resulting in the operating deficit disappearing in fiscal year 2013/14. Barring a fallback into recession or another
financial calamity, revenue surprises will be on the upside and there is a reasonable chance of a surplus emerging
one or two years earlier than in the budget.
Fiscal Plan: The provincial government budget deficit is projected at $2.775 billion in the current fiscal year,
declining to $1.715 billion in fiscal 2010/11, $0.945 billion in 2011/12, and to a negligible deficit in the following
year. A surplus is projected in 2013/14. A forecast allowance and contingencies provides a $0.781 billion buffer in
2010/11 and a $1.050 billion in each of the next three years. The total provincial debt rises each year in the fiscal
plan and reaches $58.7 billion or 25.9% of GDP in 2013/14.
Economic Forecast: Budget 2010 incorporates modest economic growth projections through to 2014
with nominal GDP growing 4.5% to 5.0% per year. The unemployment rate declines slowly to 7.0% in 2014. No
recession is foreseen, which is consistent with the consensus view and in any case is difficult to accurately predict
and the main reason for forecast allowances and contingencies.
ECONOMICS
B.C. Budget 2010
1
Five Year Fiscal Plan
($ millions) 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14
Revenue 38,328 37,050 39,190 40,957 42,800 44,280
Total Expense 38,250 39,700 40,605 41,602 42,545 43,470
Surplus (Deficit) before forecast allowance 78 (2,650) (1,415) (645) 255 810
Forecast allowance - (125) (300) (300) (400) (400)
Surplus (Deficit) 78 (2,775) (1,715) (945) (145) 410
Taxpayer-supported capital expenditures 3,778 4,013 5,414 3,609 3,073 3,053
Total capital expenditures 5,540 7,270 8,159 6,528 6,058 5,914
Direct Operating Debt 5,744 6,182 7,511 8,209 7,838 6,976
Total Taxpayer-supported Debt 26,446 29,093 33,748 36,720 38,329 39,618
Total Debt 38,014 41,318 47,757 52,363 55,862 58,667
Taxpayer-supported debt-to-GDP 13.4% 15.5% 17.2% 17.9% 17.8% 17.5%
Source: Budget and Fiscal Plan 2010/11 – 2012/13
B.C. Budget 2010 2
Analysis: Generally, the Ministry of Finance’s forecasts are positioned conservatively. Central 1’s forecast
is more robust in each year of the fiscal plan so that nominal GDP in 2013 is higher by 6.6% or $14.9 billion.
Nominal GDP growth averages 6.1% per year in Central’s forecast versus 4.8% in the fiscal plan. In the Budget’s
fiscal sensitivities table, a 1% change in nominal GDP implies an annual fiscal impact of $150 to $250 million. If
Central 1’s forecast is used, revenues would be about $0.85 to $1.4 billion higher in total to 2013/14.
The forecast averages of the Economic Forecast Council are also higher than the Ministry of Finance forecasts
in each year of the fiscal plan. This applies not only to nominal and real GDP but also to other key indicators
such as the unemployment rate, corporate profits, retail sales, housing starts, U.S. GDP and Canada GDP. The
Ministry’s approach provides a downside buffer to the revenue projections.
Revenue: Projected total revenue grows 5.8% in 2010/11 slowing to 4.5% in the next two years resulting in
$42.8 billion in 2012/13, up 15.5% from 2009/10. The largest contributor to total revenue is from taxation with
a $3.0 billion increase or up 17.7% from 2009/10. Taxation revenue grows mainly from personal income and
consumption taxes, the HST and carbon taxes in particular. Natural resource revenue increases $1.2 billion or
46.2%, mainly on natural gas activity. MSP premiums are increasing Jan. 1, 2011 helping lift other revenue line
Ministry of Finance Economic Forecast: Key Economic Indicators
2009 2010 2011 2012 2013 2014
Real GDP -2.7 e 2.2 2.3 2.7 2.8 2.8
Nominal GDP -5.0 e 4.5 4.7 5.0 4.9 4.8
Employment -2.4 0.9 1.4 1.8 1.8 1.8
Unemployment rate (%) 7.6 7.9 7.7 7.3 7.1 7.0
Total net in-migration (persons, 000s) 57.7 1 53.9 53.6 52.2 52.8 54.0
Personal Income 5.2 e -1.0 2.1 3.8 4.5 4.5
Corporate pre-tax profits -35.8 e 12.7 9.8 7.6 7.5 7.3
Housing starts (units, 000s) 16.1 20.5 23.6 25.8 27.2 27.8
Retail sales -5.1 3.9 4.1 4.6 4.7 4.7
Per cent change unless otherwise noted. Forecasts 2010 to 2014. e Ministry of Finance estimate. 1 BC STATS estimate.
Source: Budget and Fiscal Plan 2010/11 – 2012/13
Revenue by Source
($ millions) Actual
2008/09
Updated
Forecast
2009/10
Budget
Estimate
2010/11
Plan
2011/12
Plan
2012/13
Taxation revenue 18,197 17,023 17,422 18,658 20,039
Natural resource revenue 3,848 2,705 3,280 3,683 3,954
Other revenue 7,389 7,640 7,874 8,251 8,732
Contributions from the federal government 5,989 6,834 7,685 7,283 6,979
Commercial Crown Corporation net income 2,905 2,848 3,001 3,082 3,096
Total revenue 38,328 37,050 39,190 40,957 42,800
Source: Budget and Fiscal Plan 2010/11 – 2012/13
B.C. Budget 2010 3
by 14.3%. The government is reallocating the timing of the HST transition payment from the federal government
so that most appears in the next two years. Previously, $750 million was allocated to 2009/10 compared to $250
currently.
Analysis: Taxation revenues will likely some in higher than projected based on Central 1’s forecasts. Personal and
corporate income taxation along with higher HST revenues will be the main sources of revenue outperformance.
Tax Measures: Very few new measures were announced in Budget 2010. A couple of notable tax changes were
the increase in MSP premiums effective Jan. 1, 2011 and a northern and rural benefit of $200 for homeowners
beginning in the 2011 tax year.
Spending: Total government expense increased 3.8% during the recession and is projected to increase 2.3%
in the coming fiscal year followed by a comparable amount in the years to 21012/13. Total spending rises 7.2%
between 2009/10 and 2012/13 to $42.5 billion. Spending on health services grows 13.8% and accounts for
76.5% of the total increase of $2.84 billion. In contrast, education spending increases 2.6% and social services by
0.6%. Debt servicing costs are projected to rise 33.6% or $0.74 billion to $2.95 billion.
Full-Time Equivalents (FTEs): Budget 2010 put forward a three-year plan to reduce the number of FTEs
in the provincial government by 10.4% or 3,720. This is a large change from the plan in Budget 2009 and in the
September Budget Update in which the current 2011/12 FTE projection is 9.6% and 6.5% lower, respectively.
Ministries and special offices will face an 11.4% reduction while FTEs in special delivery agencies are to decline
by 3.8%. Voluntary exits, including retirements, are expected to result in attrition-based reductions in the public
service. Budget 2010 does not include funding for wage increases as collective agreements are renewed, consistent
with the net-zero cost mandate for the collective bargaining cycle already underway.
Expense by Function
($ millions) Actual
2008/09
Updated
Forecast
2009/10
Budget
Estimate
2010/11
Plan
2011/12
Plan
2012/13
Health 15,050 15,717 16,474 17,426 17,893
Education 10,470 10,734 10,820 10,949 11,011
Social Services 3,150 3,399 3,454 3,419 3,418
Protection of persons and property 1,406 1,433 1,426 1,365 1,364
Transportation 1,402 1,448 1,515 1,670 1,739
Natural resources and economic development 1,578 1,916 1,314 1,389 1,416
Other 1,732 1,227 1,395 1,203 1,219
Contingencies - 456 450 450 450
General government 1,336 1,162 1,376 1,110 1,085
Debt servicing costs 2,144 2,208 2,381 2,621 2,950
Subtotal 38,268 39,700 40,605 41,602 42,545
Other (18) - - - -
Total expense 38,250 39,700 40,605 41,602 42,545
Source: Budget and Fiscal Plan 2010/11 – 2012/13
B.C. Budget 2010 4
Analysis: According to the budget document, staffing costs represent about 7% of consolidated revenue fund
expenses (about $34 billion) implying a total cost of around $2.4 billion per year. An 11.4% reduction in FTEs in
2012/13 results in a lower total staffing cost of about $275 million. During the three-year plan, lower staffing costs
amount to about $575 million.
Capital Spending: Infrastructure spending climbs to $8.1 billion in the coming year from $7.3 billion last
year. Spending declines in 2010/11 to $6.5 billion and $6.0 billion in 2012/13. Contingencies of between $200
and $300 million per year provide a buffer against unforeseen costs.
Capital Spending
($ millions) Actual
2008/09
Updated
Forecast
2009/10
Budget
Estimate
2010/11
Plan
2011/12
Plan
2012/13
Total taxpayer-supported 3,778 4,031 5,414 3,609 3,073
Total self-supported commercial 1,762 3,257 2,745 2,919 2,985
Total capital spending 5,540 7,270 8,159 6,528 6,058
Source:Budget and Fiscal Plan 2010/11 – 2012/13
Analysis: Capital spending provides an economic boost for the construction industry and the economy
in addition to providing vital services to the population and economic agents. The return on public capital is
considerable and similar to the rate of return on private capital. The financing of public capital accounts for the
bulk of the provincial debt.
Provincial Debt: Taxpayer-supported debt is forecast to increase 31.7% or $9.2 billion to $38.3 billion by
2012/13, reflecting the capital investments planned over the next three years and the projected deficits. Total
provincial debt, which includes commercial Crown self-supported debt, is forecast to increase 35.2% or $14.5
billion to $55.9 billion by 2012/13.
The ratio of taxpayer-supported debt, which excludes commercial Crown corporations’ debt, to GDP ratio is
forecast to increase from 15.5% in 2009/10 to 17.2% in 2010/11 and to 17.9% in 2011/12 before returning to a
downward trend by falling to 17.8 per cent in 2012/13. Total provincial debt-to-GDP rises to 25.9% in 2012/13
from 22.0% in 2009/10.
Full-Time Equivalents (FTEs)
Actual
2008/09
Updated
Forecast
2009/10
Budget
Estimate
2010/11
Plan
2011/12
Plan
2012/13
Ministries and special offi ces (CRF) 31,874 31,284 30,096 28,501 27,732
Service delivery agencies 4,403 4,436 4,204 4,249 4,268
Budget 2010 36,277 35,720 34,300 32,750 32,000
September Budget Update 2009 36,277 36,427 35,589 35,043
Budget 2009 36,205 36,564 36,448 36,232
Sources: Budget and Fiscal Plan 2009/10 to 2011/12, September Budget Update 2009/10 to 2011/12,
Budget and Fiscal Plan 2010/11 to 2012/13
Central 1 Credit Union Economics
Helmut Pastrick, Chief Economist . David Hobden, Economist . Judy Wozencroft, Economic Services Coordinator
5
Provincial Debt Summary
($ millions unless otherwise indicated) Actual
2008/09
Updated
Forecast
2009/10
Budget
Estimate
2010/11
Plan
2011/12
Plan
2012/13
Total taxpayer-supported debt 26,446 29,093 33,748 36,720 38,329
Total self-supported debt 11,568 12,100 13,709 15,343 17,133
Total debt before forecast allowance 38,014 41,193 47,457 52,063 55,462
Forecast allowance - 125 300 300 400
Total provincial debt 38,014 41,318 47,757 52,363 55,862
Debt as a percent of GDP
Taxpayer-supported 13.4% 15.5% 17.2% 17.9% 17.8%
Total provincial 19.2% 22.0% 24.3% 25.5% 25.9%
Source: Budget and Fiscal Plan 2010/11 to 2012/13
Analysis: Debt levels are rising at a faster pace following as a result of the recession, operating deficits and
stepped up capital spending. The provincial government’s starting point for this cyclical upturn came from a low
point following the surplus years earlier this decade. The projected debt burden is not onerous and a plan is in
place to control its trajectory. The bond rating agencies will view the plan as credible and not make any changes
to the province’s AAA rating. There is a greater than 50:50 chance debt levels will be lower than projected since
there are a number of prudence factors built into the fiscal plan.
The 2010/11 deficit could come in below $1 billion and there is a small chance the 2011/12 deficit disappears
assuming the economy grows sufficiently to generate more revenues than in the plan. An operating surplus very
likely emerges in 2012/13 and the surplus in 2013/14 could well top $1.5 billion. Should these results prevail, the
provincial debt would be correspondingly lower so that by 2012/13, the total debt could be closer to $50 billion
and down to 21% of GDP.
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