 610 21 30 15 27 83 19 807 50 19 19 22 44 22 1,072 70 29 20 23 60 18 1,596 18 38 10 25 112 19 1,752 19 166 80 42 120 20 1,920 12 242 95 100 115 21 1,902 12 258 100 125 115 30 Total self-supported commercial …………… 805 983 1,292 1,818 2,199 2,505 2,542 Total capital spending ………………………… 3,958 4,392 4,964 5,951 6,945 7,155 5,924 Actual 2005/06 ($ millions) Taxpayer-supported Education Schools (K–12) ………………………………… Post-secondary ………………………………… Health ……………………………………………… BC Transportation Financing Authority ……… BC Transit ………………………………………… Vancouver Convention Centre expansion project …………………………..… BC Place rejuvenation ………………………… Government ministries ………………………… Other 3……………………………………………… Accelerated infrastructure projects …………… Capital spending contingencies ………………… Total taxpayer-supported …………………… 2 1 As the agreement has not been finalized, the fiscal implications of the Port Mann Bridge/Highway 1 Project (which will be funded from tolls) are not included in Budget 2009 – see the topic box at the end of Part 1. 2 Includes Supplementary Estimates of $80 million. 3 Includes BC Housing Management Commission, Provincial Rental Housing Corporation, Rapid Transit Project 2000, and other service delivery agencies. 4 Joint ventures of the Columbia Power Corporation and Columbia Basin Trust. 5 Includes ICBC Properties Ltd. Budget and Fiscal Plan – 2009/10 to 2011/12 150 Appendices Table A15 Statement of Financial Position – 2005/06 to 2011/12 1 Actual 2006/07 Actual 2007/08 Revised Forecast 2008/09 Budget Estimate 2009/10 Plan 2010/11 Plan 2011/12 3,450 7,914 3,798 5,951 8,233 2,649 6,028 8,572 2,152 4,369 9,026 2,042 3,609 9,289 1,800 3,614 9,781 1,317 4,426 7,170 11,596 26,758 5,090 7,719 12,809 29,642 5,718 9,080 14,798 31,550 6,186 9,773 15,959 31,396 6,711 11,106 17,817 32,515 7,169 12,198 19,367 34,079 7,288 5,695 7,094 5,989 7,955 7,136 8,104 8,757 8,246 9,175 8,342 9,711 8,284 10,187 27,197 7,200 34,397 4,059 25,960 7,473 33,433 3,798 26,579 8,048 34,627 2,649 27,692 9,795 37,487 2,152 30,213 10,258 40,471 2,042 32,392 11,811 44,203 1,800 34,078 13,137 47,215 1,317 (399) 38,057 51,040 (410) 36,821 49,904 (442) 36,834 51,925 (422) 39,217 56,078 (574) 41,939 59,360 (782) 45,221 63,274 (1,008) 47,524 65,995 Net liabilities ………………………………… (25,714) Capital and other assets Tangible capital assets ……………………… 25,074 761 Other assets ………………………………… 25,835 (23,146) (22,283) (24,528) (27,964) (30,759) (31,916) 26,954 839 27,793 28,933 801 29,734 30,980 847 31,827 33,931 837 34,768 36,482 836 37,318 37,639 836 38,475 4,647 7,451 7,299 6,804 6,559 6,559 Actual 2005/06 ($ millions) Financial assets Cash and temporary investments ………… 3,880 6,995 Other financial assets ……………………… 4,059 Sinking funds ............................................. Investments in commercial Crown corporations Retained earnings ………………………… 3,476 Recoverable capital loans ………………… 6,916 10,392 25,326 Liabilities Accounts payable & accrued liabilities 2 … Deferred revenue …………………………… Debt: Taxpayer-supported debt ………………… Self-supported debt ………………………… Total provincial debt ………………………… Add: debt offset by sinking funds ……… Less : guarantees and non-guaranteed debt ……………… Financial statement debt ........................... Accumulated surplus (deficit) …………… 1 121 Comparative figures have been restated to reflect government's accounting policies in effect at March 31, 2008. Accrued liabilities include accumulated forecast allowances of $100 million. Budget and Fiscal Plan – 2009/10 to 2011/12 151 Appendices Table A15a Changes in Financial Position – 2005/06 to 2011/12 Actual 2005/06 ($ millions) (Surplus) deficit for the year ……………… (3,113) Comprehensive income and other equity adjustments ............... Change in accumulated (surplus) deficit - Actual 2006/07 (4,079) (447) Actual 2007/08 (2,886) 82 Revised Forecast 2008/09 (50) Budget Estimate 2009/10 Plan 2010/11 Plan 2011/12 495 245 - 202 - - - 152 495 245 - 3,672 4,133 4,746 4,650 3,382 (1,529) 1,880 78 1,958 (1,693) 1,979 (38) 1,941 (2,086) 2,047 46 2,093 (1,795) 2,951 (10) 2,941 (2,099) 2,551 (1) 2,550 (2,225) 1,157 1,157 (2,568) (863) 2,245 3,436 2,795 1,157 (3,113) (4,526) (2,804) 3,153 3,409 (1,594) 1,559 215 1,774 (1,339) Capital and other asset changes: Taxpayer-supported capital investments … Less : amortization and other accounting changes ……………… Increase in net capital assets .................. Increase (decrease) in other assets .......... Increase (decrease) in net liabilities ....... Investment and working capital changes: Increase (reduction) in cash and temporary investments …………………… Investment in commercial Crown corporations: Increase (decrease) in retained earnings Self-supported capital investments ……… Less: loan repayments and other accounting changes ………… Other working capital changes …………… 291 (430) 2,501 77 281 805 950 983 664 1,292 628 1,818 468 2,199 525 2,505 458 2,542 (729) 1,204 558 1,332 (743) 1,213 (2,838) 876 (457) 1,989 (1,928) 138 (1,506) 1,161 (216) (714) (1,172) 1,858 (611) 487 (1,450) 1,550 (409) 1,146 (1,236) 261 13 1,149 2,383 497 2,722 110 3,282 242 2,303 483 152 208 226 2,984 3,732 3,012 (790) 296 (1,103) (516) Increase (decrease) in financial statement debt ………………… (1,855) 456 (Increase) decrease in sinking fund debt … Increase (decrease) in guarantees (50) and non-guaranteed debt ………………… Increase (decrease) in total provincial debt ……………………………… (1,449) 11 (964) 32 1,194 (20) 2,860 Budget and Fiscal Plan – 2009/10 to 2011/12 (1,659) (760) 5 152 Appendices Table A16 Provincial Debt Summary – 2005/06 to 2011/12 1, 2 Actual 2005/06 ($ millions unless otherwise indicated) Actual 2006/07 Actual 2007/08 Revised Forecast 2008/09 Budget Estimate 2009/10 Plan 2010/11 Plan 2011/12 Taxpayer-supported debt Provincial government direct operating …………… 11,923 Other taxpayer-supported debt (mainly capital) Education Schools 2………………………………………………… 4,588 Post-secondary institutions 2………………………… 2,650 9,505 8,264 6,437 6,847 7,104 7,074 4,724 2,909 4,906 3,314 5,195 3,497 5,502 3,714 5,793 3,831 6,065 3,907 7,238 7,633 8,220 8,692 9,216 9,624 9,972 2,459 Health …………………………………………………… Highways and public transit BC Transportation Financing Authority …………… 2,699 904 Public transit …………………………………………… SkyTrain extension …………………………………… 1,145 80 BC Transit ……………………………………………… 2,899 3,345 3,820 4,332 4,936 5,431 3,237 892 1,153 96 3,948 897 1,153 84 4,638 930 1,153 93 5,377 928 1,153 154 5,957 925 1,153 197 6,485 922 1,153 244 4,828 5,378 6,082 6,814 7,612 8,232 8,804 246 189 110 204 - 216 110 219 - 218 132 318 - 309 149 471 1,000 272 156 778 1,000 225 172 1,099 1,000 225 193 1,379 1,000 2 Other BC Buildings …………………………………………… Social housing 4………………………………………… Homeowner Protection Office ……………………… Other 5…………………………………………………… Accelerated capital projects ………………………… 3 749 545 668 1,929 2,206 2,496 2,797 Total other taxpayer-supported debt ……………… 15,274 16,455 18,315 21,255 23,366 25,288 27,004 Total taxpayer-supported debt ………………………… 27,197 25,960 26,579 27,692 30,213 32,392 34,078 Self-supported debt Commercial Crown corporations BC Hydro ……………………………………………… 6,892 BC Transmission Corporation ……………………… 37 247 Columbia River power projects 6……………………… 5 Liquor Distribution Branch …………………………… 19 Post-secondary institutions' subsidiaries …………… 7,144 37 236 3 53 7,633 86 219 2 108 9,005 73 207 1 109 9,698 73 377 1 109 11,030 73 598 1 109 12,122 73 833 109 7,200 - 7,473 - 8,048 - 9,395 400 10,258 - 11,811 - 13,137 - Total self-supported debt ……………………………… 7,200 7,473 8,048 9,795 10,258 11,811 13,137 Total provincial debt …………………………………… 34,397 33,433 34,627 37,487 40,471 44,203 47,215 Warehouse borrowing program ………………………… Debt as a per cent of GDP 7.0% Provincial government direct operating ……………… Taxpayer-supported …………………………………… 16.1% Total provincial …………………………………………… 20.3% 5.2% 14.2% 18.3% 4.3% 13.8% 18.0% 3.2% 13.8% 18.7% 3.5% 15.2% 20.4% 3.4% 15.7% 21.4% 3.3% 15.8% 21.8% 1 Debt is after deduction of sinking funds and unamortized discounts, and excludes accrued interest. Government direct and fiscal agency accrued interest is reported in the government's accounts as an accounts payable. 2 Includes debt and guarantees incurred by the government on behalf of school districts, universities, colleges and health authorities/hospital societies (SUCH), and debt directly incurred by these entities. 3 4 5 6 Debt of BC Buildings was transferred to the province as the corporation's operations are now conducted through the Ministry of Labour and Citizen's Services. Includes the BC Housing Management Commission and the Provincial Rental Housing Corporation. Includes service delivery agencies, student loan guarantees, loan guarantees to agricultural producers, guarantees issued under economic development and home mortgage assistance programs and loan guarantee provisions. A joint venture of the Columbia Power Corporation and Columbia Basin Trust. Budget and Fiscal Plan – 2009/10 to 2011/12 153 Appendices Table A17 Key Provincial Debt Indicators – 2005/06 to 2011/12 1 Actual 2005/06 Actual 2006/07 Actual 2007/08 Revised Forecast 2008/09 Budget Estimate 2009/10 Plan 2010/11 Plan 2011/12 74.6 77.6 69.1 69.6 68.3 69.4 74.6 74.8 79.1 80.1 83.6 83.9 86.4 85.3 8,196 6,480 7,878 6,117 8,034 6,166 8,556 6,320 9,102 6,795 9,806 7,186 10,333 7,458 20.3 16.1 18.3 14.2 18.0 13.8 18.7 13.8 20.4 15.2 21.4 15.7 21.8 15.8 4.4 4.4 4.3 4.2 4.0 3.9 4.2 4.3 4.2 4.3 4.5 4.5 4.7 4.6 2,012 1,546 2,068 1,569 2,005 1,482 2,119 1,579 2,173 1,620 2,394 1,753 2,583 1,841 5.5 5.9 5.6 5.8 5.6 5.6 5.5 48,416 37,280 50,678 38,287 50,225 37,004 51,180 37,736 52,884 38,593 54,657 39,970 33,433 25,960 182,743 4,244 34,627 26,579 192,528 4,310 37,487 27,692 199,984 4,382 40,471 30,213 198,277 4,447 44,203 32,392 206,628 4,508 47,215 34,078 216,091 4,569 Debt to revenue (per cent) Total provincial ..........……………………… Taxpayer-supported .....…………………… Debt per capita ($) 2 Total provincial ..........……………………… Taxpayer-supported .....…………………… Debt to GDP (per cent) 3 Total provincial ..........……………………… Taxpayer-supported .....…………………… Interest bite (cents per dollar of revenue) 4 Total provincial ..........……………………… Taxpayer-supported .....…………………… Interest costs ($ millions) Total provincial ..........……………………… Taxpayer-supported .....…………………… Interest rate (per cent) 5 Taxpayer-supported .....…………………… Background Information: Revenue ($ millions) Total provincial 6............…………………… 46,096 Taxpayer-supported 7..…………………… 35,029 Debt ($ millions) Total provincial..............…………………… 34,397 Taxpayer-supported 8..…………………… 27,197 Provincial GDP ($ millions) 9..............……… 169,308 4,197 Population (thousands at July 1) 10.......…… 1 Includes fiscal data of school districts, post-secondary institutions and regional health authorities/societies (SUCH). 2 The ratio of debt to population (e.g. 2009/10 debt divided by population at July 1, 2009). 3 The ratio of debt outstanding at fiscal year end to provincial nominal gross domestic product (GDP) for the calendar year ending in the fiscal year (e.g. 2009/10 debt divided by 2009 GDP). 4 The ratio of interest costs (less sinking fund interest) to revenue. Figures include capitalized interest expense in order to provide a more comparable measure to outstanding debt. 5 Weighted average of all outstanding debt issues. 6 Includes revenue of the consolidated revenue fund (excluding dividends from enterprises) plus revenue of all government organizations and enterprises. 7 8 Excludes revenue of government enterprises, but includes dividends from enterprises paid to the consolidated revenue fund. Excludes debt of commercial Crown corporations and agencies and funds held under the province's warehouse borrowing program. 9 GDP for the calendar year ending in the fiscal year (e.g. GDP for 2009 is used for the fiscal year ended March 31, 2010). 10 Population at July 1st within the fiscal year (e.g. population at July 1, 2009 is used for the fiscal year ended March 31, 2010). Budget and Fiscal Plan – 2009/10 to 2011/12 ...
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This note was uploaded on 09/13/2009 for the course ECONOMICS econ 104 taught by Professor Krishnapendakur during the Spring '09 term at Simon Fraser.

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