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Review of 1997/98
Revenue for the year was on budget and 0.4 per cent higher than the comparable figure for 1996/97. Higher-than-budgeted revenue from taxation, natural resources, and federal transfers offset lower-than-budgeted revenue from Crown corporations, asset dispositions and other sources.
Expenditure was $16 million below budget and 0.5 per cent lower than comparable spending in 1996/97. Unexpected pressures occurred in the Ministries of Health, Children and Families, Attorney General, Employment and Investment, and Small Business, Tourism and Culture. These pressures were more than offset by in-year spending reductions and freezes in other areas. As a result, spending was on or below budget in fourteen of the nineteen government ministries.
The lower-than-expected expenditure resulted in the consolidated revenue fund having an estimated shortfall of $169 million in 1997/98, $16 million less than the expected level of $185 million and $183 million lower than in 1996/97.
The government's financial requirements for 1997/98 included the deficit, net disbursements for financing and working capital transactions of $215 million, and a $37-million increase in cash and short-term investment balances (see Table B1). Requirements for financing and working capital transactions were lower than planned mainly due to additional cash received in 1997/98 as a result of a change to the schedule of personal income tax instalment payments received from the federal government. As a result, government direct debt increased $422 million for the year, $108 million lower than budgeted.
Revenue totalled $20,210 million in 1997/98, on budget and up 0.4 per cent from the comparable figure for 1996/97. Higher-than-budgeted revenue from taxation, petroleum, natural gas, water rentals and federal transfers offset lower-than-budgeted revenue from Crown corporations, asset dispositions, fees and licences, forests and other sources (see Table B2).
Personal income tax revenue was $112 million above budget and 2.3 per cent higher than in 1996/97, due to growth in personal incomes and higher-than-expected final assessments for the 1996 tax year, partially offset by lower revenues due to provincial tax reductions introduced in 1996/97.
Corporation income tax revenue was $117 million above budget due to a higher federal estimate of the national corporate tax base for the 1997 tax year. However, revenue was 15 per cent lower than in 1996/97 due to a lower British Columbia share of the national tax base.
Social service tax revenue was up $100 million from budget, and 5.4 per cent higher than in 1996/97, due to strong retail sales earlier in the year and particularly strong collections during Christmas. In 1997, retail sales grew by 4.9 per cent compared to the budget forecast of 3.0 per cent.
Revenue from other tax sources was down $16 million from budget. Lower revenue from corporation capital tax, due to lower-than-expected instalments, and from property transfer tax, due to a weakening in housing re-sales, was partly offset by higher revenue from fuel and hotel room tax.
Overall, revenue from taxation sources was $313 million higher than budget. This was in part due to the use of prudent economic assumptions in preparing the 1997/98 budget forecast, and also due to the strengthening performance of collections which exceeded the budget economic forecast in certain key areas during the year.
Natural resource revenue was $75 million above budget overall, but 1.5 per cent lower than in 1996/97. Petroleum and natural gas revenue was $96 million higher than budget due to the effect of higher-than-expected prices on sales of Crown land drilling rights and natural gas royalties. Minerals revenue was up slightly from budget, mainly due to one-time assessments for current and previous years.
Forests revenue was $67 million below budget and 6.2 per cent lower than 1996/97. Lower-than-budgeted revenue from timber sales and the small business forest enterprise program (down $91 million), and logging tax (down $15 million) was partly offset by a $36-million payment received from the federal government for refunds of softwood lumber export fees collected in 1996/97. Overall harvest volumes fell 7 per cent in 1997/98. Factors contributing to the decline include weakening lumber prices; a slump in Japanese housing starts; large inventories and wet weather early in the fiscal year; low chip prices; and the Skeena Cellulose and Fletcher Challenge mill shutdowns. The lower logging tax revenue resulted from the effect of weaker pulp prices and higher refunds for previous years.
Other revenue was down $317 million from budget. Delays in the finalization of a number of asset disposition initiatives caused revenue from asset dispositions to be $136 million less than planned. The government will be continuing these asset dispositions into 1998/99. Revenue from fees and licences was $72 million below budget due to lower revenue from Crown land sales, other fees and licences, and increased provisions for doubtful revenue accounts, partly offset by higher revenue from motor vehicle licences. Other miscellaneous revenue was $110 million below budget due to lower revenue from fines, and year-end recoveries from other sources.
Contributions from government enterprises were $113 million below budget. Net income of the Liquor Distribution Branch was $16 million above budget due to higher sales volumes. British Columbia Lottery Corporation profits were $32 million below budget due to lower ticket sales in response to smaller jackpots and delays in implementing expanded gaming activities. No dividend is expected from the British Columbia Railway Company in 1997/98, and the British Columbia Buildings Corporation will be contributing $29 million less than budgeted. These changes allow the corporations to continue the enhancement and completion of asset disposition initiatives commenced during the year.
Contributions from the federal government were $42 million above budget. The Canada health and social transfer (CHST) was $40 million above budget mainly due to entitlement revisions for prior years. However, CHST revenue was $155 million lower than in 1996/97 due to a continuation of federal transfer cuts, and an increase in the amount of the entitlement received through tax point transfers (CHST revenue is the amount remaining after deducting 13.5 points of personal income tax and one point of corporate income tax from the total provincial entitlement). Other federal government contributions were slightly above budget as lower-than-budgeted contributions for immigration services were offset by higher-than-expected contributions for flood relief and other federal/provincial cost-sharing programs.
Expenditure in 1997/98 was $16 million below budget at $20,379 million. This was $100 million or 0.5 per cent lower than comparable expenditure in 1996/97. During the year, unexpected spending pressures occurred in the Ministries of Health, Children and Families, Attorney General, Employment and Investment, and Small Business, Tourism and Culture. The government responded by introducing a series of specific measures including spending reductions and spending freezes to achieve savings in other areas.
During the year, a government reorganization resulted in the creation of three new ministries, increasing the number of ministries to nineteen. At year end, spending is expected to be on or below budget in fourteen of the nineteen ministries (see Table B3). The revised forecast includes a $30-million allowance for unexpected year-end adjustments.
Ministry of Health expenditure of $7,046 million was $32 million above budget mainly because of increased spending for higher-than-expected Pharmacare utilization.
Ministry of Education expenditure of $4,145 million was on budget reflecting an accurate forecast of enrolment growth in the school system.
Ministry of Human Resources expenditure of $1,659 million was $60 million below budget because of lower-than-expected spending for income support programs. In 1997/98, the average income assistance caseload decreased by an estimated 8.3 per cent due to the success of BC Benefits programs in removing transition barriers for clients moving from welfare to work, and other initiatives.
Ministry of Advanced Education, Training and Technology expenditure of $1,636 million was $15 million below budget mainly because of reduced spending for skills development and ministry administration.
Ministry for Children and Families expenditure of $1,396 million was $32 million above budget because of higher-than-planned spending for residential and support programs for children and youth, and for services to adults with multiple handicaps.
Spending by the Ministry of Attorney General was $31 million above budget due to increased payments for flood and blizzard damage compensation, and criminal injury compensation.
Ministry of Employment and Investment expenditure was $9 million above budget because of additional provisions for doubtful loans and payments of loan guarantees.
Ministry of Finance and Corporate Relations' spending was $10 million below budget mainly due to lower contributions for British Columbia Transit debt servicing.
Ministry of Forests expenditure was $25 million below budget because of lower-than-expected spending on forest fire suppression, and spending reductions in other areas.
Spending by the Ministry of Municipal Affairs was $6 million below budget because of lower-than-expected conditional grant disbursements to local governments.
Ministry of Transportation and Highways expenditure was $6 million below budget because of lower spending for highway rehabilitation.
Spending from other appropriations included a $16-million reduction in expenditures through the Purchasing Commission Working Capital special account, as a result of a government-wide freeze on vehicle purchases.
BC Benefits was $6 million above budget because of higher-than-expected utilization of the BC Family Bonus program.
Management of Public Funds and Debt was $10 million above budget because of higher-than-budgeted interest costs. The 1997/98 budget estimate and revised forecast reflect a change in accounting policy to deduct earnings of sinking funds held for government direct operating debt from related interest expense. Because this change also reduces revenue, there is no effect on the estimated or revised forecast deficit for the year.
The reduction of consolidated revenue fund expenditures due to government's accounting policy of capitalizing capital assets was $14 million less than expected. Because of in-year expenditure reduction measures, fewer capital asset purchases were made in 1997/98. Further information is provided in the Financial Statement Reporting Issues topic box on page 31, and in Schedule F of the 1998/99 Estimates.
There was an unexpected negative adjustment of $28 million reflecting the amortization of a reduction in the estimated unfunded pension liability of the Teachers' Pension Plan. The latest actuarial valuation shows a liability of $1,420 million, down $359 million from $1,779 million. In accordance with the government's accounting policy, the reduction in the unfunded pension liability is being amortized over the expected remaining service life of the related employee group. A similar annual adjustment will be recorded in future years until the full amount of the reduction has been amortized.
1998/99 Fiscal Plan
The budgetary transactions of the consolidated revenue fund are summarized in Table B1.
Despite the effects of slower economic growth, the consolidated revenue fund is projected to have a deficit of $95 million in 1998/99, down $74 million from the 1997/98 revised forecast and $257 million lower than in 1996/97.
Revenue for 1998/99 is estimated at $20.4 billion, an increase of 1.1 per cent from the 1997/98 revised forecast. The forecast includes a revenue allowance of $130 million to provide a cushion against lower growth than the Ministry of Finance and Corporate Relations' economic forecast. Consistent with the introduction of prudent economic assumptions in the 1997/98 budget, this caution provides greater certainty that total revenues will be on or above budget (see the Revenue Forecast Based on Prudent Economic Assumptions topic box on page 26).
Expenditure will total $20.5 billion in 1998/99, an increase of $141 million or 0.7 per cent from the 1997/98 budget estimate and $157 million higher than the 1997/98 revised forecast.
The following chart shows that in real per capita terms (total expenditure divided by the British Columbia population and adjusted for inflation), government spending continues to decline. By 1998/99, real per capita spending is projected to have declined over 10 per cent since 1991/92 -- and 1.7 per cent from the 1997/98 budget. The chart also shows that without adjusting for inflation, nominal spending per capita will have declined over 5 per cent between 1994/95 and 1998/99. This reflects the various efficiencies and program reductions that government has implemented.
CONSOLIDATED REVENUE FUND EXPENDITURE PER CAPITA
[ Click to view larger image of Chart B1 ]
Program expenditure, which excludes spending on debt interest (management of public funds and debt), is estimated at $19.7 billion, an increase of 0.6 per cent from the 1997/98 revised forecast. As a result, revenue will exceed program expenditures by $785 million in 1998/99 -- resulting in the largest program surplus since 1989/90. A program surplus means that revenue exceeds spending on government programs and that debt interest accounts for the deficit in 1998/99.
The government's financial requirements will total $395 million in 1998/99. This includes the deficit and net disbursements from financing and working capital transactions of $300 million. These requirements will be financed by reducing cash and short-term investment balances by $120 million, and by increasing government direct debt by $275 million. Report C provides more information on the government's financing plan.
The summary financial statement provides estimates of the combined financial results of the government and its Crown corporations and agencies. In 1998/99, the summary financial statement shows a deficit of $949 million, compared to the revised forecast deficit of $551 million in 1997/98 (see Summary Financial Statement topic box on page 33).
Revenue of the consolidated revenue fund for 1998/99 is estimated at $20,441 million, an increase of 1.1 per cent from the revised forecast for 1997/98. Without the revenue allowance of $130 million, revenue would be 1.8 per cent higher than 1997/98.
The forecast includes the effects of provincial budget tax reduction measures totalling $95 million in 1998/99 (see Report D for details). The forecast also includes additional revenue from asset dispositions, and higher revenue from Crown corporations resulting from the completion of various strategic initiatives.
Taxation revenue, the largest source of provincial government revenue, is expected to total $13,104 million in 1998/99, down slightly from the 1997/98 revised forecast.
Personal income tax revenue is expected to increase slightly in 1998/99. This reflects modest growth in personal incomes partially offset by federal and provincial budget measures, which reduce provincial income tax revenue by $48 million and $37 million respectively ($85 million in total). Provincial budget measures include a one-point reduction in the personal income tax base rate effective January 1, 1999, and a reduction in the personal income tax surtax rate effective January 1, 1999.
Lags in the corporation income tax system, coupled with the effects of declines in corporate profits of 10 per cent in 1996 and 13 per cent in 1997, mean that the province will receive lower instalment payments and will also have to return overpayments of corporation income tax revenue to the federal government. The effects of the reduction in the small business corporate income tax rate on January 1, 1999 and the new Film Incentive BC tax credit will also reduce revenue. As a result, corporation income tax revenue is expected to drop 15 per cent in 1998/99.
Social service tax revenue, estimated at $3,283 million, will increase a modest 1.3 per cent, mainly due to the effect of slower growth in retail sales and machinery and equipment investment spending. Tobacco tax revenue will increase slightly due to a rate increase announced in the budget.
Property tax revenue is expected to increase 3.1 per cent in 1998/99, due to increased assessments for new construction, higher assessed values, and the setting of non-residential rates (school and rural) at 1997 levels as detailed in Report D.
Property transfer tax revenue will increase slightly, reflecting modest growth in housing sales. Corporation capital tax revenue will fall slightly due to the budget measure to increase the exemption threshold effective January 1, 1999. Although insurance premium tax revenue will increase $17 million, this will be offset by an $11-million reduction in fees collected under the Fire Services Act.
Revenue from natural resources is expected to fall almost 9 per cent in 1998/99, mainly due to lower commodity prices and exports.
Forests revenue will decline about $100 million or 7.3 per cent from 1997/98. Harvested volumes on Crown land are expected to fall about 1 per cent (following a 7 per cent decline in 1997/98), reflecting continuing weakness in Asian market demand. Commodity prices are expected to remain weak throughout the year, picking up slightly in 1999. Logging tax revenue will increase $15 million due to fewer refunds in respect of prior years. In 1998/99, refunds of softwood lumber export fees are expected to be about $30 million lower than received in 1997/98. Revenue does not include $370 million of dedicated stumpage revenue to be received by Forest Renewal BC during 1998/99. The forecast does not include potential changes to provincial stumpage rate policies that may occur after April 1, 1998.
Revenue from petroleum and natural gas will decrease by $54 million, mainly reflecting a return to more normal levels of sales of Crown land drilling rights. Water rental revenue, which is based on the previous year's water use, will decrease 6.5 per cent due to lower amounts of electricity generated in 1997/98.
Other revenue, at $2,069 million, is expected to increase 14 per cent. This reflects higher demand for government services, a number of minor adjustments to fee and licence rates, increased sales of Crown land, increased fines revenue from continued speed monitoring enforcement, and higher proceeds from asset dispositions.
The government expects to finalize the asset disposition initiatives undertaken in 1997/98. These include vehicle sales, the sale of BC Online, the final wind up of the British Columbia Systems Corporation, and other initiatives. In addition, as part of the government's ongoing review and evaluation of its assets and service delivery programs, a number of new initiatives will be undertaken to dispose of surplus assets. In total, the government expects to realize $183 million of proceeds from the disposition of government assets in 1998/99.
Contributions from government enterprises are expected to increase 20 per cent in 1998/99. Liquor Distribution Branch profits are expected to increase 4.4 per cent, reflecting growth in sales volumes. Dividends from the British Columbia Hydro and Power Authority will increase slightly from 1997/98, while British Columbia Lottery Corporation profits are expected to increase due to higher ticket sales and expanded gaming activity. Other Crown corporations, including the British Columbia Railway Company and the British Columbia Buildings Corporation are expected to provide $155 million of dividends in 1998/99. These dividends include the return of expected accumulated profits resulting from efficiencies and the completion of sales of properties and other assets.
Contributions from the federal government will increase 3.6 per cent in 1998/99. Revenue from the Canada health and social transfer will be $100 million higher than in 1997/98 because of the federal government's introduction of a national floor for cash payments to the provinces. Other federal contributions will decrease $35 million mainly due to non-recurring payments received in 1997/98 for flood relief. The forecast includes $47 million of federal contributions to help offset the costs of provincial immigration programs ($22 million) and infrastructure projects in the Lower Mainland under the Asia-Pacific Initiative agreement ($25 million).
Expenditure of the consolidated revenue fund is estimated at $20,536 million in 1998/99. This is $141 million or 0.7 per cent higher than the 1997/98 budget estimate and $157 million higher than the 1997/98 revised forecast (see Table B3).
The Ministry of Health budget will increase to $7,242 million, up $228 million or 3.3 per cent from last year's budget. The budget provides a $93-million increase for acute and continuing care programs, including a $63-million increase for hospitals. It also includes a $66-million increase for Pharmacare, and a $31-million increase for the Medical Services Plan. Adult mental health will increase $37 million, including $10 million for new and enhanced services during the first year of the Mental Health Plan.
The Ministry of Education's budget of $4,262 million provides an increase of $117 million or 2.8 per cent over the 1997/98 budget. Funding for K-12 education programs will increase by $123 million or 3.0 per cent from last year's budget. This increase includes $102 million for public school operating grants, $4 million for independent schools, and $16 million for capital and debt financing.
Ministry of Advanced Education, Training and Technology spending will total $1,663 million, an increase of $11 million. Operating contributions to universities, colleges and institutes are budgeted to increase $27 million or 2.5 per cent to $1,100 million, while student financial assistance will increase $14 million or 13 per cent. The total capital and debt financing budget will be $34 million lower than last year, mainly due to a change in the method of financing capital debt.
Ministry of Human Resources expenditure is estimated at $1,563 million, down 9.0 per cent from last year's budget. The budget is based on a projected continuing decline in the caseload as a result of successful programs to encourage transition from income assistance to work.
Budgeted spending for the Ministry for Children and Families of $1,427 million will be $64 million or 4.7 per cent higher than last year's budget. Services for families and children will increase $44 million, and services for adults will increase $9 million. These increases help respond to the higher-than-expected demand for services experienced by the ministry in 1997/98.
Spending by the Ministry of Attorney General will be slightly lower than last year's budget due to administrative savings and efficiencies. Budgeted funding levels for major programs (courts, corrections and policing) will increase.
The budget for the Ministry of Agriculture and Food will increase $12 million or 23 per cent mainly due to increased funding for the Agriculture Renewal Initiative. Additional funding is also provided for the Grazing Enhancement Fund and the Sterile Insect Release Program.
Ministry of Energy and Mines expenditure of $62 million is $16 million lower than last year due to reduced funding for the Kemess mine. In 1998/99, the British Columbia Ferry Corporation will receive an additional $19 million. The budget also includes additional funding for the Northern Agency, to stimulate economic development and job creation in northern British Columbia, and for the Northern Development Fund to promote sustainable economic development in northwestern British Columbia.
The budget for the new Ministry of Fisheries has been set at $20 million, an increase of $3 million, due to the province's enhanced role in the management of the Pacific salmon fishery.
The Ministry of Forests budget will decrease $16 million, reflecting reduced expenditures for administration and forest resources management.
Ministry of Municipal Affairs expenditure of $241 million is $35 million lower than last year due to reduced requirements for disbursements on conditional infrastructure commitments made to local governments, and the ending of the 1994 Canada/British Columbia Infrastructure Works Agreement.
Ministry of Transportation and Highways expenditure will decrease $37 million to $471 million. A larger portion of highway rehabilitation projects will now be funded by the BC Transportation Financing Authority (BCTFA). In total, ministry spending for highway rehabilitation and construction, including amounts recovered from the BCTFA, will increase 14 per cent to $418 million in 1998/99.
BC Benefits expenditure of $244 million will be $56 million less than in 1997/98, primarily due to changes to the BC Family Bonus in response to the introduction of the federal National Child Benefit system. These savings will be reinvested in helping low and modest income families with children to enter and remain in the labour force. A major component of the new initiatives will be an employment incentive program to support families with children.
Management of Public Funds and Debt will increase $51 million due to higher interest rates and increased debt outstanding.
The reduction of consolidated fund expenditures due to the capitalization of capital assets is estimated at $41 million in 1998/99. This reflects the effect of an increase in the amount of capital assets to be acquired during 1998/99. Further information is provided in Schedule F of the 1998/99 Estimates.
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