Thursday, August 20, 2009

Bigger deficit in BC

I have been thinking and worrying about the danger of a higher deficit in BC, Sean Holman has something on this today.

I am not happy that the government is headed towards what looks like a larger deficit. As revenues fall and costs go up, it is inevitable that there would be increased deficit problems. I am glad that BC did not massively buy into the crazy 'fiscal stimulus' thing that is going around the world at the moment.

Sudden large increases in government spending on projects normally leads to wasteful spending due to the lack of good business cases for the work being done. Ultimately we have to pay not only the inflated projects costs of badly thought out and managed projects, we have to pay a lot of interest on this money as well.

Here in BC the government has retained some sense of economic sanity. This will serve us well over the next decade as we will be ahead of the various jurisdictions that are running up debts.

I hope the government will take some very serious efforts to reduce the costs of the government over the next year two. For a political perspective now is a good time to do another core services review and look to reduce the general scope and size of the provincial government. The time till the next election is still far enough away that bold actions can be taken.

The government also needs to look at possible sources for one time revenue sources to make up the public sector borrowing requirement for the next couple of years. There is one big asset the province has that could sold - BC Hydro. The odds of any government of having the courage to make that decision is basically zero.

We have lived with private power in the south eastern part of BC since the start of electrical power and it has not been a problem for people. Why not do it all over BC?

BC Hydro has created by the Socreds so they could use it as a tool for large scale industrial development in BC. The government has used BC Hydro to subsidize large scale industrial operations through artificially cheap electrical power. The government also used ownership of BC Hydro to expand the grid.

So why do we retain ownership of BC Hydro now? We are not expanding the grid unless there is a profitable business case for it. We still provide cheap power to industry, but really should be we be doing this at all?

The sale of BC Hydro would deliver BC the money needed to avoid more debt at the moment. It would also increase government revenues through more tax dollars flowing to government from the private company. It would also mean that market rates for power would prevail in BC. Higher power rates would reduce demand for power.

But no one would have the guts to do this.

I also assume that significant reductions in government will also not occur.

So we will be looking at increased provincial debt and long term additional debt charges. Each billion now will eventually cost us about $1.3 billion extra over the next 25 years in interest costs. $7 billion over three years will cost us about $365 000 000 a year for each of the next 25 years in debt charges.

$365 000 000 is more than BC spends on public transit each year. This is bigger than the annual budget of UVic. The debt charges will cost about the same as the amount of money the government gets from BC Hydro each year. We are defacto deciding to use all the income from BC Hydro to finance the extra debt costs for the next generation.

The debt charges will cost BC about 3500 long term fulltime jobs because the money will be going to the banks and not to people actually doing something relevant for the province over the next 25 years. The annual interest costs of $350 000 000 is lost money to the BC economy.

We are making a choice to avoid a few years of some belt tightening now in return for reducing what we we will be able to do in the future. We are telling we want services now and that our kids should have fewer government services. This is just wrong.
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