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Ministry of Finance and Corporate Relations
Province of British Columbia

Budget 97 -- Speech Delivered in the
Legislative Assembly
March 25, 1997
by Honourable Andrew Petter
Minister of Finance
and Corporate Relations
Photo of Honourable Andrew Petter


Honourable Speaker, I am pleased to present the 1997/98 budget to the Legislature and to the people of British Columbia.

It is a budget that has been developed in challenging circumstances. It has required us to make difficult choices as a government.

But it is a budget of which I am proud. It is a budget that:

This government has made a clear commitment to the priorities of British Columbians:

Honourable Speaker, we are delivering on these priorities -- and that is what this budget is about.

We do so in the face of an economy which has not grown as strongly as expected in 1996. Government revenues are below projections for the fiscal year just ending and, because of the delayed effect on corporate income tax collections, will remain low in the coming fiscal year.

To meet these challenges we have, over the past six months, significantly reduced government expenditures:

These actions have set the stage for the budget I am presenting today.

Honourable Speaker, the highlights of the 1997/98 budget are:

So, Honourable Speaker, what this budget comes down to for ordinary British Columbians is this:

Let me now turn to the details.


Economic Review and Forecast


First, Honourable Speaker, let me review our province's economic performance last year and the prospects for the coming year.

Our economy is becoming more diversified, but it is still significantly affected by developments in the volatile natural resource sector. While the price of lumber strengthened through 1996, pulp and paper prices weakened significantly during the year, taking the forest sector as a whole from a strong profit position in 1995 to a loss position in 1996.

This resulted in lower employment and investment levels in that sector, affecting other areas of the economy and reducing consumer and business confidence.

Current estimates are that real economic growth in 1996 will have been one-half of one per cent -- far below what was predicted by every major forecaster at this point last year.

Despite the problems in the forest sector, job growth remained strong in 1996 -- 44,000 jobs were created in this province, an increase of 2.5 per cent over 1995. That's almost one-quarter of all the new jobs in Canada in a province that has 12 per cent of the population. This indicates the underlying strength of our economy, our diversifying economic base, and the resourcefulness of British Columbians -- all of which provide reason for longer-term optimism.


Honourable Speaker, as part of my consultations for developing this year's budget, I met with independent experts to get their views on our economic prospects. Their forecasts for economic growth in 1997 ranged from 0.5 per cent to 3.75 per cent. The average forecast was 2.4 per cent, reflecting a consensus that 1997 will be a better year than 1996.

Consistent with these forecasts, the Ministry of Finance's forecast for 1997 is for economic growth of 2.2 per cent. We see a further strengthening in 1998, with projected growth of 2.5 per cent.

The factors contributing to this anticipated improvement include:


A Plan for Fiscal Sustainability

Honourable Speaker, all commentators agree 1996 was a disappointing year for the economy. This has resulted in lower than forecast revenue.

We are now estimating total revenue to the consolidated revenue fund will be $20.2 billion, $465 million below budget estimates.

On the spending side, the need for higher-than-forecast spending for public safety, reducing hospital wait lists, and programs for lower-income British Columbians was offset by spending reductions in other areas. This means that total spending is now estimated at $20.6 billion, just $28 million over budget estimates.

The resulting deficit for 1996/97 is now forecast at $395 million.

Honourable Speaker, let me put that into perspective. In 1991 when our party took office, we inherited a record $2.5 billion deficit. Spending had increased 12 to 14 per cent in each of the three final years of the previous Social Credit government.

We've worked hard to reverse that trend. And we've made steady progress.

This year, with careful management, we will reduce total spending on a year-over-year basis for the first time since the early years of W.A.C. Bennett's government.

We will do this while dealing with the challenge of the fastest-growing population in Canada -- almost 100,000 new British Columbians in 1996, equal to the population of the city of Kelowna.

Honourable Speaker, this government remains committed to the goals of eliminating the deficit and reducing taxpayer-supported debt as a percentage of the provincial gross domestic product.

But we do not believe eliminating the deficit is an end in itself. Rather, it is the means to an end.

What makes balancing the budget and controlling the province's debt important is that these goals provide the fiscal foundation for building a strong economy from which all our citizens can benefit.

With sound fiscal management, we can be sure that taxpayers' valuable dollars are not targeted toward paying interest on the debt, but pay for schools, hospitals and infrastructure necessary to encourage investment, jobs and economic growth.

For these reasons, we are determined to provide the fiscal management necessary to keep our province's finances on a sustainable path and to ensure British Columbia's debt burden remains among the lowest in the country.



Honourable Speaker, government is a large, complex enterprise. There is not one simple benchmark for fiscal performance. I want to outline the four principles of fiscal sustainability which will guide us and against which we will measure our progress.

1.  Balance the consolidated revenue fund.

The CRF still represents the best summary of each year's program expenditures. Like a household budget, the CRF represents the groceries, heating bills and day-to-day spending.

While some items, such as education, can be considered an investment, the lessons of the household budget are clear: in managing the provincial accounts, we must continue to reduce the deficit and move into surplus.

2.  Debt financing of capital assets must be sustainable.

In particular, we must stabilize and then reduce taxpayer-supported debt as a percentage of provincial GDP. To continue the household analogy, it's okay to finance the family home with a mortgage, but the carrying costs must not exceed the family's capacity to pay.

3.  Budget forecasts must be built on prudent economic assumptions.

These assumptions must be prudent for estimates of expenditures and revenues. And they must be combined with strong management that monitors performance against the budget, and takes corrective action when variances appear.

4.  Economic growth and job creation must be a central component
     of any complete fiscal plan.

Managing expenditures is only one-half of what is necessary to balance a budget. A strong revenue base is also key, and that requires an active economic growth and job creation strategy.

These principles underly this budget and our financial management plan, now and for the years to come.



Honourable Speaker, as I said earlier, the budget I'm presenting today cuts overall government spending for the first time since 1958, while increasing funding for health care and education.

The projected deficit is the smallest this decade, at an estimated $185 million.

Some may argue that we should have cut deeper to ensure a balanced budget this year. We have decided not to do so for two reasons.

First, unlike some other provincial governments, we are not prepared to sacrifice our commitment to protect health care and education.

Second, we are determined to maintain an environment for future investment and job growth.

Our economy is recovering from a difficult year. We must be careful government does not withdraw too much purchasing power from the economy, undermining the return of business and consumer confidence.

For this very reason the Business Council of B.C. has cautioned us not to go too far too fast in reducing the deficit.

This budget cuts the deficit by more than half of what it was last year. As outlined in the financial management plan I am releasing today, this places us in position to put the budget in balance next year, and to achieve a significant surplus in the year that follows.



As we move to balance the government's operating budget, taxpayer-supported debt will only be used to invest in the capital assets necessary to maintain our social and economic fabric -- such as schools, hospitals, and highways.

The combination of the deficit left by the previous Social Credit government, and the need to make up for their failure to fund necessary capital investments, resulted in taxpayer-supported debt as a proportion of GDP rising from 1991 through 1993/94. Since then it has stabilized, although the ratio was pushed up again last year by lower-than-projected economic growth.

Recently, I reconvened the private sector group that advised the government on its debt management plan.

The financial management plan shows the result of that consultation -- a plan to cut taxpayer-supported debt as a proportion of GDP to 20 per cent within the next three years and reduce it to 15 per cent by the year 2015.

The capital spending review is an important element in achieving this goal. It shows us how to do more with less, identifying $200 million in savings.

The review demonstrated we can find new and creative ways to balance the need for public infrastructure with what we can afford.



Honourable Speaker, this budget is based on prudent economic assumptions.

On the spending side, we have worked hard to ensure each vote in the estimates reflects underlying spending pressures. That includes anticipating pressures and meeting the need for additional services that come from our continuing population growth.

On the revenue side, while my ministry forecasts a growth rate of 2.2 per cent, I have chosen to base the budget's revenue forecast on a prudent economic assumption of 1.6 per cent growth.

We are determined to meet the spending and deficit estimates presented in this budget. In addition to using a prudent economic assumption for revenue forecasting, we will monitor performance against budget and take corrective actions as they are required.


Key Priorities

I want to turn now to the government's key priorities for the coming fiscal year: job creation, health care and education, and support for middle-income and working families.


Honourable Speaker, we recognize that the only way to get to a sustainable fiscal path is through strong economic growth. And we also recognize that for British Columbians, new jobs and economic opportunities are a central priority.

Over the past five years British Columbia's job performance has far surpassed that of the rest of Canada -- more than 220,000 new jobs.

This is an impressive record, but we are determined to do even better. Accordingly, government's job strategy is designed to maximize the employment capacity of B.C.'s economy.

There is no one easy way to create enough well-paying, family-supporting jobs. An effective jobs strategy has to explore all avenues to achieve this goal, and it must reflect the contributions of people from all parts of our society.

The five major elements of our job creation strategy are:

Let me review each of these elements.

1.  A sustainable fiscal foundation.

To create the jobs and economic climate that will bring opportunities for new businesses and for communities, we must start with a sustainable fiscal foundation.

Providing this level of certainty is necessary for businesses to make their investment plans and be confident about the future.

The plan for fiscal sustainability I've already outlined is a critical part of our strategy for higher growth and job creation.

2.  Better skills and training for young people.

This government is committed to helping secure the job opportunities young people seek, and providing them the tools to prosper.

We're protecting funding to ensure high quality education and greater access to our colleges, universities and institutes. We're investing $23 million in the Guarantee for Youth program to create 12,000 new jobs.

And we're making sure work is a better deal than welfare.

Our $20 million YouthWorks initiative replaces welfare with training and work experience. It will help more than 40,000 young people this year, making sure the social safety net doesn't become a web in which they are trapped, but serves as a trampoline to lift them up into the workforce.

3.  Investing in infrastructure.

This government will be investing more than $1 billion annually in schools, hospitals and transportation infrastructure over the next few years. Not only does this investment provide the vital services that our people need, it will directly create more than 13,000 jobs throughout the province each year.

New schools in Williams Lake, Richmond, Surrey, Langley and many other communities, replacement of the Hudson's Hope hospital, the Vancouver Island cancer clinic, and our commitment to light rapid transit in the Lower Mainland are just some of the investments that government will be making.

We will also soon be signing a renewed infrastructure agreement with the federal government that will lead to cost-shared projects and additional jobs for British Columbians.

4.  Partnerships with the private sector.

The interests of business and government are not always identical -- but both share a common interest in fostering a strong economy and a healthy business climate.

In preparing this budget, I have benefited from the consultation and advice offered by business and labour leaders on province-wide issues such as fiscal management and capital spending.

Today I'm announcing that government will establish a forum for business, labour and government to work together to discuss issues of mutual concern, develop economic strategies, and identify measures to generate employment, increase investment and protect competitiveness.

In addition, the Minister of Employment and Investment will be undertaking a wide-ranging review of business regulations with the goal of cutting red tape and making government less burdensome.

We are also committed to pursuing more public-private partnerships that allow cost-effective solutions to developing and financing new facilities. As examples, the partnership to build a new Vancouver Trade and Convention Centre will provide investment of over $200 million and create 2,750 direct and indirect jobs. And the partnership to add a large-format theatre to the Royal British Columbia Museum in Victoria will create jobs and add to the region's tourism appeal.

5.  Sectoral initiatives.

As part of government's jobs strategy, certain sectors are being targeted for special attention. Let me touch on a few of the initiatives under way to protect and create jobs in forestry, small business, tourism, the airline industry, film and fisheries.

Honourable Speaker, creating jobs for all British Columbians is a central objective for this government. Our jobs strategy ensures that we will continue to lead the way in creating new jobs for the people of this province.



Let me turn now to another priority -- health care.

Canada has the finest health care system in the world and British Columbia has one of the best health care systems in Canada. This budget ensures it will stay that way.

We are protecting the health care services British Columbians rely on -- funding for health care will increase by more than $300 million in 1997/98, Honourable Speaker.

This year's funding level is particularly important, as it is a year of transition. Management of major elements of the system will become the responsibility of regional health boards and community health councils. In making this change, the government will be making a good system better.

British Columbia faces a number of health care funding challenges: a growing and aging population; increasing health care costs; and large reductions in federal transfer payments.

Other provinces have chosen to meet these challenges with funding cuts and reductions to services. That is not our choice.

Since 1990/91, the rate of spending growth on health care in British Columbia has been two-and-one-half times the national average and the highest in Canada. Our health care spending per person leads the country.

This year we are increasing funding for hospitals across B.C. by more than $80 million, including a $28 million increase for new equipment. Funding for physician services, ambulance services, mental health and continuing care are all up significantly from last year's level. And a particular priority will be further reductions to wait lists for heart surgery, cancer treatment and kidney dialysis.

At the same time, to sustain our standards and our system's affordability, we must find savings in the system and reallocate them to front-line services so that new pressures can be accommodated and all our needs can be met.



A third key priority of this government, Honourable Speaker, is education. Education is an investment in our children's future.

This government's track record in support of education is exemplary. From 1990/91 to 1995/96, spending on kindergarten to grade 12 education has risen 5.5 per cent annually. This is more than any other province.

In this budget, funding for the K-to-12 system will rise by $63 million. As a result, our investment in each student in B.C. remains well above the national average.

In addition, reforms introduced last year have cut the number of school districts and are reducing administration costs, both through amalgamation and increased co-operation among districts.

A similar level of government support is being provided to post-secondary institutions.

Since 1991, British Columbia's overall investment in post-secondary education has increased an average of four per cent -- the largest increase in the country. In the same period, Canada's overall investment in post-secondary education declined by an average of 1.5 per cent annually.

This government is also increasing access for young people to post-secondary institutions -- tuition fees remain frozen for the 1997/98 school year. This is in marked contrast to other provinces, such as Ontario, where last year college students saw a tuition increase of 15 per cent and university students 20 per cent.

In addition, we have added thousands of new spaces for post-secondary students. Today, there is a place for all qualified students in B.C.'s colleges and universities -- almost 10,000 new spaces opening last year and this year combined.



Honourable Speaker, these major investments in jobs, health care and education demonstrate this government's resolve to work for the people of this province -- responding to their priorities and meeting their needs.

That is why we have also cut income taxes for B.C. families by a further two per cent. Combined with last year's cut, this lowers income taxes by $142 million per year.

We have supported this income tax reduction with a freeze on other taxes for individuals and families until the year 2000. We've frozen BC Hydro rates for three years. And we've frozen ICBC premiums and college and university tuition fees for two years.

These tax cuts and rate freezes will save the average B.C. family more than $500 per year.

And we are investing $235 million to provide more than 200,000 families with a monthly BC Family Bonus cheque. This is a groundbreaking program that is making work a better deal than welfare and has become the model of choice in the fight against child poverty in Canada.



Honourable Speaker, we are protecting health care, education and job creation, and providing support for working families.

This achievement is remarkable because at the same time we are reducing total spending compared to last year.

For the first time since 1958, there will be a year-over-year decline in budget expenditures. Spending from the consolidated revenue fund will go down by more than $100 million, to $20.47 billion.

This has required some difficult decisions, given an expected increase in the population of over two per cent and inflation exceeding one per cent.

We have cut the size of government, cut costs in administration and overhead, and eliminated some programs, grants and subsidies. The budget for government salaries alone has been cut by more than $100 million.

As a result, government positions have been cut, and cut significantly.

Much of the reduction has been achieved through measures such as voluntary severance and early retirement, not forced layoffs. That this was done in a humane manner is to be welcomed, not derided.

In the process of making cuts, it has been necessary to reduce or eliminate services and grants to many worthy groups and individuals. Let me say to those affected: these decisions have not been taken lightly.

But making decisions is about setting priorities, and this government's priorities are to create jobs, and protect health care and education for the people of B.C.



Honourable Speaker, our total revenues will increase less than one-half of one per cent this year to $20.29 billion.

That is just $80 million over the revised forecast for 1996/97. But it is not simply because we have used prudent economic growth assumptions in developing our estimates.

Federal government cuts to transfer payments for health care and education mean a loss to British Columbia of another $200 million for 1997/98, on top of $400 million lost last year.

Provincial corporate income tax payments are expected to be down this year by more than $300 million due to the fall in corporate profits during 1996.

In addition, maintaining our tax cuts and the BC Family Bonus program will further reduce our available revenues by $400 million.

In the face of these pressures we have sought other ways to enhance revenue:

These new revenues will help offset other revenue losses and contribute to reducing the provincial deficit.



Honourable Speaker, as I said at the outset we have had difficult choices to make.

We face major pressures -- reduced revenues, a growing population, increased demands for services.

But we've accepted our responsibility to meet the needs of British Columbians in a fiscally responsible way.

We have reduced spending on a year-by-year basis for the first time in 40 years, and cut the deficit to its lowest level this decade.

At the same time, we are protecting health care, education and job creation.

With an anticipated improvement in the economy this year and next, and a federal commitment not to further reduce transfer payments, we are establishing a solid foundation for the future.

With this budget, we are meeting the challenge on behalf of the people of British Columbia.

For our children, there is assurance of a good education and access to our colleges and universities.

For people who are ill, there will be treatment available when they need it.

For middle- and lower-income families, there is money in their pockets to help them raise their children.

And for all British Columbians, there's the prospect of good jobs for the future.

Honourable Speaker, we are confident the road we've chosen -- to protect these services while reducing the deficit in a prudent, careful way -- is the right one for the people of British Columbia.

BC Budget 97

BC Ministry of Finance and Corporate Relations

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