B.C. plans to balance in 2013 by selling assets, raising corporate taxes

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The Vancouver Sun Feb 22, 2012

The B.C. Liberal government on Tuesday charted its return to balanced budgets, tabling a document that promised to privatize its two liquor distribution warehouses, increase MSP premiums and some business taxes, and impose a strict three-year spending freeze across most areas of government.

“We made a commitment to the people of British Columbia to return to balanced budgets by 2013-14,” Finance Minister Kevin Falcon told the legislature as he tabled B.C.’s latest budget.

“We will honour that commitment.”

Falcon said government will run a $968-million deficit for the coming 2012-13 fiscal year, but plans to return to balance by 2013-14 — the year it is legally obligated to do so.

To do this, Falcon said his government will cancel this April’s planned drop in the small business corporate income tax rate, holding it at 2.5 per cent instead of cutting it to zero.

Falcon said he also plans to raise about $700 million by selling some of the more than 100 government properties and assets identified as surplus, including its two liquor distribution warehouses.

If the fiscal situation worsens, Falcon added, the government will increase the general corporate income tax rate on April 1, 2014 to 11 per cent from 10 per cent.

The move to increase taxes is a significant departure for the B.C. Liberals, who have spent much of their decade in office seeking to lower the amount businesses have to pay.

“We do this with some reluctance,” Falcon conceded Tuesday.

“I think it underscores how serious we are about making sure we meet our target and our requirement to balance the budget in 2013-14.”

But Falcon’s path to balance was not just limited to new revenues.

In Tuesday’s budget — his first as minister of finance — Falcon also delivered an austere spending plan that places a hard three-year cap on many government ministries.

“It exacts a discipline on government that is, I think, proportional to the kind of international economic environment we find ourselves in,” said Falcon.

He said he has allowed some spending increases in areas such as health, education, justice and social development, but limited the growth in overall spending to about two per cent per year.

He took an especially hard line on the justice system, where he allowed an extra $237 million over three years, but set aside no money specifically for recommendations from a review being done into the system.

“I think it’s time we have to say the system needs to change and I respect the fact that there is judicial independence, but the judges cannot hide behind that shield and say we have no requirement to try to do things better,” Falcon said.

The Liberals also intend to extract $497 million from the Insurance Corp. of B.C.’s capital reserves over the next three years, dedicating the money to general program spending.

The government made a similar move in 2010, announcing at that time a plan to take $778 million over three years between 2010 and 2012. The capital reserves come from the optional side of ICBC’s business.

The budget comes as Falcon wrestles to eliminate what would have been a $706 million deficit in 2013-14 had the government done nothing.

It also comes as the province moves to transition from the harmonized sales tax back to the PST – a change that has helped push the deficit for the 2011-12 fiscal year to $2.5 billion from an initial projection of $925 million.

Falcon is now projecting a $154-million surplus for the 2013-14 fiscal year. In 2014-15, he is projecting a surplus of $250 million.

New Democratic Party finance critic Bruce Ralston called the budget’s targets “unrealistic” and set on a political timetable of two coming byelections and the 2013 election. “They offer nothing in the way of hope or opportunity for those young people who want to get training for the jobs of the future,” he said, pointing to reductions for advanced education.

One of the sharpest denunciations came from Mary Ellen Turpel-Lafond, B.C.’s representative for children and youth, who called the measures “callous” and a “U-turn from [Premier Christy Clark’s] families first agenda.”

“It’s fine to have a harsh economic strategy, but at least soften it out by some compassionate approach toward people who are suffering through a deep recession,” she said, adding she would like to have seen supports for vulnerable kids and families in areas like education and income assistance.

B.C. Teachers’ Federation president Susan Lambert called the budget “a fiscal failure of gargantuan proportions.”

She said her union has calculated it would cost about $137 million in the coming year just to keep the education system up with inflation.

“If you take the $30 million the finance minister has allowed for public education, that means a $100-million cut to public education next year,” she said, predicting bigger classes and school closures.

But John Winter of the B.C. Chamber of Commerce called the budget “very responsible” and the B.C. Business Council’s Jock Finlayson said: “It rests on very credible economic assumptions. It moves the province back into a balanced budget position, which is what we wanted to see.”

Phil Hochstein of the Independent Contractors and Businesses Association called the budget a “defining moment for the premier and the government.”

“She took the side of taxpayers and imposed a fiscal discipline on all government agencies and I think you’ve got to do that,” he said.

In other measures, the carbon tax will rise in July to 7.67 cents per litre from 6.39 cents and MSP premiums will increase by four per cent beginning in 2013, which Falcon said will cost a family of three or more about $60 per year.

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