Vaughn Palmer: $5.7 billion budget windfall unlikely to occur again during NDP's current term

VICTORIA — While Finance Minister Selina Robinson basks in the glory of a projected $5.7 billion budget surplus, she has also pointed out that much of it was the result of a one-time windfall and not likely to be repeated.

“We need to remember, these numbers that we’re seeing here, this is a soft rebound,” she told reporters Friday. “We don’t know if these numbers are going to hold year over year.”

Robinson’s concerns are more than just the usual caution one expects from finance ministers.

They are borne out in detail in the quarterly financial update she released.

More than half of the projected surplus was accounted for by $3.6 billion worth of back dated payments from Ottawa for personal and corporate income taxes for the years prior to this one.

These “prior year adjustments,” as they are known, can come in well after the fact, when the economy recovers more quickly than expected.

But they won’t be repeated in future years, particularly if the economy cools as it is already doing in the second half of 2022, Robinson noted.

Also, not to be depended upon on a long-term basis are resource revenues.

They surged well beyond expectations this year owing to higher worldwide commodity prices, especially for lumber and natural gas.

But commodity prices are notoriously volatile.

B.C. is projected to reap $2.4 billion in royalties from natural gas this year. Three years ago, the resource brought in only $118 million, five per cent of this year’s tally.

Commodity prices, including for natural gas, are already on the slide as Robinson noted.

Other economic indicators are softening — retail sales, or already on the slide — the property transfer tax.

Robinson also provided an updated perspective on a key cost driver on the spending side of government, namely the cost of wages and benefits for public sector employees.

Compensation of one kind or another accounts for more than half of the total cost of programs.

The New Democrats budgeted $2.6 billion in the current fiscal year for the first instalments of three-year compensation agreements for public sector workers.

The projected first year cost was scaled down to just $1.5 billion. The reduction happened because union negotiators rejected the government offer of a $2,500 cash bonus up front, which would have been paid this year.

Instead, the unions negotiated higher percentage increases, plus cost-of-living adjustments, in the second and third years of three-year contracts.

The shift in compensation added $1.4 billion to the projected cost of the settlements in each of the second and third years.

The overall cost of settlements is reckoned to be $10.6 billion. But where the government could readily have absorbed the estimated $1.1 billion worth of bonuses in this year’s surplus, there won’t be as much fiscal room in the second and third years with the economy cooling.

Private sector forecasters have already downgraded this year’s B.C. growth projection to 2.8 per cent from 3.2 per cent. They’ve dropped next year from a 1.6 per cent to a dismal one half of one per cent.

Plus, there may be more discouraging news to come. The finance minister is scheduled to meet next week with the panel of independent forecasters who provide advice on the economic outlook for the next three years.

Given spreading concerns about inflation, interest rates and declining commodity prices, the forecasters are not expected to be optimistic.

All of which suggests that the current fiscal situation is not likely to be repeated for the remainder of the NDP government’s four-year term of office.

The $5.7 billion surplus readily covers the more than $1 billion in promises Premier David Eby has announced to date.

Even with some hold backs for rainy day reserves, contingencies and debt retirement, the premier should have no difficulty funding any short-term priorities in his promised 100-day action plan.

He could easily provide more one-shot inflation relief, along the lines of his first-day-in-office announcement of $500 million worth of affordability credits and $320 million in B.C. Hydro credits.

On-going increases in program funding would create greater financial pressure in future years, particularly if the economy turns as expected.

Even capital projects are risky without thorough planning. On Friday, Robinson confessed that the cost of replacing the Cowichan district hospital has soared to $1.446 billion from $887 million, an overrun of 63 per cent.

When Premier John Horgan promised the replacement four years ago, it was costed at $600 million. Robinson attributed the overrun to bids that came in well over budget, owing to labour shortages and increased construction costs

To recap, Premier Eby has ample leeway to spend up to the March 31 ending of the current financial year. Beyond that the financial picture is not nearly as reassuring.

Which poses a political question: if this year is as good as it gets for the current term of government, can Eby afford to wait until October 2024 for the election?
He says he’ll stick with the date written into legislation.

But that’s what John Horgan said too, until he saw the opening for a snap election and seized it.

vpalmer@postmedia.com 

1. Vaughn Palmer: David Eby has far more financial leeway that his predecessor, thanks to $5.7 billion budget surplus

2. Vaughn Palmer: Eby discloses months-long forensic audit of B.C. Housing

3. Vaughn Palmer: David Eby's housing law mostly stick, with slice of carrot for municipalities

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