Finance Minister Carole James was rightly proud last week when the auditor-general signed off on the books from the last fiscal year and agreed the budget surplus was a whopping $1. 5 billion.
Nevertheless, the government’s public accounts also contained a bit of a warning about how fast things could go wrong.
James built prudence into her 2018-19 budget, as well as the current year’s. Like her BC Liberal predecessor, Mike de Jong, she lowballed projected revenues on several fronts, particularly those linked to taxation.
Personal income tax revenues ended up being $1.5 billion higher than expected and corporate income tax was more than $1 billon higher. Countering that somewhat was a $400-million drop in property transfer tax revenues.
That is a lot of money moving around in supposedly unanticipated ways. It is also a reminder that taxes have a volatility that can make or break government budgets.
Which brings me to the table on page 13 of the government’s public accounts. It charts where government revenues have come from the five past fiscal years and breaks them down into seven categories: taxation, contributions from the federal government, fees and licences, miscellaneous, contributions from Crown corporations, natural resources and investment income.
During the past five years, the only significant area of growth when it comes to those categories is taxation revenues, which climbed almost $10 billion and now account for almost 60 per cent of the overall revenue total, up from about 50 per cent five years ago.
James said the steady and substantial growth in tax dollars is the result of a well-performing economy. But this increasing reliance on tax dollars to pay for things like the inevitably huge annual increase in health-care spending alone -- $500 million to $1 billion a year – exposes the B.C. government to a potential deficit situation should the economy start to slow down by even a minor degree.
An economic slowdown will reduce personal income tax revenues, corporate income tax revenues and sales tax revenues. Based on the trend of the past five years, the lost revenue is unlikely to be made up from other areas (barring a big increase in tax rates or bleeding a Crown corporation dry).
A budget deficit would likely reduce the government’s currently strong credit rating, making it more expensive to borrow money to build such things badly needed infrastructure projects.
Of course, there are no signs of a slowdown yet, although some economists insist another worldwide recession is just around the corner.
This state of affairs is what keeps finance ministers like James from boasting too much about the government’s economic performance. She knows that disaster can strike at any moment.
For now, though, she can keep smiling. Just two years into the job, and the good times continue to roll.
Keith Baldrey is chief political correspondent for Global BC.