BUDGET 2000 FORECAST ALLOWANCE

Introduction

In the 1997 provincial budget, the government introduced the use of prudent revenue forecasting to recognize the uncertainties in predicting future economic developments, and the possibility that revenues could be lower than expected. By explicitly adopting a revenue estimate lower than the most likely forecast, the government increased the chance of meeting or exceeding the budget estimate.

In two of the past three years, the use of prudent revenue forecasts has reduced the amount by which revenues fell below target. For 1997/98, the revenue forecast was lowered by approximately $130 million by using a lower economic growth assumption than in the economic forecast. Without the reduction, final revenues, which were $1 million under budget, would have been $131 million below budget. In 1998/99, a revenue allowance of $130 million was subtracted from the revenue forecast. Final revenues were under budget by $135 million, but would have been $265 million below budget if the allowance had not been in place. For 1999/2000, a revenue allowance of $230 million was applied. Revenues are now estimated to be $1.0 billion over budget excluding the revenue allowance.

Budget 2000 Forecast Allowance

The adoption of the summary accounts basis for budgeting and reporting means that government's bottom line now includes the financial results of Crown corporations and agencies, as well as the results of the consolidated revenue fund (CRF). As a result, the summary accounts deficit is now the key budget management target. To reflect this change in focus, an overall forecast allowance is now placed immediately before the summary accounts bottom line. Use of the summary accounts forecast allowance replaces the previous practice that limited the allowance to CRF revenue alone. This allowance now applies to Crown corporation income shortfalls and CRF expenditure overruns as well.

In Budget 2000, the forecast allowance has been set at $300 million. The forecast allowance is higher than the $230 million set aside for the CRF revenue allowance last year, consistent with the increased variability of the bottom line when Crown corporations are added.

This allowance covers a wide range of possible circumstances, some of which may be offsetting, such as:

Adjustment to Budget 2000 Forecasts

The fiscal forecasts in Budget 2000 are based on government policies as at March 15, 2000. The forecasts also incorporate the following:

The Contingencies and New Programs vote will continue as a key expenditure management component of the CRF. Its inclusion as part of the Estimates approved by the Legislature will continue to provide the government with flexibility to help manage unforeseen spending changes through the year. In addition, the assumptions set out in Table B9 show other areas where provisions for higher-than-expected spending can occur (for example, the Ministry of Education appropriations contain a $10-million buffer for unexpected enrollment growth and other pressures). Offsetting these reserves are areas where budget overruns can occur, such as higher-than-expected payments under the Crown Proceeding Act, or forest fire fighting costs. In total, the CRF spending estimate of $22.3 billion represents the most likely forecast.

Overall, the government considers the assumptions noted above to be within the range of reasonable expectations, and that in aggregate they result in the most likely forecast of the summary accounts deficit. As a result, the effect of the $300-million forecast allowance is to increase the deficit from the most likely forecast of $978 million to $1,278 million.