Wednesday, February 20, 2013

Areas of Concern about the BC Budget

These are a series of things I have concerns about, this is not all of it, just the first set:

Overall I think the budget tend to err on the optimistic side
Natural Gas Revenues
I know the government already reduced their assumptions as to the price natural gas would get in the coming year but I think it may be high.  I think that the government should have budgeted $150 million and not $282 million as it has.   Better to err on under estimating and have extra than assume you have it and then do not.

On page 128 of the Budget and Fiscal Plan - 2013/14 to 2015/16 there is a table with private sector forecasts of natural gas prices for the next three years.  These forecasts were made around January 1st.   In mid February not only are the forecasts looking high, the value the government is using is looking high. In theory the method used by the government  is not a bad, it is just a problem when it is dealing with a commodity that is as wildly fluctuating as natural gas.   I am certain no one dreamed of natural gas going for as little as $0.76/gigajoule as it did in April 2012.

With a product like this, a higher futures price a year away is more about hedging against a massive spike than what someone is willing to pay in the future.  Better to buy some futures contracts now that give you the right to buy natural gas as insurance.   You do not have to exercise your option if the price is lower.

Natural gas has been a budgeting nightmare for BC for years now, something different has to be done in how it is counted so that the budget for the coming fiscal year is not unduly impacted  I think in prudence BC should collect natural gas revenues in one year and apply them to the budget for the next year.

Projections of natural gas prices for 2013/14 in $C/gigajoule.

Budget  Rate
2010/11 $5.38
2011/12 $4.20
2012/13 $3.04
2013/14 $1.85 (before work of the consultant it was to have been $2.13) 

MSP Premiums
I do not like the MSP model to start because I think it would be cheaper and more effectively to collect higher personal income taxes than have a separate tax collection system like MSP.

MSP has been rising a lot over the last decade.   It has doubled between 2001/02 ($954 million) and 2012/13 ($2,043 million).   The projection is for MSP to continue to rise at more than 5% per year for the next three years.

MSP is also one of only four government revenue sources that has not seen a decline since 2006/07 and is not projected to in the next three years.   The others are post secondary education fees, motor vehicle licence fees and permits, and BC Lottery Corporation.

Sale of Properties
The government is saying they can raise $475 million this year from property sales.   The 2012/13 already had that amount projected for the 2013/14 fiscal year which makes me wonder about the amount.  I have no problem with government selling properties it has no need for.  

The property market in BC is now very soft which means the surplus land the province wants to sell is going to have a hard time finding buyers willing to pay a lot of money for it.    I am concerned that the revenues will not be what is hoped for.   I think it would be more prudent to sell the properties and then plan on using the money once it is a known quantity.

Miscellaneous revenues
This is slated to be $2,183 million this year, this is $285 million more than last year and $330 million more than next year.   I am not sure why this is suddenly up for one year and only one year.  I am not sure what is covered in this category (see page 132 to see where I found this number).   This line item is where I assume asset sales have been recorded in the past.

BC Hydro Revenues
There has been an ongoing gap between what the budget says will be paid by BC Hydro and has paid (in millions of dollars)
Year    Budget Actual difference
2012/13  $566  $516   -$50
2011/12  $611  $588   -$23
2010/11  $609  $591   -$18
2009/10  $452  $447    -$5

This year the government is saying that BC Hydro will supply $545 million.  A year ago it was to be $599 million for fiscal 2013/14.  I am not sure why there is this gap. but it has been happened for a number of years.   How certain can we be of of $545 million?

Total Government Spending
The claim that government spending is not going to rise much does not seem realistic to me.   Here is how past budgets have gone:
Year    Budgeted  Outcome
2013/14  $43,990
2012/13  $43,869  $43,629
2011/12  $41,912  $43,807 (Not including HST repayment)
2010/11  $40,605  $41,025
2009/10F $40,133  $39,900
2009/10  $39,307
2008/09  $37,690  $38,742
2007/08  $36,240  $37,381
2006/07  $33,914  $34,805
2005/06F $32,876  $33,262
2005/06  $32,456
2004/05  $30,292  $30,667
2003/04  $30,730  $30,335

The government has managed to spend less than budgeted in very few years over the last decade.   I think assuming the spending will only grow by only 0.83% in the coming year is a dangerous assumption as our population is rising a there is inflation.  Those two factors alone make any attempt to restrain spending to an 0.83% increase unrealistic.

Ministry of Forests, Lands and Natural Resource Operations:
BC desperately needs to have more government staff on the ground in the woods.   Once again the budget seems to reduce the resources of the ministry.   The core operations of the ministry have $40 million less to work with than last year, more than 10% of the operational budget.  

It is very hard in this ministry to be sure of what is happening with spending plans because there have been too many changes to be able to track.    Certainly what I am seeing on the ground in BC is that there is a shortage of field staff and there is no indication this will be changing.  

Forestry is vitally important to the BC economy but if there is not government investment in the management of the resource or oversight of the industry, there is the danger we will see huge problems in the future.

Ministry of Justice
I keep hearing in the media of problems in the courts and the need for more judges.   The budget seems to assume the core Justice, Protection, Court and Legal services will be able to operate with no overall increase in budget.   The only parts of the Justice budget that are up from last year are Corrections as well as Policing and  Security programs.

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