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B.C. Finance Minister scrambles to fill billion-dollar budget hole

Minister of Finance and House Leader, Hon. Mike de Jong speaks to media following Premier Christy Clark's announcement of a cabinet renewal of 16 ministers and two ministers of state at the Government House in Victoria on Wednesday Sept. 5, 2012.

CHAD HIPOLITO/THE CANADIAN PRESS

With collapsing resource revenues threatening his target to close a billion-dollar budget gap by next spring, B.C. Finance Minister Mike de Jong is looking at a limited number of options – none of them especially appealing for a government that must go to the polls in May.

At a fiscal update on Thursday, Mr. de Jong pledged to "fight tooth and nail" to balance the budget for the coming year. But he also announced that natural-gas prices have dropped dramatically, sinking the province deeper into deficit in the current budget cycle. To move from a $1.14-billion deficit this year to surplus next year, the province needs to boost revenues while keeping a tight lid on spending.

Mr. de Jong announced restraint measures including a hiring freeze in the civil service, a wage freeze for non-union employees across the public sector, and a clampdown on government travel. He also signalled that the current round of public-sector bargaining could be affected. But austerity will not, by itself, close the gap.

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The new Finance Minister has received a review panel's report, which has not been made public, outlining options for business taxes. While the business community opposes corporate tax hikes, Mr. de Jong is bound by the Premier's commitment to make the province more affordable for families.

Under the budget plan he inherited from former finance minister Kevin Falcon, the province is set to increase corporate-tax rates in 2014, for the first time since the B.C. Liberals came to power in 2001. With resource revenues falling, Mr. de Jong may be pressed to reconsider that timetable before the election in May, 2013.

"There is less room to manoeuvre than you would like, heading into a spring shareholders' meeting," he told reporters. "But we are resolved to do everything humanly possible to meet our commitment to taxpayers of not spending more of their money than we have."

The report on his desk, commissioned by his predecessor, was designed to review business taxes to make B.C. more competitive. Since it was written, the news has gone from bad to ugly: Resource royalties, over the next three years, are now forecast to be $1.4-billion less than the budget predicted seven months ago. Economic growth forecasts have been trimmed as well.

Mr. de Jong told reporters he does not relish tax increases: "It's not our preference. In fact, everything you have heard Premier Clark talk about … is about addressing family affordability, so in the days, weeks and months leading up to the budget, that is going to provide a good deal of the focus going forward. And nothing you saw today makes that task any easier."

There is an additional wrinkle. Less than three weeks before the election campaign starts, the provincial sales tax will replace the harmonized sales tax. That means a big shift of the tax burden back to the corporate sector, but British Columbians also lose two tax advantages. As result, they will pay higher personal-income taxes, and low-income earners will lose their quarterly HST rebate cheques.

Jock Finlayson, chief economist for the Business Council of B.C., said the move back to the PST makes it tougher for business to absorb additional tax hikes. "There is a lot of uncertainty, hesitancy around investment, and the business community in B.C. is about to be hit with the largest tax increase in our history," he said. Better, he said, for the government to rethink its promise to balance the budget next spring.

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About the Author
B.C. politics reporter

Based in the press gallery of the B.C. Legislature in Victoria, Justine has followed the ups and downs of B.C. premiers since 1988. She has also worked as a business reporter and on Parliament Hill covering national politics. More

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