Ministry of Finance and Corporate Relations
109 -- 617 Government Street
Victoria, B.C. V8V 1X4
PHONE (604) 387-3347 FAX (604) 356-2822
BUDGET '95 FACT SHEET
The Debt Management Plan
The government has listened to people's concerns that debt must be controlled -- that it must not threaten essential services or burden the public with more taxes.
And the government has listened to the advice of business and labour leaders who have concluded that the provincial debt must be managed by balancing the budget and ensuring that capital investment is managed within tight fiscal benchmarks.
B.C. has been very conservative in how it manages its debt -- as a result, it has the lowest debt per person and spends less than any other province to service its debt.
To keep B.C.'s debt the lowest in Canada, the 1994 budget included a fiscal plan that focused on eliminating the deficit by 1996/97. This has been accomplished, one year ahead of schedule, without increasing taxes.
The 1995 budget includes a comprehensive debt management plan to cap B.C.'s debt costs and reduce B.C.'s debt relative to the provincial economy. The plan outlines how government will pay down the accumulated direct debt and control the cost of total taxpayer-supported debt.
The Debt Management Plan
The debt management plan will maintain B.C.'s high credit rating by:
[ TAXPAYER-SUPPORTED DEBT ]
- Paying off in 20 years the debt incurred from previous annual budget deficits, beginning with $414 million this year -- $114 from the surplus, and $300 million of proceeds from the final sales of the B.C. Endowment Fund assets.
- Cutting in half taxpayer-supported debt, relative to B.C.'s economy, over the next 20 years: from 19.1 per cent of the provincial economy today to 10.2 per cent by the year 2015.
- Capping the cost of taxpayer-supported debt at 8.5 cents for every dollar of government revenues, and reducing that cost to 7.0 cents within 10 years and 5.0 cents within 20 years.
- Holding any increase in government spending to less than the growth of the economy so that the cost of government continues to decline over time.
[ DEBT INTEREST BITE ]
Reporting on the Size of the Debt
- A debt management progress report will be published each year, and will be reviewed by the auditor general for accuracy and completeness.
Commercial Debt -- is the amount owed by commercial Crown corporations that operate without government subsidies: for example, BC Rail and BC Hydro.
- Total debt guaranteed by the province of B.C. can be broken down into commercial debt and taxpayer-supported debt.
Their debt is guaranteed by the government, but their debt servicing costs and repayment requirements are paid out of their own revenues, just like private sector companies.
Taxpayer-Supported Debt -- interest and principal repayments are made at least in part with tax dollars, so this debt is called taxpayer-supported debt.
At March 31, 1995, taxpayer-supported debt totals $19.5 billion.
Bond rating agencies assess and compare government debt on this basis.
Taxpayer-supported debt has two parts: the debt to fund annual operating deficits, and the debt to fund capital projects.
Debt to fund annual operating deficits
- If government spends more in a year than it collects in revenue, the result is called a deficit.
- The accumulation of past annual budget deficits is known as the total direct debt. At March 31, 1995 the direct debt stands at $10.2 billion.
- Direct debt grew by $3.6 billion from 1991/92 to 1994/95. Now that the deficit has been eliminated, direct debt will fall by $414 million in 1995/96, and will continue to fall until the year 2015, when it will be eliminated.
Debt to pay for capital projects
- Money is borrowed by government agencies and subsidized Crown corporations to build capital projects such as schools, hospitals, roads and bridges.
- For nearly 30 years, B.C. has borrowed money to pay for these kinds of projects.
- Rather than paying for these projects in advance, the costs are spread among all who benefit, over an appropriate period which is never longer than the life of the asset.
- From 1991/92 to 1994/95, debt to pay for capital projects grew by $2.7 billion: a backlog of projects had to be filled, and demand on services increased.
- Severe cutbacks in capital spending in the mid-1980s left the province with an excess number of portable classrooms, a shortage of long-term care homes, transportation gridlock, and an aging ferry fleet.
- In addition, B.C. grew by an average of 100,000 people each year, putting pressure on existing services.
- This level of borrowing will not continue over the long term because as the backlog is filled, government is slowing the rate of capital spending to ensure that total debt remains affordable.
- Under the debt management plan, high-priority projects for British Columbians will be funded, facilities will be used in the most productive way possible (for example, year-round schools pilot project), partnerships with the private sector will be explored, and sales of non-essential assets will be considered.
Budget '95 (Province of B.C.)
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