Ministry of Finance and Corporate Relations
Honourable Paul Ramsey, Minister
This electronic version is for informational purposes only.
The printed version remains the official version.
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| Report B: FISCAL REVIEW AND OUTLOOK | ||
Ministry of Finance and Corporate Relations Honourable Paul Ramsey, Minister |
This electronic version is for informational purposes only. The printed version remains the official version. |
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Update of 1999/00
Consistent with the recommendations of the Budget Process Review Panel, the focus of the government's budgeting and reporting has shifted to the summary accounts basis. The summary accounts combine the financial results of the government with all of its Crown corporations and agencies.
Table B1 provides an update to the revised fiscal forecast for 1999/00. Operating results are presented for the summary accounts and for the government's consolidated revenue fund (CRF).
The summary accounts deficit is projected at $1.1 billion in 1999/00, $384 million less than budget. This is $241 million lower than the forecast in the Third Quarterly Report, and includes a $100-million forecast allowance for changes before fiscal year-end.
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The forecast reflects the following changes since the Third Quarterly Report:
The revised forecast for the 1999/00 summary accounts deficit includes one-time write-down adjustments of $617 million for the British Columbia Railway Company, $240 million for the British Columbia Ferry Corporation, $70 million for the Vancouver Trade and Convention Centre and $41 million for the Kemess mine. Excluding these adjustments, the summary accounts deficit is estimated at $177 million in 1999/00.
Totals provincial debt is projected to total $34.3 billion by year-end, down $169 million from the level forecast in the Third Quarterly Report. A $430-million reduction in taxpayer-supported debt and a $98-million reduction in commercial Crown corporation debt are partially offset by additional warehouse borrowing in advance of 2000/01 requirements.
Details on changes to the fiscal forecast compared to budget are shown in Table B2.
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2000/01 Fiscal Plan
The summary accounts deficit is projected to be $1.3 billion in 2000/01, $133 million higher than the 1999/00 revised forecast. As shown in Chart B1 and Table B3:
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CRF revenue is estimated at $21.5 billion in 2000/01, an increase of 0.5 per cent from the 1999/00 revised forecast. The 2000/01 budget estimate incorporates new provincial tax reductions introduced in this year's budget totaling $227 million, and the phase-in of tax reductions introduced in the federal and provincial budgets during the last two years. These reductions are partially offset by the withdrawal of British Columbia's remaining entitlements to the federal Canada health and social transfer (CHST) supplements in 2000/01.
CRF expenditure will total $22.3 billion in 2000/01, an increase of $1.26 billion or 6 per cent from the 1999/00 budget estimate. The increase incorporates the full-year effect of a number of spending pressures in 1999/00, new expenditures for key priorities in 2000/01, and a $125-million contingencies reserve for unforeseen spending pressures.
Excluding one-time expenditures in 1999/00 for assistance to the British Columbia Ferry Corporation and the write-down of various investments, CRF spending in 2000/01 will be $898 million, or 4.2 per cent higher than the 1999/00 revised forecast.
Expenditure will exceed revenue in 2000/01, resulting in a consolidated revenue fund shortfall of $800 million. This shortfall is $408 million lower than the revised forecast for 1999/00, and $50 million below the five-year planning assumption shown in the 1999/00 budget.
In total, Crown corporations and agencies are projected to show a combined loss of $178 million in 2000/01.
Taxpayer-supported Crown corporation and agency net losses (after adjustments) are estimated at $306 million. This consists of operating losses totaling $17 million, a $62-million dividend paid by the British Columbia Buildings Corporation, and accounting adjustments of $227 million to primarily reflect the amortization of the costs of highways transferred to the BC Transportation Financing Authority in 1998/99.
The net contribution from self-supported Crown corporations is estimated at $128 million in 2000/01. Combined net income of $1.7 billion is partially offset by $1.4 billion of contributions paid to the consolidated revenue fund and accounting adjustments totaling $154 million. These accounting adjustments primarily reflect the transfer of British Columbia Lottery Corporation revenue to charities and municipalities, and British Columbia Hydro and Power Authority's required withdrawal from its rate stabilization account.
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Consolidated Revenue Fund
2000/01 Revenue
Revenue of the consolidated revenue fund is projected to increase $115 million or 0.5 per cent from the 1999/00 revised forecast.
Personal income tax revenue Personal income is expected to grow 3.2 per cent in 2000/01, but this is more than offset by:
| | the loss of $293 million in one-time revenue received in 1999/00 for additional assessments related to previous years; |
| | a further reduction of $63 million due to the continuation of federal and provincial tax reductions introduced in 1998/99 and 1999/00; |
| | a reduction of $12 million due to the previous announcements to reduce the top marginal personal income tax rate to 49.9 per cent. |
| | a $175-million loss of provincial revenue due to new provincial tax reduction measures to reduce taxes in conjunction with recent federal changes in 2000/01; and |
| | an additional provincial tax reduction measure introduced in 2000/01 to further reduce provincial taxes by $50 million in 2000/01. |
As a result, personal income tax revenue will decline 4.2 per cent in 2000/01, and there will also be a reduction in 1999/00 revenue of $46 million.
The forecast incorporates British Columbia's new personal income tax (tax-on-income) system introduced for the 2000 tax year (see Report C for further information on the new tax system).
Corporation income tax revenue down 2.6 per cent. Despite a higher federal forecast of the national tax base in 2000, lags in the corporate income tax system and a lower share of the national tax base in 1998 mean that the province will receive lower installment payments in 2000/01. The forecast incorporates tax reductions of $50 million introduced in the last two budgets, and new measures that reduce revenue by $31 million in 2000/01. This includes a reduction in the small business tax rate to 4.75 per cent from 5.5 per cent, effective July 1, 2000, and a new manufacturing and processing investment tax credit effective April 1, 2000.
Other tax revenue strengthening growth in retail sales and investment spending will result in a 3.6-per-cent increase in social service tax revenue. A 4.2-per-cent decline is projected for fuel tax revenue mainly due to a $30-million increase in transfers of dedicated tax to Crown corporations and agencies. Elsewhere, growth in revenue from property tax, property transfer tax, insurance premium tax and hotel room tax will be partially offset by lower revenue from corporation capital tax due to threshold reductions introduced in the 1998/99 budget.
Petroleum, natural gas and minerals revenue down 4.4 per cent. Continuing strength in natural gas royalties, due to strong prices, will be more than offset by lower revenue from sales of Crown land drilling rights and minerals. The particularly high levels of drilling right sales in 1999/00 are not expected to continue in 2000/01.
Forests revenue up 0.3 per cent. The effect of an expected decline in harvest volumes, together with a lower forecast of average spruce-pine-fir (2 x 4) prices, is offset by higher logging tax revenue.
Other revenue a 2.3-per-cent increase in 2000/01 will result from increased volumes of fees and licences and additional sales of Crown land. The forecast assumes that $50 million will be realized from sales of surplus assets and other properties.
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Crown corporation contributions a slight decrease is expected in 2000/01, as lower contributions from the British Columbia Lottery Corporation and British Columbia Buildings Corporation are partially offset by higher contributions from British Columbia Hydro and Power Authority and other Crown corporations and agencies.
Federal contributions CHST contributions will increase $222 million in 2000/01. As planned, in 1999/00 the provincial government withdrew $350 million of its full entitlement to the CHST supplement announced in the 1999/00 federal budget. In 2000/01, the provincial government will withdraw the remaining $121 million of this entitlement, and will also withdraw its full $333-million entitlement to the additional supplement announced in the 2000/01 federal budget.
An additional $118 million will be received due to federal changes to the national basic entitlement, partially offset by the loss of $50 million in one-time revenue received in 1999/00.
The revenue forecast excludes $568 million of dedicated revenues collected on behalf of taxpayer-supported Crown corporations and agencies in 2000/01. These revenues are reported as part of the net income of the Crown corporations and agencies shown in Table B4.
With the transition to summary accounts budgeting and reporting, a specific revenue allowance is no longer presented for consolidated revenue fund revenue. As shown in Table B4, and explained in the Budget 2000 Forecast Allowance topic box in this report, a $300-million allowance is provided at the summary accounts level to allow for unforeseen developments in both the consolidated revenue fund and in Crown corporations and agencies.
A detailed breakdown of forecasts for individual revenue sources is shown in Table H6.
Factors Affecting the 2000/01 Revenue Budget Estimate
Although nominal growth in the provincial economy is estimated at 3.8 per cent in 2000, and contributes almost $600 million in additional revenue, a number of factors will offset this revenue growth in 2000/01. Table B6 provides an overview of key factors affecting the 1999/00 revised forecast, the starting point in preparing the 2000/01 revenue forecast.
Like some other provinces, British Columbia received significant one-time revenue in 1999/00 as a result of final personal income tax assessments for 1998 and previous years. An adjustment was also received for additional CHST entitlements. These prior-year adjustments are not expected to recur in 2000/01.
Continuing federal and provincial tax reduction measures introduced during the last two years, and new provincial measures introduced in this budget will further reduce revenue by $426 million in 2000/01.
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The effects of stronger economic growth are expected to mainly affect taxation revenue sources. However, this will be partially offset by a decline in natural resource revenue, as the rapid growth in activity during 1999/00 is not expected to continue at the same pace in 2000/01.
The $236-million increase in CHST due to formula and supplement changes is made up of $104-million in additional CHST supplement in 2000/01 ($454 million in total), and $132 million due to federal changes to the national cash floor base.
Revenue Assumptions and Forecast Risks
Typically, changes to the revenue forecast result from a combination of factors. These include changes in economic conditions, policy changes implemented mid-year, and other unpredictable events such as changing weather patterns, foreign trade restrictions (e.g. domestic and external market responses to the Canada/U.S. Softwood Lumber Agreement), and labour disruptions. Usually, some changes offset others. For example, the higher-than-expected natural resource revenue in 1999/00 helped offset lower-than-planned contributions from Crown corporations.
Table B7 details key economic and other assumptions for the main revenue sources in the 2000/01 revenue forecast. In addition, the table provides estimates of the sensitivity of revenues to changes in individual assumptions.
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2000/01 Expenditure
Expenditure of the consolidated revenue fund is estimated to increase $1,255 million or 6.0 per cent from the 1999/00 budget estimate. Excluding one-time expenditures of $1,191 million in 1999/00, for assistance to the British Columbia Ferry Corporation and the write-down of various investments, spending is projected to increase $898 million or 4.2 per cent from the 1999/00 revised forecast.
Chart B2 shows that in real per person terms (total expenditure divided by the British Columbia population and adjusted for inflation), consolidated revenue fund spending is projected to grow 1.7 per cent in 2000/01, slightly higher than the 1.3 per cent increase in 1999/00, excluding one-time expenditure items.
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Over 85 per cent of the budget increase in 2000/01 will be used to provide increased funding for core social program areas. A portion of this increase reflects the recognition of some of the unexpected spending increases experienced in 1999/00.
Chart B3 provides an overview of major increases from the 1999/00 expenditure budget, the starting point in preparing the 2000/01 expenditure estimates.
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Highlights of spending changes from the 1999/00 budget estimates include:
Ministry of Health up $549 million including $183 million for compensation increases for health care workers in regional programs. The budget for acute and continuing care includes increased funding of $42 million for additional beds and home care services. This provides for the opening of 194 new continuing care beds in 2000/01, and the full-year cost of new beds and services announced in mid-1999/00. The ministry budget also provides a 4.9-per-cent or $33-million increase for provincial critical services including cancer treatment, cardiac care and transplants, and renal dialysis.
The Medical Services Plan budget increases by $156 million and provides for the recent negotiated agreement with physicians, in addition to demographic changes, anticipated fee increases and additional physician services at the British Columbia Cancer Agency. The Pharmacare budget will increase $111 million to recognize the unexpected funding shortfall in 1999/00, and to accommodate both increasing utilization and expected costs of providing access to new and more expensive drug therapies in 2000/01.
Other increases in the Ministry of Health include an additional $22 million for capital and debt servicing.
Ministry of Education up $191 million. A 3.6-per-cent increase in public school operating contributions includes $14 million to support the third year of the K-3 class size reduction initiative (to a maximum of 20 pupils for Kindergarten classes and 22 pupils for grades one to three). All signed collective agreements are funded. The budget also reflects changes in the composition of the student population (e.g. ESL and special needs children).
Other ministry increases include $2 million for independent schools, an additional $4.5 million for learning resources and $59 million for capital and debt servicing.
Ministry of Advanced Education, Training and Technology up $110 million. The post-secondary education programs budget will increase 6.1 per cent to provide $39 million for 5,025 new post-secondary seats; $38 million for contracted salary and benefit increases and tuition freeze compensation for institutions; $6 million to fund increased demand for student financial assistance; and for enhancements/new initiatives in the post-secondary system. The budget also includes additional funding for the Industry Training Apprenticeship Commission. Royal Roads University will receive an additional $4 million to replace federal funding.
The budget also provides $4 million for increased capital and debt servicing costs and a $10-million increase for British Columbia Transit.
Ministry of Social Development and Economic Security up $63 million. The BC Benefits program budget will increase $42 million. It provides $23 million for a planned 2-per-cent income assistance rate increase in July 2000, $30 million for the reinstatement of the flat-rate earnings exemption, and $14 million for implementation of a before-and after-school child care program on school sites.
The budget increases are partly offset by $52 million of savings resulting from a projected 4.2-per-cent decline in the income assistance caseload (in 1999/00, the caseload fell 4.5 per cent). Housing programs will increase $16 million to provide subsidies for new affordable housing units completed in 2000/01, higher maintenance costs to address water penetration problems in provincial social housing complexes, and full-year funding for the sales tax relief grant program introduced in 1999/00.
Ministry for Children and Families up $184 million. Services for children and families will increase $54 million and community living services for adults will increase $113 million. The increases primarily reflect the direct and indirect costs of contract changes for community social services workers. Additional funding of $15 million is provided to reduce wait-lists for Children's Health and Community Living Services, and to establish an early-intervention children's health program. The budget also provides $12 million for care of migrant children.
Ministry of Attorney General an $18-million budget increase provides $8 million for additional police officers, $6 million for pre-trial facilities, and additional funding for the Organized Crime Agency and BC2000 grants.
Ministry of Agriculture, Food and Fisheries up $17 million to provide funding of $8 million to Fisheries Renewal BC, $11 million for program enhancements and rural development, and funding for seafood, shellfish and freshwater fisheries development. These increases are partially offset by reduced spending in other ministry programs.
Forests up $12 million to provide increased funding for bridge rehabilitation and pest management.
Ministry of Women's Equality up $11 million to provide for labour cost increases in the contracted community social services sector and other program enhancements.
BC Family Bonus down $29 million due to expected program changes to the federal National Child Benefit System.
Management of Public Funds and Debt (debt interest) up $69 million due to higher borrowing requirements and additional costs of assuming debt of the British Columbia Ferry Corporation and the Vancouver Trade and Convention Centre in 1999/00.
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Other budget changes include:
Expenditure Assumptions and Forecast Risks
The main assumptions supporting the 2000/01 expenditure estimates are summarized in Table B9, together with a description of the major risks and sensitivities.
Other Expenditure Assumptions and Risks
The expenditure budgets for the Ministries of Forests and Attorney General include amounts to fight forest fires and for other emergencies such as floods and blizzards. These amounts assume normal to moderate conditions and severity of costs based on historical patterns. Although the overall expenditure budget includes a $125-million contingency vote, express provisions are not included for catastrophes or disasters beyond the amounts already identified in ministry budgets. Costs of such unforeseen events may also affect other ministry programs.
The revised expenditure forecast for 1999/00 includes estimates of potential liabilities for known or likely settlements of completed or pending litigation where amounts are determinable. The Ministry of Attorney General provides an assessment of the likelihood of potential liabilities resulting from pending litigation as part of the finalization of the Public Accounts after March 31st each year. Depending on the opinions of legal counsel and other developments, estimated costs and liabilities could be different than assumed in the 1999/00 revised forecast.
The 2000/01 expenditure budget for the Ministry of Attorney General contains provisions for settlements under the Criminal Injuries Compensation Act and Crown Proceeding Act, based on estimates of expected claims and related costs of settlements likely to be incurred in 2000/01. Other litigation developments may occur that are beyond the assumptions used in the budget forecast, and may also affect expenditures in other ministries.
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The 1999/00 revised expenditure forecast includes a number of extraordinary adjustments, such as the write-down of the government's loans and investments related to the Vancouver Trade and Convention Centre and the Kemess mine. Although the revised forecast incorporates all known and likely adjustments at the time of preparing the budget, further adjustments may occur as the accounts of the government are reviewed by the Auditor General. The 2000/01 expenditure budget does not assume or make allowance for extraordinary adjustments other than the amount provided in the contingencies vote.
A number of ministry budgets assume that a portion of expenditures will be recovered from other agencies. The 2000/01 expenditure budget assumes that budgeted recoveries will be fully realized. Should recoveries be lower than budgeted, this could result in additional net expenditures.
With respect to 1999/00, the summary accounts revised forecast includes a $100-million forecast allowance for unforeseen changes to the end of the fiscal year. With respect to 2000/01, the summary accounts budget forecast includes a $300-million forecast allowance for unforeseen developments during the year.
Crown Corporation Results 2000/01
In aggregate, Crown corporations are projected to have a net loss of $178 million in 2000/01, compared to net income of $163 million in 1999/00 (see Table B4). The change from last year largely reflects the positive effect in 1999/00 of the government's forgiveness of $1.1 billion of British Columbia Ferry Corporation debt, partially offset by write-downs of the fast-ferries and British Columbia Railway Company investments.
These estimates are based on information provided by Crown corporations and agencies, and in some cases are subject to confirmation by their Boards of Directors as their annual financial plans are approved.
British Columbia Buildings Corporation net income of $62 million will increase $23 million from the 1999/00 forecast. Increased gains from property sales and lower debt servicing costs are partially offset by lower operating revenue and higher operating costs. In 2000/01, the corporation will provide a $62-million dividend to the provincial government. Further details are shown in Table H8.
British Columbia Ferry Corporation a projected net loss of $10 million will be $298 million lower than the previous year, mainly due to the effect of the one-time write-down of the fast-ferries in 1999/00, and reduced interest costs due to the government's forgiveness of $1.1 billion of debt. Operating revenue will increase 2.8 per cent mainly due to increased motor fuel tax received from the provincial government. Operating expenses will fall 8.8 per cent as reduced interest costs are partially offset by higher fuel, repair and maintenance costs. Further details are shown in Table H8.
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BC Transportation Financing Authority a projected net loss of $1 million reflects higher financing, amortization and grant costs, partially offset by a 0.25-cent/litre increase in dedicated provincial fuel tax transferred to the authority. Further details are shown in Table H8.
Forest Renewal BC a projected net loss of $52 million is $5 million higher than 1999/00. Lower revenue resulting from lower expected harvesting activity is partially offset by reduced spending. Further details are shown in Table H8.
British Columbia Hydro and Power Authority projected net income of $429 million is $11 million higher than in 1999/00. Increased revenue, primarily due to higher electricity export sales, will be partially offset by higher costs for energy, operations, maintenance and debt interest. The forecast assumes a continuation of a rate freeze and that a small withdrawal will be required from the rate stabilization account in order for the authority to supplement its net income requirements in 2000/01.
Liquor Distribution Branch projected net income of $620 million is up 0.8 per cent from 1999/00. A 1.8-per-cent increase in net sales will be partially offset by higher product and operating costs.
British Columbia Lottery Corporation projected net income of $534 million is up $9 million from the 1999/00 forecast. Higher revenue from lottery sales will be partially offset by lower revenue from casino and bingo operations, and higher costs for prizes, equipment and facilities.
British Columbia Railway Company excluding the effects of the $617-million write-down of rail investments in 1999/00, projected net income of $40 million from operations is $5 million higher than the previous year. Increased revenue from various operations, including the Finlay Navigation Partnership (finalized in June 1999), will be partially offset by higher operations and debt interest costs.
Insurance Corporation of British Columbia projected net income of $3 million is $93 million lower than in 1999. Re-estimates of the cost of settling previous years' injury claims are not expected to result in the same level of significant savings as in 1999. This effect is partially offset by lower costs of current claims incurred and by higher premium revenue due to increased sales.
Crown Corporation Assumptions and Forecast Risks
The main assumptions supporting the forecasts are summarized in Table B10, together with a description of the material risks and sensitivities.
Other Forecast Assumptions and Risks
Crown corporations and agencies have provided information used to prepare the summary accounts forecasts for 1999/00 and 2000/01, as well as the statements of assumptions and risks.
With respect to 1999/00, the revised forecasts incorporate known and likely costs and adjustments arising from pending litigation or extra-ordinary items such as the write-down of assets in the British Columbia Railway Company and British Columbia Ferry Corporation. Further adjustments may occur as a result of litigation developments or reviews of the accounts of the Crown corporations and agencies by their auditors. The 1999/00 the summary accounts revised forecast includes a $100-million forecast allowance for unforeseen changes to the end of the fiscal year.
The 2000/01 budget forecasts do not assume or make allowance for extraordinary adjustments other than those noted in the assumptions provided by the Crown corporations and agencies. The 2000/01 summary accounts budget forecast includes a $300-million forecast allowance for unforeseen developments during the year.
Provincial Net Debt1 2000/01
Provincial net debt, which includes the debt of the government and all of its Crown corporations and agencies, is estimated to total $36.5 billion at March 31, 2001, or 30.7 per cent of provincial gross domestic product (GDP).
Taxpayer-supported net debt, which excludes the self-supported debt of commercial Crown corporations and the provincial warehouse borrowing program, will total $27.9 billion or 23.5 per cent of GDP by the end of 2000/01. Self-supported debt will total $8.6 billion.
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Chart B4 shows the expected changes in total provincial net debt in 2000/01. In total, provincial debt will increase $2.2 billion in 2000/01. Taxpayer-supported net debt will increase $3.0 billion to finance the consolidated revenue fund shortfall and working capital requirements, and to finance various capital projects of the government and taxpayer-supported Crown corporations and agencies. This increase will be partially offset by a $0.8-billion reduction in self-supported debt, primarily reflecting a draw-down of previously borrowed funds held under the provincial warehouse borrowing program.
Table B11 outlines the expected financing activities for the province during 2000/01. In total, new financing requirements for the provincial government and its Crown corporations and agencies are estimated at $4.9 billion in 2000/01. This consists of:
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Borrowed funds will be used to finance retirement provisions of $2.7 billion, including debt maturities of $2.2 billion, and to partially finance capital expenditures of $3.1 billion and operating and working capital requirements of the consolidated revenue fund, Crown corporations and agencies. Some financial requirements (for example, certain commercial Crown corporation projects and portions of taxpayer-supported infrastructure projects) will be financed though internal sources such as net income of the British Columbia Hydro and Power Authority, and surplus cash balances at the end of 1999/00.
Further information on provincial financing activities is provided in the Provincial Financing topic box in this report. Details on the net debt outstanding for the government, Crown corporations and agencies are provided in Table H9, and summary debt indicators are provided in Table H10.
Capital spending
Provincial debt includes borrowing for schools, hospitals, transportation, utilities and other capital infrastructure projects. Total capital spending for 2000/01, including self-supported Crown corporations, is estimated at $3.1 billion, up $403 million from the 1999/00 revised forecast.
During 2000/01, capital expenditure increases for government ministries, education, health and power generation projects will be partially offset by reduced spending for transportation projects (see Table B12).
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Table B13 provides a list of projects that were completed in 1999/00, and projects that will be continued or started in 2000/01. The table represents only a partial list of the many projects occurring throughout the province in 2000/01.
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Debt amounts are reported on a net debt basis, after deducting accumulated sinking funds set aside for debt repayment, and after accounting adjustments (e.g. unamortized discounts). |
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| Copyright © 2000: Queens Printer, Victoria, British Columbia, Canada |
