British Columbia on solid ground to post budget surpluses if cost growth can be contained

OTTAWA, March 24, 2016 /CNW/ - British Columbia's surplus could reach $1.4 billion by 2018-19—if the province can rein in growth in spending on health and education, according to The Conference Board of Canada's British Columbia Fiscal Snapshot.

"British Columbia's fiscal position is the envy of most provinces. B.C. will be one of only two provinces in the black in 2015-16," said Matthew Stewart, Associate Director, Canadian Outlook. "With strong economic growth forecast for the province and the government committed to keeping spending in check, B.C. is expected to continue to run budget surpluses through 2018–19."

HIGHLIGHTS

• If the province can follow through on its restrained spending plan, the government's surplus could grow to $1.4 billion by 2018–19 thanks to strong revenue growth.
• Following the spending plan could be a challenge as health care spending in B.C. would have to grow by an additional 1.2 per cent per year over the next three fiscal years just to keep pace with inflation and demographic changes in the province.
• The government has capped education spending growth at just 1.6 per cent per year, which will require significant efficiency gains.

The provincial budget government, presented on February 16, 2016, focused less on generating revenues and more on keeping spending contained and addressing housing affordability.

The latest provincial budget indicates that the government plans to keep growth in health care expenditures below that of inflation and demographic pressures, at a modest 2.8 per cent annually on average over the next three fiscal years. While the province has been successful in recent years in containing health care spending, pressures will continue to mount. The Conference Board projects that health care spending in B.C. would have to grow by an average pace of 1.2 per cent per year over the next three fiscal years just to keep pace with inflation and demographic changes in the province. Health care spending will continue to compose the lion's share of total expenditures over the forecast period, and any spending overruns would impact the province's bottom line.

This same holds true for program expenditures on education. In its 2016 budget, the government announced its intention to cap education spending growth at just 1.6 per cent per year over the forecast period. This is a significant change from the last decade, when education spending grew by an annual average of 3.4 per cent. The Conference Board projects education spending would need to increase by an annual average rate of 2.7 per cent to maintain constant real spending per student. Significant efficiency gains in education will be needed to stay on budget.

British Columbia had the fastest growing provincial economy last year and is expected to perform better than any other province again, this year and next. Despite the downturn in the resource sector, total real GDP is expected to grow 2.7 per cent in 2016 and 3.4 per cent in 2017. There are, however, some risks to this economic forecast. The Conference Board forecast includes PETRONAS' $36–billion Pacific NorthWest liquefied natural gas (LNG) terminal. This forecast assumes that construction will begin fairly soon, boosting growth in real GDP by approximately 1 percentage point next year.

British Columbia's strong ability to generate public revenues has made it one of Canada's four "have" provinces, meaning that it does not receive equalization payments from the federal government. Demand for the province's natural resources combined with a strong housing sector has enabled the province to record above-average growth over the past decade, and this trend is expected to continue over the forecast period.

The Conference Board of Canada will host its inaugural Western Business Outlook: Nanaimo on May 19, 2016. Join Glen Hodgson, Senior Vice President and Chief Economist, as he examines the Canadian, B.C. and Vancouver Island economic conditions, how they interact with the global economy, and where business is headed in 2016.

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SOURCE Conference Board of Canada

Yvonne Squires, Media Relations, The Conference Board of Canada, Tel.: [phone] ext. 221, E-mail: [email protected]; or Juline Ranger, Director of Communications, The Conference Board of Canada, Tel.: [phone] ext. 431, E-mail: [email protected]