In 1995/96, the government's surplus was
$16 million, $98 million less than budgeted due to the loss of
the $250-million payment expected for Columbia River downstream
benefits. The surplus in 1995/96 represents a significant improvement
from the $446 million deficit in 1994/95, and is the first surplus
in six years.
Revenue was $128 million below budget as
the loss of the downstream benefits payment was partly offset
by higher-than-budgeted revenue from forests, federal contributions,
investment earnings, gasoline tax, motor vehicle licences and
other sources. Spending was $30 million below budget as savings
measures introduced during the year resulted in most ministries
being underspent. These savings helped offset unexpected pressures
in income assistance earlier in the year, and in physicians' services,
hospital contributions, flood compensation and criminal injury
The govemment used the surplus and excess
cash balances to finance disbursements for financing and working
capital transactions (see Table B1). During the year, additional
cash requirements occurred that were not expected at the time
of the budget. For example, although expenditures related to the
renegotiation of the Vancouver Island natural gas pipeline assistance
agreement were recorded late in 1994/95, payment did not occur
until 1995/96. Unforeseen delays in collections from the
federal government also resulted in a cash shortfall. These relate
to the federal decision to withhold a portion of British
Columbia's entitlement under the Canada Assistance Plan and federal
delays in processing corporate income tax on refunds of countervailing
duties on softwood lumber.
|Budget Estimate 1995/96(1)||Revised Forecast 1995/96 (1)||Budget Estimate 1996/97|
|Program Surplus (Deficit)||1,093.0||995.0||1,088.0|
|Management of Public Funds and Debt||979.0||979.0||1,001.0|
|Net Receipts (Disbursements) from Financing and Working Capital Transactions(3)||300.0||(252.0)||(34.0)|
|Decrease (Increase) in Cash and Short-Term Investments||-||200.0||-|
|Net (Increase) Decrease in Provincial Government Direct Debt(4)||414.0||(36.0)||53.0|
Revenue totalled $20,130 million in 1995/96,
$128 million or 0.6 per cent lower than the 1995/96 budget estimate
and up 3.0 per cent from the comparable figure for 1994/95. (See
Table B2.) The loss of $250 million of revenue in 1995/96 due
to the cancellation of the Columbia River downstream benefits
agreement was offset by higher revenue from other sources.
Forests revenue was $81 million or 5.3 per
cent above budget due to higher revenues from timber sales and
logging tax which offset lower revenue from the small business
forest enterprise program.
Established programs financing (EPF) revenue,
which is replaced by the Canada health and social transfer starting
in 1996/97, was $72 million or 5.4 per cent above budget. As
required by legislation, the federal government made a special
adjustment payment to the provinces to ensure that total EPF contributions
grew at the same rate is the national GDP deflator.
Investment earnings were $30 million above
budget due to higher-than-expected gains from sales of
sinking fund investments when interest rates were low.
Contributions from government enterprises
were $11 million above budget as higher revenue from WLC Developments
Ltd. and British Columbia Railway Company offset lower revenue
from British Columbia Hydro and Power Authority and the Liquor
Fuel tax revenue increased $20 million from
budget due to higher fuel sales volumes volumes of jet fuel and
natural gas showed the strongest growth.
Petroleum and natural gas revenue was up
slightly from budget as higher sales and leases of Crown land
drilling rights offset lower natural gas royalty revenue.
The $75-million decrease in social service
tax revenue resulted from lower-than-expected consumer and investment
spending. In 1995, retail sales grew by 5.2 per cent and machinery
and equipment investment spending by 4.9 per cent, compared to
the budget forecast of 5.5 per cent and 9.5 per cent, respectively.
Personal income tax revenue was $38 million
or 0.8 per cent lower than budget due to lower-than-anticipated
growth in personal income.
Revenue from tobacco tax was down $30 million
or 5.9 per cent from budget due to lower taxed consumption volumes.
Property transfer tax revenue fell $20 million
or 6.9 per cent from budget due to a slowdown in the housing market.
Sales volumes declined 21 per cent from 1994/95.
Expenditure of $20,114 million in 1995/96
was $30 million below budget and 0.6 per cent higher than in 1994/95.
Early in the year, unexpected spending pressures were identified
in the Ministries of Health and Social Services. The government
responded with general spending cuts which resulted in most ministries
being under budget (see Table B3)
|Budget Estimate 1995/96(2)||Revised Forecast 1995/96 (2)||Budget Estimate 1996/97||Increase (Decrease) (3)|
|Taxation Revenue||($ millions)||(per cent)|
|Natural Resource Revenue:|
|Petroleum, natural gas minerals||390.0||395.0||431.0||9.1|
|Water and other||539.0||289.0||270.0||(6.6)|
|Contributions from Government Enterprises||970.0||981.0||1,112.0||13.4|
|Contributions from the Federal Government|
|Canada health and social transfer(4)||2,205.0||2,276.0||1,798.0||(21.0)|
Ministry of Social Services expenditure was
$94 million above budget mainly because of higher income assistance
expenditures early in the year. However, between July and September
1995, the government introduced regulatory reforms designed to
curb the unnecessary use of income support programs. These measures
led to declines in income assistance caseloads beginning in October
Ministry of Health expenditure was $103 million
above budget mainly because of higher spending for physicians'
services and contributions to hospitals.
Spending by the Ministry of Attorney General
was $34 million above budget due to increased expenditures for
flood damage compensation and criminal injury compensation.
EXPENDITURE BY MINISTRY
CONSOLIDATED REVENUE FUND
|Budget Estimate 1995/96 (1)||Revised Forecast 1995/96 (1)||Budget Estimate 1996/97||Increase |
|$ millions||(per cent)|
|Office of the Child, Youth and Family Advocate||0.7||0.7||1.0||42.9|
|Conflict of Interest Commissioner||0.2||0.3||0.2||-|
|Information and Privacy Commissioner||2.6||2.4||2.6||-|
|Office of the Premier||2.6||2.6||2.4||(7.7)|
|Agriculture, Fisheries and Food||69.7||60.7||66.1||(5.2)|
|Education, Skills and Training||5,582.1||5,556.1||5,794.7||3.8|
|Employment and Investment||199.0||154.5||150.8||(24.2)|
|Environment, Lands and Parks||240.8||237.7||234.1||(2.8)|
|Finance and Corporate Relations||118.0||103.3||112.3||(4.8)|
|Municipal Affairs and Housing||464.5||395.3||440.5||(5.2)|
|Small Business, Tourism and Culture||149.3||147.8||141.9||(5.0)|
|Transportation and Highways(3)||633.4||610.0||630.1||(0.5)|
|Management of Public Funds and Debt||979.0||979.0||1,001.0||2.2|
|Contingencies and New Programs||47.4||25.3||51.0||7.6|
|Amortization of change in unfunded pension liability||(24.8)||(24.9)||(24.9)||0.4|
|Anticipated year-end lapses||-||(10.0)||-||-|
Ministry of Municipal Affairs and Housing
expenditure was $69 million below budget due to slower-than-expected
grant payments to local governments under the Canada British Columbia
infrastructure works program.
Ministry of Education, Skills and Training
expenditure was $26 million below budget as savings from lower-than-expected
enrolment in independent schools, skills training programs and
Skills Now programs offset higher costs for public school enrollment
and student financial assistance.
Ministry of Employment and investment expenditure
was $45 million below budget mainly because of savings from the
renegotiation of the Vancouver Island natural gas pipeline assistance
agreement and underspending in the Build BC special account.
Forests expenditure was $31 million below
budget as higher-than-expected forest fire suppression spending
was offset by savings in other parts of the ministry.
The budgetary transactions of the consolidated
revenue fund are summarized in Table B1.
The consolidated revenue fund is projected
to have a surplus of $87 million in 1996/97, an increase of $71
million from the 1995/96 revised forecast. This is the second
consecutive budget surplus.
Revenue for 1996/97 is estimated at $20.7
billion, an increase of 2.6 per cent from the 1995/96 revised
Expenditure will total $20.6 billion in 1996/97,
up 2.1 per cent from the 1995/96 budget estimate.
Program expenditure, which excludes spending
on debt interest (management of public funds and debt, is estimated
at $19.6 billion, an increase of 2.1 per cent from the 1995/96
In 1996/97, the consolidated revenue fund
surplus will be used to finance net disbursements from financing
and working capital transactions and reduce government direct
debt by $53 million. Financing and working capital transactions
include payments for investments in the Columbia Basin Trust.
Report C provides more information on the government's financing
A topic box included in this report provides
estimates of the combined financial results of the government
and its Crown corporations and agencies. In 1996/97, the summary
financial statements show a surplus of $13 million, compared to
a surplus of $24 million in 1995/96.
Revenue of the consolidated revenue fund
for 1996/97 is estimated at $20,659 million, an increase of 2.6
per cent from the revised forecast for 1995/96. In 1996/97, higher
revenue due to continued economic growth will offset a 22 per
cent decline in federal transfers (see Table B2).
The forecast includes the effects of budget measures that will reduce
by $96 million in 1996/97. Report D provides information on budget
Most of the growth will occur in taxation
revenue (see Table B2). Personal income tax revenue
to increase 4.3 per cent. This reflects growth in personal incomes
and includes reductions to revenue due to the BC Family Bonus
and a one-point reduction in the personal income tax base rate,
effective July 1, 1996.
Corporation income tax revenue will increase
10.3 per cent, due to growth in corporate taxable income and a
prior-year adjustment for 1995.
Fuel tax revenue will fall 3.6 per cent in
1996/97 due to the transfer of 1 cent per litre of clear fuel
tax revenue to the BC Transportation Financing Authority, effective
March 31, 1996.
Property transfer tax revenues will increase
13 per cent as low interest rates and lower house prices lead
to higher sales. Despite this increase, the level of property
transfer tax revenue will be below 1994/95 levels. Corporation
capital tax revenue will rise 12.8 per cent because of growth
in the tax base as a result of strong investment and corporate
profits growth in recent years.
Forests revenue will increase 6.1 per cent
due to higher revenue from timber sales and the small business
forest enterprise program. Revenue does not include $435 million
of stumpage revenue that will be received by Forest Renewal BC
Revenue from petroleum and natural gas
will increase by $39 million. Higher natural gas royalties due
to a rise in natural gas prices will offset a decline in sales
of Crown land drilling rights. Water rental revenue, which is
based on the previous year's water use, will decrease 5.2 per
cent due to a decline in electricity generated in 1995/96.
Other revenue is expected to rise 10.2 per
cent due to higher demand for government services from a growing
population, increased fines revenue following the introduction
of the speed monitoring program, and increased sales of Crown
The 13.4 per cent increase in contributions
from government enterprises is mainly due to higher dividends
from British Columbia Hydro and Power Authority because of efficiencies
introduced over the last 18 months. The forecast assumes no rate
increases because of the three-year rate freeze.
Contributions from the federal government
will decrease 22 per cent. In 1996/97, the Canada health and
social transfer will replace the established programs financing
and Canada assistance plan transfers. Other federal contributions
will decline by $44 million mainly because of the wind-up of the
National Training Act and forest resource development agreements.
Expenditure of the consolidated revenue fund
is estimated at $20,572 million in 1996/97, an increase of
$428 million or 2.1 per cent from the 1995/96 budget estimate
and $458 million from the 1995/96 revised forecast
(see Table B3)
The budget of the Ministry of Health will
increase to $6,936 million, up $292 million from last year's budget.
Significant increases include $178 million for regional health
programs and $15 million for physicians' services. The budget
also includes $48 million for the protection and enhancement of
Ministry of Education, Skills and Training
expenditure of $5,795 million shows an increase of $213 million.
Operating contributions to public schools will increase $58 million
or 1.7 per cent from last year's budget because of an expected
increase in public school enrolment. Public school capital debt
servicing contributions will increase $69 million. Operating
contributions to universities, colleges and institutes will increase
to $1,127 million. The new BC Benefits initiative provides more
funding for skills development programs.
Ministry of Forests expenditure will decrease
$56 million to $655 million mainly because of the termination
of the federal-provincial forest resource development agreement.
Spending of the Ministry of Employment and
investment will decline $48 million or 24 per cent from the 1995/96
budget estimate. Reductions include the Build BC special account,
down $18 million, the Vancouver Island natural gas pipeline assistance
program, down $17 million, and savings resulting from the government
reorganization in 1995/96.
Ministry of Attorney General expenditure
of $906 million is up $30 million from the 1995/96 budget estimate,
due to new initiatives relating to traffic safety and crime.
Ministry of Social Services expenditure is
estimated at $2,601 million, down $37 million or 1.4 per cent.
The budget decrease reflects the full-year effect of regulatory
reforms introduced in 1995/96, and the additional effect of moving
people back to work under BC Benefits.
Ministry of Municipal Affairs and Housing
expenditure will decrease $24 million or 5.2 per cent to $441
million due to reduced requirements in the third year of the five-year
Canada-British Columbia infrastructure works program.
Ministry of Women's Equality spending will increase $25 million or 11.6 per cent to
$237 million, due to increased demand for
day-care subsidies resulting from BC Benefits.
Throughout the world, citizens are demanding
that governments manage their programs in a more business-like
manner. They also expect governments to maintain or improve the
level of public services, even in the face of constrained finances.
In repsonse to these pressures, many governments
are examining the way they deliver services and are experimenting
with different structures to improve the efficiency and effectiveness
of their operations, particularly the delivery of service to the
One model being tried in a number of jurisdictions
is the special operating agency (SOA). The SOA cuts red tape
and requires government programs to focus on improving service
and efficiency. In Canada, SOAs have been implemented by the
federal, Manitoba and Yukon governments.
Special Operating Agencies in British Columbia
British Columbia is introducing SOAs as part
of the recent joint initiative of the Auditor General and the
Deputy Ministers' Council on Enhancing Accountability for Performance.
Candidates for SOA status normally provide
front-line service to the public with the level of output based
on client demand. British Columbia SOAs must prepare multi-year
business plans that include specific targets for levels of service,
client satisfaction, employee morale and cost efficiency. Managers
are encouraged to involve clients and employees in developing
Some typical performance targets include:
To assist SOAs in achieving these results,
Treasury Board can provide them with some management flexibility
including quicker approvals, exemptions from mid-year budget adjustments,
use of alternatives to central goods and service suppliers and
the carry forward of some year-end funds to help enhance performance.
SOAs that charge fees may be allowed to use some of the revenue
to improve efficiency and customer service.
Approved Special Operating Agencies
Treasury Board has approved three SOAs for
1996/97. These are:
Vital Statistics Agency (Ministry of Health)
The Vital Statistics Agency is responsible
for the registration and certification of events such as births,
deaths and marriages.
Over the next three years, the Vital Statistics
SOA will shorten service turnaround times for certificate issuance
by 30 per cent and for registration by 11 per cent. Unit costs
will be reduced by 11 per cent.
Registries Agency (Ministry of Finance
and Corporate Relations)
The Registries Agency includes the Corporate
Registry which provides for public registration of businesses,
not-for-profit organizations, cooperative associations and financial
institutions. It also includes the Manufactured Home Registry
and the Personal Property Registry.
Over the next five years, the Registries
SOA will reduce service turnaround times for its various services
by 20 to 40 per cent, reduce unit costs of service by 16 per cent
and absorb the effects of cost inflation.
Tourism BC Agency (Ministry of Small Business,
Tourism and Culture)
Tourism BC works with the tourism industry
to provide for growth, diversification, value added and job creation
capacity within the industry.
The Tourism BC SOA's performance targets
are to increase accommodation reservations through its 1-800 line
by 95 per cent, increase the number of Superhost training participants
by 33 per cent and increase gross tourism revenue in B.C. by 18
per cent over the next three years. At the same time, operational
expenditures will be reduced by 21 per cent.
The government expects to create additional
SOAs during the next year. One of these, Trade BC, has alrady
While SOAs currently represent a small percentage
of government expenditures, they play an important role in shaping
a more results-oriented government. SOAs will be among the first
to meet the government's standards for performance monitoring
SOAs will provide a model for more effective
program delivery, to the benefit of clients, taxpayers and employees.
|1996/97 Budget Estimate|
|Special Operating Agency||Revenues||Expenditures||FTE's*|
*Authorized employment measured in terms
of full-time equivalent positions.
Last year, the government presented, for
the first time in the budget, a financial statement that contains
the estimated annual surplus or deficit of government ministries,
special offices and Crown entities. 'I'his statement is part
of the Summary Financial Statements.
This statement provides an estimate of government's
overall surplus or deficit for the upcoming year. The Summary
Financial Statement of Revenue and Expenditure, like the Consolidated
Revenue Fund Statement of Revenue and Expenditure, is prepared
on a basis consistent with the government's accounting policies.
As noted last year, a key accounting policy
issue is the treatment of capital assets. The Canadian Institute
of Chartered Accountants (CICA) has been reviewing this issue.
On the one hand, it can be argued that governments
should adopt a conservative policy of writing off capital assets
as a budgetary expenditure in the year of acquisition since those
assets are often difficult to sell.
On the other hand, it can be argued that
a policy of writing off capital assets when acquired can lead
to a bias in budgeting against spending on assets with
Previously, the only government capital assets
whose values were reflected in the Summary Financial Statements
and written off over the life of those assets were those of Crown
enterprises such as BC Hydro, BC Rail, BC Ferries and BC Transit.
Capital assets held by government ministries and all other Crown
entities, such as BC Buildings Corporation, were written off in
the year those assets were acquired. Accordingly, all highways
infrastructure, computer systems, vehicles, buildings and major
equipment (other than those held by Crown enterprises) were written
off in the year of acquisition and therefore reflected as having
no value in the province's financial statements.
The provincial Auditor General has recommended
that the government capitalize all of its capital assets. However,
as the CICA has not yet completed its review of the treatment
of capital assets, the government has decided to adopt what it
believes is an appropriate capitalization policy. Commencing with
the 1995/96 Public Accounts, government will capitalize
land, buildings and other fixed assets held by all Crown entities,
other than highway infrastructure expenditures of the BC Transportation
The adoption of the policy to capitalize
land, buildings and major equipment held by other Crown entities
will have no impact on the government's total taxpayer-supported
debt. Under the debt management plan, all borrowing is reported,
regardless of whether that borrowing is applied to operations,
capital or investments.
The following table provides the estimated
surplus on the summary statement basis for the 1995/96 and 1996/97
fiscal years, in accordance with the government's accounting policies
as laid out in the 1994/95 Public Accounts, adjusted to
reflect the accounting policy change noted above.
|1995/96 Forecast||1996/97 Budget Estimate|
|Consolidated Revenue Fund (CRF) Surplus (Deficit)||16||87|
|Government Organizations and Enterprises|
|Less Earnings Already Included as CFR Revenue||(991)||(1,111)|
|Accounting Policy and Other Adjustments(1)||(446)||(408)|
|Net Adjustment to CRF Surplus (Deficit)||8||(74)|
|Summary Financial Statements Surplus (Deficit)||24||13|
History of the Tax
The corporation capital tax was introduced
in Canada by Quebec in 1947, although it may have existed in Quebec
and Ontario in the 19th century.
British Columbia adopted the tax in 1973,
introducing the higher rate for financial institutions in 1980.
In the mid 1980s, the tax was phased out over three years for
all but major financial institutions based outside British Columbia.
In 1992, the tax was re-introduced for non-financial corporations
and smaller financial institutions and the rate on large financial
institutions was increased. A unique feature in Canada, a two-year
tax holiday for new capital investment, was introduced. The threshold
at which the tax applies was raised in both 1993 and 1994.
How the Corporation Capital Tax Works
The tax applies to corporations that have a permanent establishment in British Columbia with net paid-up capital in excess of $1.5 million. The tax is levied at tliree different rates:
Family farm corporations, cooperative corporations
and certain other corporations are exempt from CCT. Certain types
of capital expenditures are not included in a corporation's tax
base for two years, reducing the amount of CCT it pays.
Capital Taxes in Other jurisdictions
Ontario, Quebec, Manitoba and Saskatchewan
levy a capital tax on non-financial corporations at rates the
same as or higher than in British Columbia. All provinces levy
a capital tax on financial institutions, ranging from 1 to 3.25
per cent. British Columbia only charges the 3 perl cent
rate on major financial institutions (chartered banks).
While most American states do not levy capital
taxes, some states have taxes that are unrelated to profits. For
example, Washington state levies a "Business and Occupation" tax
on the gross receipts of all business activities conducted in
the state. The tax generally ranges from 0.5 to 2.0 per cent
and generates about $1.6 billion U.S. annually, considerably more
relative to the size of the state's economy than British Columbia's
Views on the Corporation Capital Tax
The main criticism of the CCT is that it
is payable regardless of whether a company is profitable, reducing
the competetiveness of British Columbia in attracting new investment.
Partly offsetting this perceived disadvantage is that CCI' is
deductible for corporate income tax purposes. In addition, new
investment is not subject to CCT for two years.
From the government's standpoint, the CCT
provides a more stable, predictable source of revenue from the
business sector than the highly volatile corporation income tax.
In addition, CCT ensures that corporations pay their fair share
of the cost of public services such as health and education.
How Significant Is the Tax?
In 1995/96, the corporation capital tax generated an estimated $390 million, representing 2 per cent of total provincial revenue. Financial institutions paid approximately $85 million of this total.
Aggregated taxation data provide a profile
of the CCT universe. The data show that:
CCT and Competitiveness
The chart shows that CCT represented
a relatively small proportion of the total operating expenses
of the top five CCT-paying firms in each sector. CCT represented
a larger share of pretax net profits.
While CCT may add to business costs,
many more factors are involved in determining corporate competitiveness.
For example, in Canada, corporations benefit from the publicly-funded
health care system, while in the U.S., many companies spend large
amounts of money to subsidize employees' health insurance.
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