EX-99.13 2 a13-15457_1ex99d13.htm EX-99.13

Exhibit 99.13

 

 



 



 

June Budget Update
2013/14 — 2015/16

 

 

June 27, 2013

 

 

 



 

National Library of Canada Cataloguing in Publication Data

British Columbia.

Budget and fiscal plan. —- 2002/03/2004/05-

Annual

Also available on the Internet.

Continues: British Columbia. Ministry of Finance and

Corporate Relations. Budget … reports. ISSN 1207-5841

ISSN 1705-6071 = Budget and fiscal plan — British Columbia.

1. Budget — British Columbia — Periodicals. 2. British

Columbia — Appropriations and expenditures — Periodicals.

I. British Columbia. Ministry of Finance. II. Title.

HJ12.B742 352.48’09711’05 C2003-960048-3

 



 

TABLE OF CONTENTS

 

June Budget Update 2013/14 — 2015/16

 

June 27, 2013

 

 

Attestation by the Secretary to Treasury Board

 

 

 

Summary

1

 

 

 

Part 1:

Three Year Fiscal Plan

 

Introduction

5

June 2013 Budget Update

8

Revenue

10

 

Major Revenue Sources

12

Expense

20

 

Consolidated Revenue Fund Spending

20

 

Management of the BC Public Service

28

 

Recovered Expenses

28

 

Operating Transfers

29

 

Service Delivery Agency Spending

29

Capital Spending

29

 

Taxpayer-supported Capital Spending

30

 

Self-supported Capital Spending

34

 

Projects over $50 million

35

Provincial Debt

38

Risks to the Fiscal Plan

40

Tables:

 

 

1.1

Three Year Fiscal Plan

5

 

1.2

Changes Since the February 2013 Budget

9

 

1.3

Major Factors Underlying Revenue

11

 

1.4

Personal Income Tax Revenue

12

 

1.5

Corporate Income Tax Revenue

12

 

1.6

Sales Taxes Revenue

13

 

1.7

Federal Government Contributions

16

 

1.8

Revenue by Source

18

 

1.9

Expense by Ministry, Program and Agency

19

 

1.10

Health Per Capita Costs and Outcomes: Canadian Comparisons

23

 

1.11

Health Funding Plan

23

 

1.12

Support for Arts, Education and Economic Initiatives

26

 

1.13

Support for Families, Individuals and Community Safety

26

 

1.14

Capital Spending

30

 

1.15

Provincial Transportation Investments

33

 

1.16

Capital Expenditure Projects Greater Than $50 million

36

 

1.17

Provincial Debt Summary

38

 

1.18

Provincial Borrowing Requirements

39

 

June Budget Update – 2013/14 to 2015/16

 



 

Table of Contents

 

 

1.19

Reconciliation of Summary Results to Provincial Debt Changes

40

 

1.20

Key Fiscal Sensitivities

41

 

1.21

Notional Allocations to Contingencies

43

 

 

 

Topic Boxes:

 

 

Release of Surplus Assets for Economic Generation

46

 

Expenditure Growth Management

48

 

British Columbia Families First Early Years Strategy

50

 

BC Training and Education Savings Program

52

 

Long-term Opportunities for British Columbia — Liquefied Natural Gas

54

 

 

 

Part 2: Tax Measures

 

Tax Measures — Supplementary Information

58

Tables:

 

 

2.1

Summary of Tax Measures

57

 

 

 

 

Topic Boxes:

 

 

Carbon Tax Review

63

 

Carbon Tax Report and Plan

66

 

Tobacco Control Strategy and Taxation in BC

69

 

Re-implementation of the Provincial Sales Tax

72

 

 

 

Part 3: British Columbia Economic Review and Outlook

 

Summary

75

British Columbia Economic Activity and Outlook

76

 

The Labour Market

76

 

Consumer Spending and Housing

77

 

Business and Government

79

 

External Trade and Commodity Markets

79

 

Demographics

81

 

Inflation

81

Risks to the Economic Outlook

82

External Outlook

82

 

United States

82

 

Canada

85

 

Europe

87

 

China

88

 

Financial Markets

88

 

Interest Rates

88

 

Exchange Rate

90

 

June Budget Update – 2013/14 to 2015/16

 

iv



 

Table of Contents

 

Tables:

 

 

 

3.1

British Columbia Economic Indicators

76

 

3.2

US real GDP forecast: Consensus vs Ministry of Finance

85

 

3.3

Canadian real GDP forecast: Consensus vs Ministry of Finance

86

 

3.4

Private Sector Canadian Interest Rate Forecasts

89

 

3.5

Private Sector Exchange Rate Forecasts

90

 

3.6.1

Gross Domestic Product: British Columbia

91

 

3.6.2

Components of Real Gross Domestic Product: British Columbia

92

 

3.6.3

Components of Nominal Income and Expenditure

93

 

3.6.4

Labour Market Indicators

93

 

3.6.5

Major Economic Assumptions

94

 

 

 

 

Topic Boxes:

 

 

 

The Economic Forecast Council, June 2013 Budget Update

95

 

 

 

 

Appendices:

 

 

 

A1

Tax Expenditures

101

 

A1.1

Personal Income Tax — Tax Expenditures

104

 

A1.2

Corporate Income Tax — Tax Expenditures

105

 

A1.3

Property Taxes — Tax Expenditures

105

 

A1.4

Consumption Taxes — Tax Expenditures

106

 

A2

Interprovincial Comparisons of Tax Rates — 2013

107

 

A3

Comparison of Provincial and Federal Taxes by Province — 2013

108

 

A4

Interprovincial Comparisons of Provincial Personal Income Taxes Payable — 2013

110

 

A5

Material Assumptions — Revenue

111

 

A6

Natural Gas Price Forecasts: 2013/14 to 2015/16

116

 

A7

Material Assumptions — Expense

117

 

A8

Operating Statement — 2006/07 to 2015/16

119

 

A9

Revenue by Source — 2006/07 to 2015/16

120

 

A10

Revenue by Source Supplementary Information — 2006/07 to 2015/16

121

 

A11

Expense by Function — 2006/07 to 2015/16

122

 

A12

Expense by Function Supplementary Information — 2006/07 to 2015/16

123

 

A13

Full-Time Equivalents (FTEs) 2006/07 to 2015/16

124

 

A14

Capital Spending — 2006/07 to 2015/16

125

 

A15

Statement of Financial Position — 2006/07 to 2015/16

126

 

A16

Changes in Financial Position — 2006/07 to 2015/16

127

 

A17

Provincial Debt — 2006/07 to 2015/16

128

 

A18

Provincial Debt Supplementary Information — 2006/07 to 2015/16

129

 

A19

Key Provincial Debt Indicators — 2006/07 to 2015/16

130

 

June Budget Update – 2013/14 to 2015/16

 

v



 

June 27, 2013

 

June Update 2013, as tabled in the British Columbia Legislature on June 27, 2013, replaces the document tabled on February 19, 2013, with the exclusion of Part 4 - 2012/13 Revised Financial Forecast (Third Quarterly Report).

 

As required by Section 7(d) of the Budget Transparency and Accountability Act (BTAA) and Section 4a (v) of the Carbon Tax Act, I confirm that June Update 2013 contains the following elements:

 

·                  The fiscal and economic forecasts for 2013/14 and the next two years — detailed in Parts 1 and 3.

 

·                  Advice received from the Economic Forecast Council in May 2013, on the economic growth outlook for British Columbia, including a range of forecasts for 2013 and 2014 (see Part 3, page 95).

 

·                  Material economic, demographic, fiscal, accounting policy and other assumptions and risks underlying June Update 2013 economic and fiscal forecasts, including:

 

·                  An economic forecast that reflects a slowing of growth for British Columbia in 2013 as year to date information indicates weakness in the employment, retail sales and housing sectors but steady improvement thereafter as the US economy begins to show stable growth and provincial exports benefit. However, the European sovereign debt crisis remains a concern. Accordingly, the economic projections assumed in June Update 2013 are prudent relative to the average of the forecasts provided by the Economic Forecast Council.

 

·                  Forecast allowances of $150 million for the remaining nine months of fiscal 2013/14 increasing to $200 million and $300 million in the two outer years of the fiscal plan respectively to manage the risks of unexpected revenue declines and/or expense increases in achieving operating and debt level targets. The increase in the level of these allowances over the fiscal plan period recognizes the increase in uncertainty in revenue forecasts, commodity prices and the global economic recovery for projections further out in the fiscal plan.

 

·                  The spending (expense) forecast in June Update 2013 assumes average annual growth in operating expenses will not exceed 1.6 per cent over the three years of the fiscal plan. This spending level, reflecting both the continuation of the expenditure management direction established in Budget 2009 and the realization of more efficient delivery of services, nonetheless requires vigilant monitoring to ensure budget targets are achieved.

 

·                  June Update 2013 assumes a reduction in the rate of historical levels of health spending growth to average 2.6 per cent annually over the fiscal plan period. Achieving these targets will require the successful management of upcoming physicians’ compensation negotiations and other measures including ensuring the costs of drug and laboratory services are controlled.

 

·                  June Update 2013 includes an allocation of $225 million to the Contingencies (All Ministries) and New Programs Vote in 2013/14, and $225 million in each of the following two fiscal years. These allocations are based on a review of potential ministry pressures and government’s critical priorities in a tight fiscal environment.

 

·                  Revenue forecasts take into consideration the economic forecasts assumed in June Update 2013 and reinstatement of the provincial sales tax (PST) on April 1, 2013.

 

·                  In February 2013, Dr. Tim O’Neill, an independent consultant appointed by government found the processes, methodologies and assumptions underpinning the economic forecast and revenue projections to be generally well-founded with the exception of the natural gas revenue forecast.

 



 

·                  In response to the recommendation of the independent consultant, the natural gas price forecast in June Update 2013 falls within the lower band of private sector forecasters in 2013/14, incorporating an additional level of prudence above the historical use of an average of private sector forecasts (see Table A6, page 116). Expectations of growth in the outer years are consistent with the average price growth forecasted year over year. A prudent natural gas price forecast was also used in the economic forecast.

 

·                  The fiscal plan assumes no explicit economic activity or incremental resource revenue from Liquefied Natural Gas development in the province.

 

·                  The independent consultant also reviewed the assumptions that form the basis of the government’s surplus asset sales revenue and accepted the valuation methodology. Revenue to be realized on the sale of surplus corporate assets is dependent on a successful marketing program, a continuation of current market conditions, and completed sales.

 

·                  June Update 2013 continues $217 million in capital project reserves over the three year capital plan for potential cost pressures and to fund emerging government priorities. Any major new capital projects have the added oversight of cross government sourced project board members.

 

·                  June Update 2013 provides no incremental funding for public sector collective agreements concluded under the 2012 Cooperative Gains Mandate to-date and assumes no incremental funding for any outstanding wage negotiations. Any negotiated increases in public sector compensation must be fully offset by identified savings in existing public sector budgets. The mandate established for the next round of public sector negotiations will need to be accommodated within the fiscal plan.

 

·                  June Update 2013 assumes three-year financial projections for health authorities, K—12 school districts and post-secondary institutions, as provided by the Ministries of Health, Education, and Advanced Education, based on plans submitted by those sectors.

 

·                  Three-year financial projections for the other service delivery agencies and commercial Crown corporations were submitted directly to the Ministry of Finance by those organizations. All financial projections included in June Update 2013 are consistent with the service plans prepared by those organizations. Volatility in the forecast for the Insurance Corporation of British Columbia remains due to the unpredictability of investment earnings and the incidence and magnitude of bodily injury claims.

 

·                  To the best of my knowledge, the three-year fiscal plan contained in June Update 2013 conforms to the standards and guidelines of generally accepted accounting principles (GAAP) for senior government and with Public Sector Accounting Board (PSAB) guidelines. Commercial Crown corporations adopted International Financial Reporting Standards (IFRS) effective January 1, 2011.

 

·                  Major areas of risk to the June Update 2013 fiscal plan are shown in Part 1 and the Appendix tables.

 

·                  Carbon tax reports for 2011/12 and 2012/13, and a carbon tax plan for 2013/14 to 2015/16 — see Carbon Tax Report and Plan topic box at the end of Part 2: Tax Measures (page 66).

 

·                  A health funding plan that includes a forecast for health spending and the specific revenue sources fully dedicated to these purposes for 2013/14 to 2015/16 is provided on page 23.

 

 

 

 

Peter Milburn

 

Deputy Minister and

 

Secretary to Treasury Board

 

Ministry of

Office of the

Mailing Address:

Location Address:

Finance

Deputy Minister

PO Box 9417 Stn Prov Govt

Room 109

 

 

Victoria BC V8W 9V1

617 Government Street

 

 

www.gov.bc.ca/fin

Victoria BC

 



 


 


 

Summary: BUDGET AND FISCAL PLAN — 2013/14 to 2015/16

 

 

 

Preliminary

 

Budget

 

 

 

 

 

 

 

Actual

 

Estimate

 

Plan

 

Plan

 

($ millions)

 

2012/13

 

2013/14

 

2014/15

 

2015/16

 

Revenue

 

42,191

 

44,239

 

44,817

 

46,263

 

Expense

 

(43,337

)

(43,936

)

(44,463

)

(45,517

)

Surplus (deficit) before forecast allowance

 

(1,146

)

303

 

354

 

746

 

Forecast allowance

 

 

(150

)

(200

)

(300

)

Surplus (deficit)

 

(1,146

)

153

 

154

 

446

 

Capital spending

 

 

 

 

 

 

 

 

 

Taxpayer-supported capital spending

 

3,279

 

3,723

 

3,557

 

3,365

 

Self-supported capital spending

 

2,764

 

2,613

 

2,727

 

2,671

 

 

 

6,043

 

6,336

 

6,284

 

6,036

 

Provincial Debt:

 

 

 

 

 

 

 

 

 

Taxpayer-supported debt

 

38,182

 

42,558

 

44,770

 

46,500

 

Self-supported debt

 

17,634

 

19,864

 

21,761

 

22,964

 

Total debt (including forecast allowance)

 

55,816

 

62,572

 

66,731

 

69,764

 

Taxpayer-supported debt-to-GDP ratio

 

17.0

%

18.4

%

18.5

%

18.4

%

 

 

 

2012

 

2013

 

2014

 

2015

 

Economic Forecast:

 

 

 

 

 

 

 

 

 

Real GDP growth

 

1.8

%

1.4

%

2.2

%

2.5

%

Nominal GDP growth

 

3.2

%

3.1

%

4.3

%

4.5

%

 

Balancing the Budget

 

June Update 2013 fulfils government’s commitment to balance the budget by the 2013/14 fiscal year. There are four key elements in the plan that will enable government to move to a surplus of $153 million in 2013/14 from a projected deficit of $1,146 million in 2012/13, and grow the surplus over the fiscal plan period.

 

By 2015/16,

 

·                  net economic growth is expected to generate $1.1 billion of base revenue in excess of projected expense increases;

 

·                  expenditure growth management is expected to yield $1.2 billion;

 

·                  tax measures are projected to generate $1.3 billion; and

 

·                  sales of surplus properties and assets will total $0.6 billion over the next two years.

 

The June Update 2013 projection for release of surplus corporate assets continues with the decision not to pursue privatization of the Liquor Distribution Branch warehousing operations. All other asset and land sale projects are underway and on schedule.

 

In support of balancing the budget by 2013/14, government initiated a number of tax policy changes by:

 

·                  temporarily increasing the personal income tax rate for income over $150,000 from 14.70 per cent to 16.80 per cent (for the 2014 and 2015 taxation years only), while maintaining the tax credit rate on charitable donations over the $200 threshold at 14.70 per cent;

 

·                  advancing the effective date of the increase to the general corporate income tax rate announced in Budget 2012 to April 1, 2013 from the previous effective date of April 1, 2014;

 

·                  increasing taxes on cigarettes by $2 per carton (effective October 1, 2013); and

 

Filling the deficit gap

 

 

June Budget Update – 2013/14 to 2015/16

 



 

Summary

 

·                  phasing out the value of the school property tax credit for light industry (Class 5) over two years so that it is eliminated for the 2014 taxation year.

 

June Update 2013 requires ministries to continue to carefully manage priorities while maintaining government services within existing budget allocations. In addition to reaffirming ongoing fiscal restraint measures, it may be necessary to find up to an incremental $30 million in government savings in 2013/14. As well, the Core Review is anticipated to generate savings of $50 million in each of 2014/15 and 2015/16.

 

Management of expenditure growth in ministries and service delivery agencies has yielded significant budgetary resources over the fiscal plan period for allocation to government priorities. A significant portion ($497 million) of those resources has been reallocated in support of government’s Families First initiative with the remainder flowing to the bottom line.

 

Excluding the impacts of the tax measures and expenditure growth management, there is a 0.8 percentage point positive differential between the annual revenue growth rate and the annual expense growth rate. The growth rate differential represents a net economic growth factor that will enable existing 2012/13 revenue streams to almost eliminate the deficit gap by 2016/17, although expenditure growth management will continue to be a factor in balancing the budget.

 

BC’s Economy Still Vulnerable

 

Following an estimated increase of 1.8 per cent in 2012, the Ministry of Finance forecasts British Columbia’s economy to grow by 1.4 per cent in 2013, 2.2 per cent in 2014 and 2.5 per cent per year in the medium-term.

 

Ministry forecast more prudent than private sector

 

 

The Ministry’s outlook for BC’s real GDP growth is 0.2 percentage points lower in 2013 and 0.3 percentage points lower in 2014 than the outlook provided by the Economic Forecast Council.

 

This level of prudence for both years acknowledges the downside risks to the forecast, which include:

 

·                  potential for further slowing of domestic economic activity, including weakness in employment, retail sales and housing;

 

·                  renewed weakness or a return to recession in the US economy (characterized by weaker consumer spending, further deleveraging causing slower investment, and further fiscal restraint by federal, state and local governments);

 

·                  the ongoing European sovereign debt crisis threatening the stability of global financial markets;

 

·                  slower than anticipated economic activity in Asia, resulting in weaker demand for BC’s exports; and

 

·                  exchange rate volatility.

 

Capital Spending

 

Taxpayer-supported infrastructure spending on hospitals, schools, post-secondary facilities, transit, and roads will total $10.6 billion over the fiscal plan period, and will be financed by $6.8 billion in borrowing with the remainder funded by third parties such as the federal government, and from internal cash flows.

 

Self-supported infrastructure spending on electrical generation, transmission and distribution projects, the Port Mann Bridge and other capital assets will total $8.0 billion over the fiscal plan period, and will be financed by $5.3 billion in borrowing, with the remainder funded internally.

 

Keeping Debt Affordable

 

Government’s borrowing requirement for the next three years totals $20.0 billion, including $6.4 billion to retire maturing debt. Overall, total provincial debt is projected to increase to $69.8 billion by 2015/16. Additional information on the debt outlook is found starting on page 38.

 

In addition to the impact of borrowing to support infrastructure spending, the taxpayer-supported debt to GDP ratio in 2013/14 reflects an increase

 

June Budget Update – 2013/14 to 2015/16

 

2



 

Summary

 

Fiscally sustainable debt

 

 

in debt mainly due to higher net working capital balances as a result of the transition from the HST to the PST/GST tax systems and the drawdown of deferred revenue. As government returns to balancing its budget, the debt to GDP ratio track will begin to decline by 2015/16.

 

Economic and Revenue Forecast Review

 

Government engaged the services of Dr. Tim O’Neill, a noted economist, to review its economic and revenue forecasts for the February 2013 budget. The O’Neill Report generally validated government’s forecast processes, methodologies and assumptions except in one area — the natural gas price forecast.

 

Citing general economic conditions and the challenges faced by the natural gas industry, the O’Neill Report recommended government change from its longstanding practice of using the average of private sector price forecasts, which he felt was too robust an increase over the previous year.

 

While current factors are supportive of higher natural gas prices, with prices that are about 85 per cent higher in the first five months of 2013 compared to the same period last year, the June Update 2013 forecast continues to maintain prudence as recommended by the independent consultant.

 

The current price forecast is within the 20th percentile of the private sector forecasters for all three years, injecting an additional level of prudence into government’s balanced budget projection.

 

Risks to the Fiscal Plan

 

The main risks to the government’s fiscal plan include:

 

·                  risks to the BC economic outlook, due to further slowing of domestic economic activity and continued uncertainty surrounding global economic activity;

 

·                  assumptions underlying revenue and Crown corporation forecasts, such as economic factors, commodity prices and weather conditions; and

 

·                  utilization rates for government services, such as health care, children and family services, and income assistance.

 

Government incorporates four main levels of prudence in its projections to mitigate the risks to the fiscal plan:

 

·                  The Ministry outlook for BC’s real GDP growth is lower than the outlook provided by the Economic Forecast Council (0.2 percentage points lower in 2013 and 0.3 percentage points lower in 2014).

 

·                  The natural gas revenue forecast incorporates additional prudence by using a price forecast that is within the 20th percentile of the private sector forecasts instead of the previous practice of using the average of the private sector forecasts.

 

·                  Government has included a forecast allowance of $150 million in 2013/14, $200 million in 2014/15, and $300 million in 2015/16 to guard against revenue volatility.

 

·                  The fiscal plan includes a Contingencies Vote allocation of $225 million in each year of the fiscal plan (i.e. 2013/14, 2014/15 and 2015/16) to help manage unexpected pressures and fund priority initiatives.

 

Conclusion

 

In summary, June Update 2013:

 

·                  delivers on government’s commitment to return to balanced budgets by 2013/14;

 

·                  augments priority program funding in support of the Families First initiative;

 

·                  creates a sustainable balanced budget framework in which expenditure management and limited tax measures build on economic growth;

 

·                  continues government’s infrastructure program in support of government initiatives and to create jobs over the next three years; and

 

·                  maintains debt affordability in support of an AAA credit rating.

 

June Budget Update – 2013/14 to 2015/16

 

3



 



 

Part 1: THREE YEAR FISCAL PLAN

 

Table 1.1 Three Year Fiscal Plan

 

 

 

Preliminary

 

Budget

 

 

 

 

 

 

 

Actual

 

Estimate

 

Plan

 

Plan

 

($ millions)

 

2012/13

 

2013/14

 

2014/15

 

2015/16

 

Revenue

 

42,191

 

44,239

 

44,817

 

46,263

 

Expense

 

(43,337

)

(43,936

)

(44,463

)

(45,517

)

Surplus (deficit) before forecast allowance

 

(1,146

)

303

 

354

 

746

 

Forecast allowance

 

 

(150

)

(200

)

(300

)

Surplus (deficit)

 

(1,146

)

153

 

154

 

446

 

Capital spending:

 

 

 

 

 

 

 

 

 

Taxpayer-supported capital spending

 

3,279

 

3,723

 

3,557

 

3,365

 

Self-supported capital spending

 

2,764

 

2,613

 

2,727

 

2,671

 

 

 

6,043

 

6,336

 

6,284

 

6,036

 

Provincial Debt:

 

 

 

 

 

 

 

 

 

Taxpayer-supported debt

 

38,182

 

42,558

 

44,770

 

46,500

 

Self-supported debt

 

17,634

 

19,864

 

21,761

 

22,964

 

Total debt (including forecast allowance)

 

55,816

 

62,572

 

66,731

 

69,764

 

Taxpayer-supported debt-to-GDP ratio

 

17.0

%

18.4

%

18.5

%

18.4

%

 

Introduction

 

June Update 2013 fulfils government’s commitment to balance the budget by the 2013/14 fiscal year. There are four key elements in the plan that will enable government to move to a surplus of $153 million in 2013/14 from a preliminary actual deficit of $1,146 million in 2012/13, and grow the surplus over the fiscal plan period.

 

By 2015/16,

 

·                  net economic growth is expected to generate $1.1 billion of base revenue in excess of projected expense increases;

 

·                  expenditure growth management is expected to yield $1.2 billion;

 

·                  tax measures are projected to generate $1.3 billion; and

 

·                  sales of surplus properties and assets will total $0.6 billion over the next two years.

 

Government is on track with its plan to release surplus corporate assets. The June Update 2013 projection continues with the decision not to pursue privatization of the Liquor Distribution Branch warehousing operations. All other asset and land sale projects are underway and on schedule. Further details on the release of surplus assets can be found in the topic box on page 46.

 

In support of balancing the budget by 2013/14, government initiated a number of tax policy changes by:

 

·                  temporarily increasing the personal income tax rate for income over $150,000 from 14.70 per cent to 16.80 per cent (for the 2014 and 2015 taxation years only), while maintaining the tax credit rate on charitable donations over the $200 threshold at 14.70 per cent;

 

June Budget Update – 2013/14 to 2015/16

 



 

Three Year Fiscal Plan

 

·                  advancing the effective date of the increase to the general corporate income tax rate announced in Budget 2012 to April 1, 2013 from the previous effective date of April 1, 2014;

 

·                  increasing taxes on cigarettes by $2 per carton (effective October 1, 2013); and

 

·                  phasing out the value of the school property tax credit for light industry (Class 5) over two years so that it is eliminated for the 2014 taxation year.

 

For further information on all the tax measures, including transitional relief, see Part 2: Tax Measures.

 

June Update 2013 requires ministries to continue to carefully manage priorities while maintaining government services within existing budget allocations. In addition to reaffirming ongoing fiscal restraint measures, it may be necessary to find up to an incremental $30 million in government savings in 2013/14. As well, the Core Review is anticipated to generate savings of $50 million in each of 2014/15 and 2015/16.

 

Management of expenditure growth in ministries and service delivery agencies has yielded significant budgetary resources over the fiscal plan period for allocation to government priorities. A significant portion ($497 million) of those resources has been reallocated in support of government’s Families First initiative with the remainder flowing to the bottom line. As a result, the average annual growth in spending has been limited to 1.6 per cent over the fiscal plan period.

 

Revenue is expected to grow by an average annual 3.1 per cent during the fiscal plan period — 1.5 percentage points higher than the average annual expense growth rate noted above. Factoring out the impacts of the tax measures and expenditure growth management reduces this growth rate differential to 0.8 percentage points.

 

This growth rate differential represents a net economic growth factor that will enable existing 2012/13 revenue streams to almost eliminate the deficit gap by 2016/17, although expenditure growth management will continue to be a factor in balancing the budget. The other elements of the June Update 2013 plan form the bridging strategy that enables government to balance the budget until the impact of the net growth factor fully overcomes the deficit gap.

 

Chart 1.1 Filling the deficit gap

 

 

June Budget Update – 2013/14 to 2015/16

 

6



 

Three Year Fiscal Plan

 

Notwithstanding tight fiscal conditions, government continues to make priority investments in infrastructure. Taxpayer-supported infrastructure spending on hospitals, schools, post-secondary facilities, transit, and roads will total $10.6 billion over the fiscal plan period, and will be financed by $6.8 billion in borrowing with the remainder funded by third parties, such as the federal government, and from internal cash flows.

 

Self-supported infrastructure spending on electrical generation, transmission and distribution projects, the Port Mann Bridge and other capital assets will total $8.0 billion over the fiscal plan period, and will be financed by $5.3 billion in borrowing, with the remainder funded from internal cash flows. More information on the three year capital spending plan is found on page 29.

 

Government’s borrowing requirement for the next three years totals $20.0 billion, including $6.4 billion to retire maturing debt. Overall, total provincial debt is projected to increase to $69.8 billion by 2015/16. Additional information on the debt outlook is found starting on page 38.

 

In addition to the impact of borrowing to support infrastructure spending, the taxpayer-supported debt to GDP ratio in 2013/14 reflects an increase in debt mainly due to higher net working capital balances as a result of the transition from the HST to the PST/GST tax systems and the drawdown of deferred revenue. As government returns to balancing its budget, the debt to GDP ratio track will begin to decline by 2015/16.

 

Chart 1.2 Taxpayer-supported debt remains fiscally sustainable

 

 

The major risks to the fiscal plan stem from changes in factors that government does not directly control. These include:

 

·                  Risks to the BC economic outlook, due to further slowing of domestic economic activity and continued uncertainty surrounding global economic activity.

 

·                  Assumptions underlying revenue and Crown corporation forecasts such as economic factors, commodity prices and weather conditions.

 

·                  Utilization rates for government services such as health care, children and family services, and income assistance.

 

June Budget Update – 2013/14 to 2015/16

 

7



 

Three Year Fiscal Plan

 

Government incorporates four main levels of prudence in its projections to mitigate the risks to the fiscal plan:

 

·                  The Ministry outlook for BC’s real GDP growth is lower than the outlook provided by the Economic Forecast Council (0.2 percentage points lower in 2013 and 0.3 percentage points lower in 2014).

 

·                  The natural gas revenue forecast continues to incorporate additional prudence as recommended by the independent consultant for the February 2013 budget by using a price forecast that is within the 20th percentile of the private sector forecasts for all three years instead of the previous practice of using the average of the private sector forecasts.

 

·                  Government has included a forecast allowance of $150 million in 2013/14, $200 million in 2014/15, and $300 million in 2015/16 to guard against revenue volatility.

 

·                  The fiscal plan includes a Contingencies Vote allocation of $225 million in each year of the fiscal plan (i.e. 2013/14, 2014/15 and 2015/16) to help manage unexpected pressures and fund priority initiatives.

 

A complete discussion of the risks to the fiscal plan can be found beginning on page 40. Economic risks are discussed in the introduction to Part 3: British Columbia Economic Review and Outlook.

 

June 2013 Budget Update

 

Lower economic growth projections, revised population numbers and the carry-forward impact of preliminary 2012/13 actual results resulted in a slight deterioration in the fiscal plan since the February 2013 budget. This will be partially offset by further expenditure management measures as required, the projected impact of the Core Review and adjustments to the forecast allowance.

 

Taxation revenue reductions reflect lower tax bases carried forward from the 2012/13 preliminary actual results and a weaker outlook for personal income, wages and salaries, employment, corporate profits, consumer expenditures and BC housing starts. These largely economic factors have resulted in lower taxation revenue forecasts for personal and corporate income, sales, carbon and property taxes over the fiscal plan period.

 

Natural resource revenue improved due to a higher natural gas price outlook and the resulting increase in the Province’s share of royalties on natural gas production. The improvement was partially offset by reduced forecasts of revenue from coal mining operations reflecting increased transportation and operating costs, and from forests due to the negative effects of high lumber prices on the provincial entitlement under the Softwood Lumber Agreement.

 

The Canada Health Transfer and Canada Social Transfer entitlements are based on BC’s share of the total Canadian population. Statistics Canada has recently provided its preliminary 2011 Census net undercount estimates, which show BC has a lower population share of the national total than projected in the February 2013 budget, resulting in reduced entitlements over the fiscal plan period.

 

Other revenue changes primarily reflect the projected reinstatement of federal transfers for employment programs supporting persons with disabilities. In the February 2013

 

June Budget Update – 2013/14 to 2015/16

 

8



 

Three Year Fiscal Plan

 

Table 1.2 Changes since the February 2013 Budget

 

 

 

Preliminary

 

Budget

 

 

 

 

 

 

 

Actual

 

Estimate

 

Plan

 

Plan

 

($ millions)

 

2012/13

 

2013/14

 

2014/15

 

2015/16

 

February 2013 Budget

 

(1,228

)

197

 

211

 

460

 

Taxation revenue

 

(137

)

(221

)

(251

)

(267

)

Natural resources revenue

 

(29

)

70

 

108

 

137

 

Health and social transfers

 

(190

)

(55

)

(60

)

(61

)

Other revenue changes

 

96

 

58

 

34

 

77

 

Spending reductions

 

292

 

24

 

37

 

25

 

Further expenditure management

 

 

30

 

 

 

Core Review impacts

 

 

 

50

 

50

 

Forecast allowance adjustment

 

50

 

50

 

25

 

25

 

Total changes

 

82

 

(44

)

(57

)

(14

)

June Update 2013 Fiscal Plan

 

(1,146

)

153

 

154

 

446

 

Capital spending changes:

 

 

 

 

 

 

 

 

 

Taxpayer-supported

 

(449

)

6

 

76

 

176

 

Self-supported

 

(275

)

103

 

5

 

7

 

Debt changes:

 

 

 

 

 

 

 

 

 

Taxpayer-supported

 

(155

)

1

 

277

 

430

 

Self-supported

 

(90

)

(68

)

(69

)

(69

)

Taxpayer-supported Debt to GDP:

 

 

 

 

 

 

 

 

 

February 2013 Budget

 

17.0

%

18.2

%

18.3

%

18.1

%

Impact of debt changes

 

-0.1

%

0.0

%

0.1

%

0.2

%

Impact of economic forecast changes

 

0.1

%

0.2

%

0.1

%

0.1

%

June Update 2013

 

17.0

%

18.4

%

18.5

%

18.4

%

 

budget, this funding was assumed to conclude in 2012/13; however the federal government has stated that it will continue supporting these programs in 2013/14 and intends to negotiate a new generation of the Labour Market Agreement for Persons with Disabilities by 2014.

 

Spending reductions in 2012/13 are mainly due to lower spending by the schools, post-secondary institutions and other service delivery agencies, an increase in the reversal of prior year liabilities, and unused Contingencies vote. Over the fiscal plan period, some service delivery agencies have carried forward their spending reductions in response to lower own-source revenue forecasts.

 

Government continues to emphasize expenditure management as a key initiative, and has identified additional savings to be achieved this fiscal year. As well, Core Review is projected to result in further efficiencies, which will be directed towards maintaining a balanced budget.

 

The forecast allowance for 2012/13 has lapsed, and for 2013/14 has been drawn down by one-fourth to reflect the nine months remaining in the fiscal year. The outer year forecast allowances have been lowered slightly to reflect a reduced risk of not achieving fiscal plan targets.

 

The capital spending reductions in 2012/13 mainly reflect project schedule changes and the lapsing of unused project contingencies. The increases during the fiscal plan period reflect the reprofiling of these schedule changes across the fiscal plan period.

 

June Budget Update – 2013/14 to 2015/16

 

9



 

Three Year Fiscal Plan

 

The debt changes mainly reflect the impact of fiscal plan changes and capital spending adjustments. However, for taxpayer-supported debt, the reduction in capital debt in 2012/13 was significantly offset by an increase in direct operating debt mainly as a result of higher net working capital balances. This will impact the level of debt over the fiscal plan period.

 

The taxpayer-supported debt to GDP ratio track has been impacted by both the lower economic forecast and changes to debt balances. Overall, the ratio has increased by 0.2 percentage points in each of 2013/14 and 2014/15, and by 0.3 percentage points in 2015/16.

 

Revenue

 

Chart 1.3 Revenue trends

 

 

Total revenue is expected to average 3.1 per cent annual growth over the three years of the fiscal plan (2013/14 to 2015/16). This reflects strengthening economic conditions, rising energy prices and the impacts of tax measures.

 

Taxation revenue is expected to average 3.2 per cent annual growth over the three years of the fiscal plan, reflecting the Ministry of Finance economic projections for growth in nominal GDP, personal income, corporate profits, consumer expenditures and housing starts. The forecast also includes the effects of the return to the PST system. Tax measures and initiatives are detailed in Part 2.

 

Growth in natural resource revenue is forecast to average 6.3 per cent annually over the next three years, reflecting the relatively low base in 2012/13 and increases in commodity prices and improving markets for natural gas, lumber and electricity. Revenue growth from fees, investment earnings and other miscellaneous sources is expected to average 2.5 per cent annually, based on projected Medical Services Plan premium rate increases and forecasts provided by taxpayer-supported service delivery agencies.

 

Federal government transfers are expected to average 2.6 per cent annual growth over the next three years as the scheduled end of stimulus initiatives and other one-time transfers partially offset standard growth in the Canada Health Transfer and Canada Social Transfer programs.

 

June Budget Update – 2013/14 to 2015/16

 

10


 


 

Three Year Fiscal Plan

 

Chart 1.4 Revenue forecast

 

 

Commercial Crown net income is expected to average 3.0 per cent annual growth over the three years to 2015/16, mainly reflecting increasing contributions from BC Hydro and the BC Lottery Corporation. More details on Crown corporation net income are provided beginning on page 16.

 

Table 1.3 Major Factors Underlying Revenue

 

Calendar Year

 

June 27, 2013

 

February 19, 2013

 

Per cent growth unless otherwise indicated

 

2012

 

2013

 

2014

 

2015

 

2012

 

2013

 

2014

 

2015

 

Real GDP

 

1.8

 

1.4

 

2.2

 

2.5

 

1.9

 

1.6

 

2.2

 

2.5

 

Nominal GDP

 

3.2

 

3.1

 

4.3

 

4.5

 

3.5

 

3.5

 

4.3

 

4.5

 

Personal income

 

3.8

 

3.1

 

4.0

 

4.1

 

3.7

 

3.4

 

4.0

 

4.2

 

Corporate profits

 

-0.2

 

3.8

 

5.3

 

6.5

 

1.7

 

4.2

 

5.8

 

6.4

 

Consumer expenditures

 

3.6

 

3.1

 

4.7

 

4.8

 

3.8

 

3.9

 

4.8

 

4.9

 

Consumer expenditures on durable goods

 

2.8

 

1.3

 

1.7

 

1.8

 

4.4

 

2.4

 

2.2

 

2.1

 

Business investment

 

6.7

 

6.4

 

4.3

 

4.9

 

6.8

 

6.0

 

4.8

 

5.1

 

Residential investment

 

6.5

 

5.9

 

3.5

 

4.9

 

6.6

 

5.5

 

3.8

 

5.1

 

Retail sales

 

1.9

 

1.8

 

3.5

 

3.8

 

2.7

 

3.5

 

4.0

 

4.0

 

Employment

 

1.7

 

0.7

 

1.3

 

1.4

 

1.7

 

1.1

 

1.3

 

1.5

 

BC Housing starts

 

4.0

 

-13.3

 

0.9

 

8.4

 

4.0

 

-10.1

 

1.0

 

9.4

 

US Housing starts

 

28.1

 

15.4

 

7.8

 

3.1

 

28.1

 

2.6

 

8.8

 

3.4

 

SPF 2x4 price ($US/thousand board feet)

 

$

300

 

$

348

 

$

308

 

$

300

 

$

300

 

$

328

 

$

300

 

$

300

 

Pulp ($US/tonne)

 

$

813

 

$

828

 

$

800

 

$

800

 

$

813

 

$

800

 

$

800

 

$

800

 

Exchange rate (US cents/Canadian dollar)

 

100.1

 

97.5

 

97.3

 

99.0

 

100.1

 

100.5

 

102.5

 

100.9

 

 

Fiscal Year

 

2012/13

 

2013/14

 

2014/15

 

2015/16

 

2012/13

 

2013/14

 

2014/15

 

2015/16

 

Natural gas price ($Cdn/GJ at plant inlet)

 

$

1.51

 

$

2.25

 

$

2.51

 

$

2.89

 

$

1.46

 

$

1.85

 

$

2.25

 

$

2.65

 

Bonus bids average bid price per hectare ($)

 

$

1,105

 

$

1,100

 

$

750

 

$

750

 

$

750

 

$

750

 

$

750

 

$

800

 

Electricity price ($US/mega-watt hour, Mid-C)

 

$

25

 

$

37

 

$

37

 

$

39

 

$

25

 

$

33

 

$

38

 

$

41

 

Metallurgical coal price ($US/tonne, fob west coast)

 

$

177

 

$

172

 

$

177

 

$

171

 

$

177

 

$

178

 

$

173

 

$

168

 

Copper price ($US/lb)

 

$

3.61

 

$

3.40

 

$

3.39

 

$

3.33

 

$

3.57

 

$

3.40

 

$

3.08

 

$

2.76

 

Crown harvest volumes (million cubic metres)

 

62.8

 

64.5

 

65.0

 

66.0

 

65.5

 

66.0

 

66.0

 

67.0

 

 

June Budget Update – 2013/14 to 2015/16

 

11



 

Three Year Fiscal Plan

 

Major Revenue Sources

 

Key assumptions and sensitivities relating to revenue are provided in Appendix Table A5. The major revenue components are:

 

·        Personal income tax — base revenue is forecast to average 5.0 per cent annual growth over the next three years, consistent with June Update 2013 projections of personal and labour incomes.

 

Adjusting for tax measures and the prior-year adjustment in 2012/13, personal income tax revenue is expected to increase 4.2 per cent in 2013/14 followed by growth of 7.7 per cent and 4.5 per cent, respectively, in the next two years. The forecast includes the effects of increasing the personal income tax rate for incomes over $150,000 (limited to two years only) and reversing the basic personal amount tax credit enhancement. The reversal of the basic personal amount tax credit enhancement is consistent with the previous plan to return to the provincial sales tax (PST) system.

 

Table 1.4 Personal Income Tax Revenue

 

($ millions)

 

2012/13

 

2013/14

 

2014/15

 

2015/16

 

Base personal income tax revenue

 

6,747

 

7,030

 

7,408

 

7,808

 

Annual growth

 

3.1

%

4.2

%

5.4

%

5.4

%

Measures:

 

 

 

 

 

 

 

 

 

– new personal income tax rate for income over $150,000 with a 2 year limit

 

 

56

 

227

 

176

 

– Reversal of basic personal amount tax credit enhancement

 

 

173

 

176

 

180

 

– Federal tax measures

 

 

12

 

20

 

20

 

Prior-Year adjustment

 

230

 

 

 

 

June Update 2013 revenue

 

6,977

 

7,271

 

7,831

 

8,184

 

Annual growth

 

8.6

%

4.2

%

7.7

%

4.5

%

Personal income growth (calendar year)

 

3.8

%

3.1

%

4.0

%

4.1

%

Labour income growth (calendar year)

 

3.9

%

3.3

%

4.2

%

4.3

%

Elasticity1 (calendar year basis, policy neutral)

 

1.2

 

1.3

 

1.4

 

1.3

 

 


1 Per cent growth in current year tax relative to per cent growth in personal income.

 

·        Corporate income tax — revenue is recorded on a cash basis and annual figures reflect changes in payment share, instalments and adjustments for the prior year. Actual calendar-year entitlement before measures is forecast to rise in line with corporate profits. The revenue forecast incorporates the small business tax rate remaining at 2.5 per cent and an increase of the general corporate income tax rate to 11 per cent from 10 per cent, effective April 1, 2013.

 

Table 1.5 Corporate Income Tax Revenue

 

($ millions)

 

2012/13

 

2013/14

 

2014/15

 

2015/16

 

Advance instalments from the federal government:

 

 

 

 

 

 

 

 

 

– Payment share

 

11.8

%

11.2

%

11.1

%

10.8

%

– Advances before tax measures

 

2,217

 

2,050

 

2,142

 

2,200

 

– Add general corporate income tax rate measure

 

 

204

 

191

 

194

 

International Business Activity Act refunds

 

(17

)

(20

)

(20

)

(20

)

Prior-year adjustment

 

4

 

(125

)

(76

)

(79

)

Corporate income tax revenue

 

2,204

 

2,109

 

2,237

 

2,295

 

Annual per cent growth

 

10.1

%

-4.3

%

6.1

%

2.6

%

 

June Budget Update – 2013/14 to 2015/16

 

12



 

Three Year Fiscal Plan

 

·        Sales taxes — annual growth in sales taxes is expected to average 1.4 per cent over the next three years as the effects of economic growth are partially offset by the impacts of returning to the PST system. Sales tax revenues consist of the PST, which includes the former hotel room tax, the tax on designated property and the housing transition tax. The PST base is expected to increase 4.1 per cent annually over the next two years, in line with growth in consumer spending and business investment.

 

Table 1.6 Sales Taxes Revenue

 

($ millions)

 

2012/13

 

2013/14

 

2014/15

 

2015/16

 

Provincial sales taxes

 

118

 

5,927

 

6,106

 

6,325

 

Harmonized Sales Tax (BC’s portion of HST)

 

 

 

 

 

 

 

 

 

Gross

 

7,586

 

 

 

 

Temporary restrictions of input tax credits

 

120

 

 

 

 

Rebates

 

(1,756

)

 

 

 

BC’s portion of HST

 

5,950

 

 

 

 

 

Annual per cent change (calendar year)

 

2012

 

2013

 

2014

 

2015

 

Consumer expenditure

 

3.6

%

3.1

%

4.7

%

4.8

%

Residential investment

 

6.5

%

5.9

%

3.5

%

4.9

%

Government expenditures

 

3.9

%

1.3

%

2.1

%

3.0

%

Nominal GDP

 

3.2

%

3.1

%

4.3

%

4.5

%

Retail sales

 

1.9

%

1.8

%

3.5

%

3.8

%

 

·        Carbon tax — as announced in Budget 2008, the carbon tax rate per tonne of CO2-equivalent increased by $5 each year with the last increase to $30 per tonne on July 1, 2012. The forecast assumes that purchased volumes of natural gas will grow in line with real GDP. Consumption of gasoline, on the other hand, is expected to remain constant. Carbon tax revenue is fully returned to taxpayers through tax reductions and credits. For more details on carbon tax recycling, see the Carbon Tax Report and Plan on page 66.

 

·        Tobacco tax — revenue is expected to grow by an average of 5.7 per cent annually over the three years of the fiscal plan. In addition to the tax measures announced in Budget 2012, the forecast incorporates the tax measure of increasing the tobacco tax rate by $2 per carton, effective October 1, 2013.

 

·        Property tax — revenue is expected to grow by an average of 4.2 per cent annually over the three year plan, in line with the outlook for BC housing starts and the inflation rate. The forecast includes the tax measure of phasing-out the value of the school property tax credit for light industry over the two years.

 

·        Property transfer tax — revenue is forecast to decline 5.7 per cent in 2013/14 due to a weak housing market in later half of 2012 which continued in 2013, as evident from annual declines in average property prices and the number of transactions. This decline is expected to be followed by growth of 2.5 per cent and 6.5 per cent, respectively, in the next two years, in line with the growth in housing starts.

 

·        Natural gas royalties — revenues are expected to increase $228 million in 2013/14 after declining in 2012/13. This increase reflects rising prices and production volumes partially offset by increasing production from wells qualifying for royalty programs and credits. The forecast assumes natural gas prices will average $2.25 ($Cdn/gigajoule, plant inlet) in 2013/14. Prices are expected to increase $0.26 in 2014/15 and $0.38 in 2015/16, in line with the average growth trend of private sector forecasters and recent market trends.

 

June Budget Update – 2013/14 to 2015/16

 

13



 

Three Year Fiscal Plan

 

Relative to last year, there is a general improvement underlying natural gas markets. Prices are about 85 per cent higher in first five months of 2013 compared to same period last year. The storage levels as at June 7, 2013 are 20 per cent below the levels recorded last year and 2.4 per cent lower than the five year average levels. North American natural gas production from January to February 2013 was 2.5 per cent lower than the same period in 2012, a reversal of the large increases in the previous three years.

 

While the above factors are supportive of higher natural gas prices, the forecast continues to maintain prudence as recommended by the independent consultant for the February 2013 budget, with a price forecast that is within the 20th percentile of the private sector forecasters for all three years. While natural gas prices are forecast to rise over the next three years, they are expected to remain well below previous highs due to continued growth in North American supply from non-conventional production sources.

 

Chart 1.5 Natural gas royalty base rates

 

 

Natural gas royalty rates are based on a sliding scale linked to natural gas prices and are particularly sensitive to price changes within the $1.30 and $3.00/gigajoule range. With the recent recovery in natural gas prices, the average gross royalty rate in 2013/14 has increased 3.4 percentage points, resulting in an increase in natural gas royalty revenue. See Appendix Table A6 for more details regarding natural gas price forecasts.

 

The forecast also includes the impact of measures introduced in the February 2013 budget, namely the introduction of a 3 per cent minimum royalty for all natural gas wells that qualify for the Deep Well Royalty Credit Program and the termination of the Summer Drilling Credit Program. Government continues to provide royalty programs and credits that foster industry investment in exploration and development.

 

·        Other energy, metals and minerals — revenue from the sale of Crown land tenures is forecast to decline at a 5.4 per cent average annual rate over the three years of the fiscal plan as lower expected cash receipts over the next three years are mitigated due to revenue recognition of cash receipts that are deferred over nine-years. Columbia River Treaty electricity sales are expected to increase in 2013/14, mainly due to rising electricity prices, and then remain relatively stable over the following two years of the

 

June Budget Update – 2013/14 to 2015/16

 

14



 

Three Year Fiscal Plan

 

Chart 1.6 Revenue from energy, metals and minerals

 

 

fiscal plan. Revenue from metals and minerals sources is expected to be relatively flat over the fiscal plan reflecting higher mining costs and the outlook for coal and metal prices.

 

·        Forests — revenue is forecast to increase $31 million or 5.5 per cent in 2013/14, mainly due to increased stumpage revenue partly offset by declines in Softwood Lumber Agreement 2006 (SLA 2006) border taxes and vote recoveries. Forest revenue is expected to increase $64 million in 2014/15 followed by a $36 million in 2015/16, due to improvements in stumpage rates and higher SLA 2006 border taxes resulting from higher lumber shipments to the United States.

 

·        Fees, licences and other miscellaneous sources — revenue growth is expected to average 2.6 per cent annually over the three year fiscal plan, reflecting projected increases to Medical Services Plan premium rates in support of rising healthcare expenditures and forecasts provided by taxpayer-supported agencies.

 

·        Investment earnings — revenue is expected to decrease $115 million in 2013/14 due to reduced earnings from fiscal agency loans and the taxpayer-supported service delivery agencies. Revenue is forecasted to average 8.7 per cent over the following two years mainly due to rising earnings from fiscal agency loans. Earnings from fiscal agency loans have offsetting expenses resulting in no impact on the bottom line.

 

·        Health and social transfers — revenue is expected to average 4.4 per cent annual growth over the three years of the fiscal plan, mainly reflecting a rising BC population share. The forecast of Canada Health Transfer revenue in 2014/15 and 2015/16 is based solely on per capita funding of the national base, similar to the Canada Social Transfer program.

 

·        Other federal contributions — revenue is expected to remain relatively flat in 2013/14. Revenue is forecast to fall $114 million in 2014/15, mainly due to reduced vote recoveries relating to immigration initiatives and transfers to taxpayer-supported service delivery agencies. Changes in vote recoveries do not affect the bottom line as expenses fall by the same amount. In 2015/16, other federal contributions are expected to decline 4.7 per cent due to the elimination of one-time funding related to disaster financial assistance and healthcare services to persons infected with Hepatitis C.

 

June Budget Update – 2013/14 to 2015/16

 

15



 

Three Year Fiscal Plan

 

Table 1.7 Federal Government Contributions

 

($ millions)

 

2012/13

 

2013/14

 

2014/15

 

2015/16

 

Canada Health Transfer (CHT)

 

3,831

 

4,224

 

4,220

 

4,479

 

Wait Times Reduction Transfer

 

33

 

33

 

 

 

Deferred health equipment grants

 

23

 

22

 

17

 

7

 

Canada Social Transfer (CST)

 

1,555

 

1,604

 

1,653

 

1,706

 

Total health and social transfers

 

5,442

 

5,883

 

5,890

 

6,192

 

Other contributions

 

1,600

 

1,597

 

1,483

 

1,413

 

Total Federal Contributions

 

7,042

 

7,480

 

7,373

 

7,605

 

 

Commercial Crown Corporation Net Income

 

·        British Columbia Hydro and Power Authority — BC Hydro’s net income is forecast to average $613 million annually over the fiscal plan period (2013/14 to 2015/16). These projections reflect an annual return on deemed equity of 11.84 per cent. While the BC Utilities Commission (BCUC) recently reduced the allowed return for the benchmark low-risk utility — FortisBC Energy — government has requested that BC Hydro defer applying the impact of this ruling to its projections pending a review of BC Hydro’s capital structure and projected rate requirements this fall.

 

While BC Hydro normally provides an annual dividend to the province equal to 85 per cent of its net income, the amount of the dividends are constrained by a requirement that the corporation maintain an 80:20 debt to equity ratio. As a result of this constraint, the annual dividend payment is forecast to average $243 million — or approximately 40 per cent of average net income — over the next three years.

 

·        British Columbia Liquor Distribution Branch — LDB’s net income is forecast to average $860 million annually over the fiscal plan period (2013/14 to 2015/16). The reinstatement of the PST/GST system effective April 2013 will result in a downward adjustment to LDB margins that will have an ongoing impact on the sales revenue trend. As a result, total sales revenue is only expected to increase 1.8 per cent over the fiscal plan period.

 

·        British Columbia Lottery Corporation — BCLC’s net income is expected to grow by 10.0 per cent over the fiscal plan period reflecting moderate revenue growth in the lottery and casino/community gaming channels (8.2 per cent and 7.1 per cent respectively) and strong growth from eGaming (106.9 per cent). Revenue growth is mainly due to continuing product development (primarily in PlayNow internet gaming), distribution enhancements, and facility improvements to casinos and community gaming centres. As well, a return to the PST/GST system in 2013 will result in lower taxes paid by the corporation and an improvement to net income.

 

The government will distribute 20 per cent ($717 million) of its gaming income to charities and local governments over the next three years. As well, $441 million of the gaming income retained by government will be allocated to the Health Special Account in support of health services.

 

June Budget Update – 2013/14 to 2015/16

 

16



 

Three Year Fiscal Plan

 

·        Insurance Corporation of British Columbia — ICBC’s net income outlook is forecast at $257 million in 2013, $222 million in 2014 and $205 million in 2015. The outlook assumes average annual growth of 1.5 per cent in the number of insured vehicles and a 3.6 per cent average annual increase in claims costs. Over the fiscal plan period, ICBC is forecast to remit $550 million of its excess Optional insurance capital to the consolidated revenue fund to support core government services.

 

ICBC is in its third year of a multi-year $400 million Transformation Program that is designed to promote a fairer, customer-based risk pricing model, resulting in better rates for safer drivers; simplified systems and processes to facilitate better support for customers and business partners with less paperwork; and more efficient business practices. The Transformation Program, forecast to be complete in the fall of 2016, will be funded entirely from Optional insurance capital so as to not impact Basic insurance rates.

 

·        Transportation Investment Corporation — TI Corp manages the construction of the Port Mann/Highway 1 improvement project, which includes the new Port Mann Bridge, highway widening, and interchange improvements between Langley and Vancouver. The bridge portion of the project, as well as highway widening from Langley to Coquitlam, was opened to traffic in December 2012. Highway widening to Vancouver is expected to be complete in December 2013. TI Corp’s projections in the fiscal plan reflect operating losses during the construction phase, changing to operating profits (excluding interest and amortization costs) when tolls are fully implemented.

 

June Budget Update – 2013/14 to 2015/16

 

17



 

Three Year Fiscal Plan

 

Table 1.8 Revenue by Source

 

 

 

Preliminary

 

Budget

 

 

 

 

 

 

 

Actual

 

Estimate

 

Plan

 

Plan

 

($ millions)

 

2012/13

 

2013/14

 

2014/15

 

2015/16

 

Taxation revenue

 

 

 

 

 

 

 

 

 

Personal income

 

6,977

 

7,271

 

7,831

 

8,184

 

Corporate income

 

2,204

 

2,109

 

2,237

 

2,295

 

Sales 1

 

6,068

 

5,927

 

6,106

 

6,325

 

Fuel

 

890

 

926

 

934

 

941

 

Carbon

 

1,120

 

1,187

 

1,203

 

1,224

 

Tobacco

 

614

 

709

 

726

 

726

 

Property

 

1,985

 

2,053

 

2,159

 

2,246

 

Property transfer

 

758

 

715

 

733

 

781

 

Other 2

 

434

 

435

 

440

 

445

 

 

 

21,050

 

21,332

 

22,369

 

23,167

 

Natural resource revenue

 

 

 

 

 

 

 

 

 

Natural gas royalties

 

169

 

397

 

437

 

518

 

Forests

 

562

 

593

 

657

 

693

 

Other resource 3

 

1,742

 

1,856

 

1,806

 

1,756

 

 

 

2,473

 

2,846

 

2,900

 

2,967

 

Other revenue

 

 

 

 

 

 

 

 

 

Medical Services Plan premiums

 

2,047

 

2,156

 

2,271

 

2,394

 

Other fees 4

 

2,849

 

2,956

 

2,944

 

3,053

 

Investment earnings

 

1,173

 

1,058

 

1,138

 

1,251

 

Miscellaneous 5

 

2,759

 

3,116

 

2,790

 

2,819

 

Release of surplus assets

 

 

480

 

150

 

 

 

 

8,828

 

9,766

 

9,293

 

9,517

 

Contributions from the federal government

 

 

 

 

 

 

 

 

 

Health and social transfers

 

5,442

 

5,883

 

5,890

 

6,192

 

Other federal contributions 6

 

1,600

 

1,597

 

1,483

 

1,413

 

 

 

7,042

 

7,480

 

7,373

 

7,605

 

Commercial Crown corporation net income

 

 

 

 

 

 

 

 

 

BC Hydro

 

509

 

545

 

611

 

684

 

Liquor Distribution Branch

 

930

 

851

 

860

 

869

 

BC Lottery Corporation (net of payments to federal government)

 

1,118

 

1,162

 

1,192

 

1,227

 

ICBC 7

 

251

 

257

 

222

 

205

 

Transportation Investment Corporation (Port Mann)

 

(60

)

(92

)

(59

)

(49

)

Other 8

 

50

 

92

 

56

 

71

 

 

 

2,798

 

2,815

 

2,882

 

3,007

 

Total revenue

 

42,191

 

44,239

 

44,817

 

46,263

 

 


1     Includes harmonized sales tax, provincial sales tax, tax on designated property and HST/PST housing transition tax.

2     Corporation capital and insurance premium taxes.

3     Columbia River Treaty, other energy and minerals, water rental and other resources.

4     Post-secondary, healthcare-related, motor vehicle, and other fees.

5     Includes reimbursements for healthcare and other services provided to external agencies, and other recoveries.

6     Includes contributions for health, education, community development, housing and social service programs, and transportation projects.

7     The 2012/13 amount reflects the government’s fiscal year (March) and the 3-year plan forecasts represent projected earnings on ICBC’s fiscal year basis (December).

8     Includes Columbia Power Corporation, BC Railway Company, Columbia Basin Trust power projects, and post-secondary institutions self-supported subsidiaries.

 

June Budget Update – 2013/14 to 2015/16

 

18



 

Three Year Fiscal Plan

 

Table 1.9 Expense by Ministry, Program and Agency

 

 

 

Preliminary

 

Budget

 

 

 

 

 

 

 

Actual

 

Estimate

 

Plan

 

Plan

 

($ millions)

 

2012/13 1

 

2013/14

 

2014/15

 

2015/16

 

Office of the Premier

 

8

 

9

 

9

 

9

 

Aboriginal Relations and Reconciliation

 

80

 

82

 

80

 

84

 

Advanced Education

 

1,954

 

1,953

 

1,936

 

1,911

 

Agriculture

 

64

 

79

 

79

 

79

 

Children and Family Development

 

1,327

 

1,345

 

1,352

 

1,386

 

Community, Sport and Cultural Development

 

309

 

182

 

221

 

261

 

Education

 

5,330

 

5,366

 

5,387

 

5,387

 

Energy and Mines

 

49

 

24

 

22

 

22

 

Environment

 

126

 

129

 

129

 

129

 

Finance

 

219

 

190

 

188

 

188

 

Forests, Lands and Natural Resource Operations

 

664

 

561

 

591

 

589

 

Health

 

15,930

 

16,551

 

16,944

 

17,405

 

International Trade

 

37

 

36

 

36

 

36

 

Jobs, Tourism and Skills Training

 

196

 

197

 

197

 

197

 

Justice

 

1,146

 

1,140

 

1,145

 

1,147

 

Natural Gas Development

 

368

 

372

 

380

 

386

 

Social Development and Social Innovation

 

2,445

 

2,487

 

2,504

 

2,504

 

Technology, Innovation and Citizens’ Services

 

523

 

535

 

543

 

543

 

Transportation and Infrastructure

 

816

 

812

 

812

 

812

 

Total ministries and Office of the Premier

 

31,591

 

32,050

 

32,555

 

33,075

 

Management of public funds and debt

 

1,197

 

1,257

 

1,297

 

1,357

 

Contingencies

 

259

 

225

 

225

 

225

 

Funding for capital expenditures

 

930

 

992

 

1,000

 

1,164

 

Refundable tax credit transfers

 

1,188

 

835

 

850

 

1,011

 

Legislative and other appropriations

 

114

 

132

 

126

 

127

 

Subtotal

 

35,279

 

35,491

 

36,053

 

36,959

 

Prior year liability adjustments

 

(159

)

 

 

 

Consolidated revenue fund expense

 

35,120

 

35,491

 

36,053

 

36,959

 

Expenses recovered from external entities

 

2,871

 

2,835

 

2,694

 

2,791

 

Funding provided to service delivery agencies

 

(21,182

)

(21,555

)

(21,931

)

(22,320

)

Ministry and special office direct program spending

 

16,809

 

16,771

 

16,816

 

17,430

 

Service delivery agency expense:

 

 

 

 

 

 

 

 

 

School districts

 

5,577

 

5,598

 

5,650

 

5,655

 

Universities

 

3,940

 

4,108

 

4,151

 

4,212

 

Colleges and institutes

 

1,105

 

1,115

 

1,123

 

1,132

 

Health authorities and hospital societies

 

12,519

 

12,771

 

13,079

 

13,352

 

Other service delivery agencies

 

3,387

 

3,603

 

3,694

 

3,786

 

Total service delivery agency expense

 

26,528

 

27,195

 

27,697

 

28,137

 

Subtotal expense

 

43,337

 

43,966

 

44,513

 

45,567

 

Further expenditure management

 

 

(30

)

 

 

Core Review

 

 

 

(50

)

(50

)

Total expense

 

43,337

 

43,936

 

44,463

 

45,517

 

 


1 Restated to reflect government’s current organization and accounting policies.

 

June Budget Update – 2013/14 to 2015/16

 

19



 

Three Year Fiscal Plan

 

Expense

 

June Update 2013 focuses on government’s commitment to delivering the core services of health care, education, and social support that British Columbians depend upon while continuing to look for savings to help mitigate the impacts of lower natural resource revenue. In support of these priorities, government is continuing its management strategy of prudence and spending discipline, coupled with a strategic reallocation of resources to meet priorities.

 

Government’s prudent fiscal management is demonstrated by its ability to slow expense growth since the economic downturn in the fall of 2008. The use of expenditure management measures and the introduction of the cooperative gains concept as a means of funding wage increases have reduced annual spending growth significantly.

 

Chart 1.7 Expense trends

 

 

During the period leading up to the economic downturn, spending grew an average of 5.7 per cent annually. Expenditure management to date has reduced the average annual spending growth to 2.8 per cent. Measures introduced in June Update 2013 will further reduce average annual spending growth to 1.6 per cent over the fiscal plan period.

 

This rate of expense growth will still enable government to increase its program spending by $2.2 billion over the fiscal plan period (from $43.3 billion in 2012/13 to $45.5 billion by 2015/16).

 

Consolidated Revenue Fund Spending

 

Spending by ministries advances at a very modest pace in June Update 2013, as government continues to require most ministries to manage within existing budget allocations. Any additional funding provided in June Update 2013 is targeted to a limited number of government priorities.

 

June Budget Update – 2013/14 to 2015/16

 

20



 

Three Year Fiscal Plan

 

Bending Down the Health Spending Cost Curve

 

The Ministry of Health’s 2012/13 base budget of $16.2 billion is projected to increase by a further $1.2 billion by 2015/16. Over the three year plan, a total of $2.4 billion in new funding is being added. While the annual increases in dollar terms are still significant as seen in Chart 1.8, June Update 2013 continues to reduce the rate of growth of health spending in BC compared to previous years.

 

For example, health spending was growing at an average rate of 7.0 per cent per year between 2005/06 and 2008/09, before being reduced to an average of 4.4 per cent annually during the subsequent four years. In the current three year fiscal plan, that rate has been further reduced to 2.6 per cent, but government is confident it can achieve this without sacrificing health outcomes.

 

Chart 1.8 Ministry of Health budget increases

 

 

The savings are being achieved in ways that are protecting the growth of funding for regional services which include all the key hospital, acute care, mental health, emergency, and community care services. Expenditure growth in these services averaged 4.7 per cent per year from 2010/11 to 2012/13; during the 2013/14-2015/16 fiscal plan period covered by June Update 2013, funding allocations to this area will still grow at 3.2 per cent per year on average.

 

Health authorities are responsible for the provision of most of these “front-line” services to patients in the healthcare system. Funding increases for health authorities are unchanged from Budget 2012 — in 2012/13, their spending grew by 3.5 per cent and funding increases for 2013/14 and 2014/15 are estimated to be 4.3 per cent and 2.9 per cent respectively.

 

A significant portion of the savings in regional services will be in the area of incremental “patient-focused funding”, a relatively recent and successful program to incent more efficient use of resources in the provision of various procedures performed in hospitals. The Ministry of Health will use the 2013/14 fiscal year to transition to the use of performance-based patient-focused funding incentives in health authority base budgets.

 

June Budget Update – 2013/14 to 2015/16

 

21



 

Three Year Fiscal Plan

 

Chart 1.9 Ministry of Health funding — bending the cost curve

 

 

Other areas of the health budget will be targeted for lower rates of growth in June Update 2013. The majority of the savings are to be achieved through efficiencies in the areas of PharmaCare and Medical Services Plan (MSP). As is apparent from Chart 1.9, when combined, there is only an average of 1.1 per cent anticipated average annual growth over the next three years in these two components of the Ministry’s budget.

 

As previously announced, in order to manage drug costs, the Ministry of Health introduced a new drug pricing regulation in 2012, which came into force on April 1, 2013, that will reduce the price of generic drugs to 25 per cent of the brand name price immediately, and to 20 per cent as of April 1, 2014. Up until April 2013, British Columbians paid 35 per cent of the brand name price for generic drugs. The regulation makes BC generic drug prices more consistent with other Canadian jurisdictions. The Ministry will also continue to work on other policies aimed at reducing drug costs, with the overall result expected to be relatively stable costs in the PharmaCare program over the three-year fiscal plan.

 

Measures will also be introduced to reduce the rate of growth of MSP expenditures, which cover the costs of most physicians and other healthcare practitioners. For example, the Physician Master Agreement contains the financial arrangements between the government and the BC Medical Association, and covers approximately 10,000 specialists and family physicians. The outcomes of negotiations that are expected to occur over the fiscal plan period will have to be consistent with the ministry budget. The ministry anticipates that reduced expenditure growth rates in this area can be achieved without reductions in service availability.

 

MSP also funds laboratory testing, a fundamental element of patient care since test results influence the majority of medical decisions. However, BC has the only uncapped fee-for-service outpatient laboratory funding model in Canada and there continues to be issues of duplication and redundancy. The Ministry of Health therefore intends to implement a strategic, integrated approach to laboratory services which is also anticipated to result in reduced cost increases.

 

June Budget Update – 2013/14 to 2015/16

 

22



 

Three Year Fiscal Plan

 

Finally, the latest available data continues to demonstrate that BC is a leader in Canada in aintaining a desirable balance between efficiency and health outcomes. As of 2012, BC remains the second least costly province in terms of per capita spending on health care, and according to the most recent available data, ranks best in terms of Life Expectancy, Cancer Mortality, and Mortality related to Diseases of the Heart. For Infant Mortality, BC ranks third best overall.

 

Table 1.10 Health Per Capita Costs and Outcomes: Canadian Comparisons

 

 

 

2012 Per

 

Life

 

Infant Mortality

 

Cancer Mortality Rate

 

Diseases of the Heart

 

 

 

Capita Health

 

Expectancy at

 

per 1000 Live

 

per 100,000

 

Mortality Rate per

 

Province

 

Care Costs ($)

 

Birth (Years)

 

Births

 

Population

 

100,000 Population

 

Quebec

 

3,513

 

81.2

 

4.4

 

174.7

 

93.7

 

British Columbia

 

3,690

 

81.7

 

3.6

 

144.0

 

91.8

 

Ontario

 

3,726

 

81.5

 

5.0

 

154.1

 

100.3

 

New Brunswick

 

4,093

 

80.2

 

5.8

 

177.0

 

108.5

 

Nova Scotia

 

4,142

 

80.1

 

3.4

 

177.5

 

108.7

 

Prince Edward Island

 

4,253

 

80.2

 

3.4

 

181.9

 

136.1

 

Manitoba

 

4,324

 

79.5

 

6.3

 

166.3

 

111.9

 

Saskatchewan

 

4,480

 

79.6

 

6.7

 

155.9

 

118.7

 

Alberta

 

4,606

 

80.7

 

5.5

 

152.0

 

120.2

 

Newfoundland

 

5,190

 

78.9

 

6.3

 

196.6

 

137.3

 

 

Sources: Canadian Institute for Health Information, 2012 (cost data) and Statistics Canada (outcomes data).

 

Note: Outcomes data are as of 2009, which is the most recent data available.

 

Health Funding Plan

 

As required under Part 14 of the Consumption Tax Rebate and Transition Act (the Act) the following table shows health funding in relation to health spending for 2013/14 to 2015/16.

 

Table 1.11 Health Funding Plan

 

($ millions)

 

2013/14

 

2014/15

 

2015/16

 

Medical Services Plan premiums

 

2,156

 

2,271

 

2,394

 

Tobacco tax

 

709

 

726

 

726

 

Health Special Account

 

147

 

147

 

147

 

Canada Health Transfer

 

4,220

 

4,220

 

4,479

 

Wait Times Reduction Transfer

 

33

 

 

 

Total revenue from above sources

 

7,265

 

7,364

 

7,746

 

Total government spending on health

 

18,426

 

18,792

 

19,263

 

Health spending in excess of revenue

 

11,161

 

11,428

 

11,517

 

 

The Act does not specify a provincial sales tax as a source of health funding, as it does for the HST. If the PST were included, the health spending in excess of revenue would be $5,234 million in 2013/14, $5,322 million in 2014/15 and $5,192 million in 2015/16.

 

Post-Secondary Education — Balancing the Need for Investing the Future with Fiscal Responsibility

 

As noted in Budget 2012, the health, K-12 education and post-secondary sectors were engaged or were to engage in processes to find efficiencies and eliminate unnecessary administrative duplication through increased use of shared services. Budget 2012 announced that government would work with the post-secondary sector to identify sector-wide savings of $50 million annually by 2014/15. The savings were to come from discretionary spending, administration and other efficiencies, while protecting educational services.

 

June Budget Update – 2013/14 to 2015/16

 

23



 

Three Year Fiscal Plan

 

Over the course of the past year, the Ministry of Advanced Education and post-secondary institutions have worked collaboratively to identify shared service opportunities for administrative savings, efficiencies and improved services. These collaborative efforts were supported by the technical work of outside experts who assisted in identifying the opportunities and providing a quantitative and qualitative assessment.

 

These efforts confirmed that while there were a number of areas of collaboration and shared services underway across the sector, there are still further opportunities for savings to be realized. The work also concluded that it is most realistic to expect the full amount of the savings to be reached in 2015/16. Therefore the Ministry’s budget track has been modified to reflect a more gradual phase-in of the savings, with an upward adjustment of $15 million in 2013/14 and $25 million in 2014/15.

 

In addition, a budget increase of $2.4 million in 2013/14 and $4.8 million annually thereafter will ensure completion and sustainability of the expanded University of British Columbia medical school, fulfilling the commitment made by government in 2001. Provincial investment in medical training in BC has resulted in an increase in annual medical doctor graduates from 119 in 2001/02 to 261 in 2011/12, and is expected to increase to 288 graduates per year beginning in 2014/15 with the addition of graduates from the new Okanagan medical program.

 

K-12 Education — Stable Funding and Introduction of the BC Training and Education Savings Program

 

A major component of June Update 2013 is the new BC Training and Education Savings Program, which builds upon the existing Children’s Education Fund. The Fund was established as part of Budget 2007, and for every BC child born on or after January 1, 2007 to (or adopted by) parents who are normally BC residents, $1,000 was set aside and invested by government. The principle and earnings were not to be paid out until the child entered post-secondary education.

 

Under the new program, eligible children are entitled to a one-time $1,200 grant beginning in 2013/14 that will be transferred into their Registered Education Savings Plan. This will provide more incentive for parents and others to begin saving earlier, along with more flexibility as to how the funds are invested. The estimated cost for this new initiative is $30 million per year. For further details, refer to the BC Training and Education Savings Program topic box on page 52.

 

Block funding to school districts remains unchanged from Budget 2012, at over $4.7 billion annually through to 2015/16. This allocation has exceeded $4.7 billion since 2011/12, while total public school enrolment continued to fall — the decrease in full-time equivalent students dropped from 595,157 in 2001/02 to a low of 548,232 in 2012/13, a 7.9 per cent decline. Current projections, however, indicate a “flattening” of enrolment beginning this year with little change in student numbers during the fiscal plan period.

 

The Ministry of Education’s budget increases in 2013/14 and 2014/15 includes previous lifts for the Learning Improvement Fund (LIF). A total of $60 million is being spent in 2012/13, and June Update 2013 contains the same amount for 2013/14, increasing to $75 million annually in 2015/16.

 

June Budget Update – 2013/14 to 2015/16

 

24



 

Three Year Fiscal Plan

 

When the LIF was established, the intent was to target vulnerable learners and other classroom challenges. Consultations occurred between teachers and principals and between superintendents and local union presidents to solicit input as to how to best meet the needs. In terms of results at this time, all sixty school districts received funding under the LIF. These new resources were allocated by the Ministry of Education on the same pro rata basis as operating grants. The ministry estimates that virtually every one of BC’s 1700 public schools received some support from LIF funding. In addition:

 

·        approximately 500 teachers were hired, at a cost of almost $37 million;

 

·        $1.8 million was devoted to teacher professional development; and

 

·        $17.3 million was allocated for Special Education Assistance, over 7,400 existing assistants had hours of work increased, and over 406 new teacher assistants were placed in schools.

 

The general outcomes anticipated from the LIF funding are improved success of students in achievement levels and improved satisfaction of parents and teachers with learning conditions in classrooms.

 

Maintaining Sports and Arts Funding, and Enhancing Opportunities for Youth in the Arts

 

Continuation of the Sports and Arts Legacy: In Budget 2010, government committed, within the Contingencies Vote, $20 million annually for three years, with $10 million for the arts community and $10 million for sports groups. Given the positive results that have been demonstrated, June Update 2013 allocates $20 million of annual funding to continue this programming. June Update 2013 provides $7 million annually to the Ministry of Community, Sport and Cultural Development, and $13 million is being reallocated from within the ministry.

 

BC Creative Futures: To ensure BC is better preparing its young people to enter the fast-growing world of the “creative economy”, a further $6.2 million annually in new funding will now be allocated to this new program area in the Ministry of Community, Sport and Cultural Development. This initiative will emphasize the following:

 

·        skills training and participation in various arts activities from an early age;

 

·        the engagement of children with exemplary works of art; and

 

·        opportunities to train and work alongside creative professionals.

 

Agricultural Land Commission

 

June Update 2013 provides an additional $4 million over three years to support the Agricultural Land Commission in providing better oversight over the Agricultural Land Reserve, a provincial zone which recognizes agriculture as a priority use, encourages farming and controls non-agricultural use. This additional funding will be directed to addressing recommendations of the Auditor General in the September 2010 Audit of the Agricultural Land Commission, including providing more expedient application reviews, undertaking targeted Agricultural Land Reserve boundary reviews, and working with local government to encourage farming.

 

June Budget Update – 2013/14 to 2015/16

 

25



 

Three Year Fiscal Plan

 

Carbon Tax Relief for the Greenhouse Sector

 

June Update 2013 reconfirms government’s commitment to provide an ongoing carbon tax relief grant program for commercial greenhouse growers, including vegetable and floriculture growers, wholesale production and forest seedling nurseries. Under this program, $20 million in assistance will be provided to commercial greenhouse growers over three years. The Carbon Tax Review topic box on page 63 provides more detail on this initiative.

 

Table 1.12 Support for Arts, Education and Economic Initiatives

 

($ millions)

 

2013/14

 

2014/15

 

2015/16

 

Revised Post Secondary Efficiencies Plan

 

15

 

25

 

 

Final Medical Expansion Program Increase

 

2

 

5

 

5

 

BC Training and Education Savings Program

 

30

 

30

 

30

 

Sports and Arts Legacy Top-up

 

7

 

7

 

7

 

Creative Futures Funding

 

6

 

6

 

6

 

Agricultural Land Commission

 

1

 

2

 

1

 

Greenhouse Growers Carbon Tax Relief

 

6

 

7

 

7

 

Total

 

67

 

82

 

56

 

 

Overall, the targeted funding increases contained in June Update 2013 for the government’s education, sports, arts, and economic priorities totals $205 million over three years, as detailed in Table 1.12.

 

Supporting Families, Individuals and Community Safety

 

June Update 2013 provides an additional $292 million over the next three years to support families, help the most vulnerable among us, and keep our communities safe.

 

Table 1.13 Support for Families, Individuals and Community Safety

 

($ millions)

 

2013/14

 

2014/15

 

2015/16

 

BC Families Early Years Strategy

 

6

 

18

 

52

 

BC Early Childhood Tax Benefit

 

 

 

146

 

Renewal of Single Room Occupancy affordable housing units

 

1

 

4

 

8

 

Increased support for responsible gambling

 

1

 

2

 

2

 

Increased RCMP policing costs

 

15

 

18

 

19

 

Total

 

23

 

42

 

227

 

 

BC Families Early Years Strategy

 

In recognition of the challenges facing families with young children and the importance of investments during the early childhood years, June Update 2013 provides an additional $76 million over the next three years to support the creation of new child care spaces and improve the quality of early learning and child care services and supports. In addition, to improve affordability of child care and assist families with the cost of raising young children, effective April 1, 2015 a new BC Early Childhood Tax Benefit will be introduced. The refundable tax credit will provide $146 million to approximately 180,000 families with young children. The British Columbia Families First Early Years Strategy topic box on page 50 provides more detail on this strategy.

 

June Budget Update – 2013/14 to 2015/16

 

26



 

 

Three Year Fiscal Plan

 

Social Housing

 

June Update 2013 will provide an additional $13 million over the next three years in support of the Single Room Occupancy hotel renewal initiative, which involves the renovation and restoration of 13 provincially-owned Single Room Occupancy hotels in Vancouver’s Downtown Eastside. The additional funding will fund the temporary relocation of residents as well as the annual service payments due to Habitat Housing Initiative under a fixed-price performance-based agreement.

 

Responsible Gambling Program

 

An additional $5 million is provided in June Update 2013 over the next three years in support of government’s Responsible Gambling Strategy. This allocation will fund enhanced treatment, counseling and prevention services in order to effectively address problem gambling.

 

Policing and Public Safety

 

In Budget 2012 an additional $96 million over 3 years was provided for RCMP-related costs, primarily to maintain additional officers hired to combat organized crime and gang activity. The government will continue its commitment to a strong provincial police force to keep communities safe. In June Update 2013, the province will invest an additional $52 million over the next three years to fund increased RCMP policing costs including salary and benefit increases under the new contract.

 

Expenditure Management

 

In October 2012, following significant reductions in natural resource revenues, government introduced further spending controls on administrative and discretionary expenditures. As reported in the second Quarterly Report in November 2012, ministries (with the exception of Health) were required to achieve expenditure savings totaling $20 million in 2012/13. In support of government’s commitment to balance the budget, expenditure management will continue in June Update 2013. Ministries will be required to achieve a total of $15 million annually in expenditure reductions over the three years of the plan (excluding Health which is identified separately above). This represents about 0.1 per cent of ministry budgets.

 

Crown corporations also were asked to apply the same efficiency regimens as expected of ministries and as a result have submitted expenditure management plans that will result in over $20 million per year of improvement to government’s bottom line over the fiscal plan period.

 

Given the slippage in government revenues since the February 2013 budget, it may be necessary to find up to an additional $30 million in government savings for 2013/14. Over the coming months Ministry of Finance staff will be working with ministries to identify areas where further efficiencies can be realized.

 

Further details and an historical summary of the government’s savings initiatives since the onset of the economic crisis of 2008 can be found in the Expenditure Growth Management topic box on page 48.

 

June Budget Update – 2013/14 to 2015/16

 

27



 

Three Year Fiscal Plan

 

Management of the BC Public Service

 

Full-time equivalent (FTE) staff utilization is projected to decrease from 27,326 in 2012/13 to 26,066 in 2013/14 as a result of employee attrition and the implementation of hiring restrictions announced in September 2012.

 

Going forward, FTE utilization is projected to decline by a further 1.0 per cent in 2014/15, reflecting the expectation of government to continue to prioritize key services and programs and achieve savings and improved effectiveness in their delivery. It is expected that the projected decrease will be achieved through attrition — that is, through normal annual voluntary exits, including retirements.

 

Chart 1.10 Managing FTEs

 

 

Recovered Expenses

 

Over the fiscal plan period (2013/14 to 2015/16), government projects it will incur $8.3 billion in program spending whose costs will be recovered from third parties.

 

Recovered costs include an estimated $2.7 billion in interest payments from the commercial Crown corporations through the fiscal agency loan program and from sinking fund investment returns.

 

In addition, a total of $1.8 billion will be spent delivering programs on behalf of the federal government, such as the Labour Market Development Agreement and local government services transfers. This three year total has declined from Budget 2012 due to the federal government’s decision to resume immigrant settlement services program delivery effective April 1, 2014.

 

The remaining $3.8 billion in recovered costs are incurred by a variety of programs, including hospital expansion recovered from regional health boards, industry-funded regulatory programs recovered through fees, and distribution of free Crown grants recovered through the revaluation of the land being distributed.

 

June Budget Update – 2013/14 to 2015/16

 

28



 

Three Year Fiscal Plan

 

Operating Transfers

 

Transfers to service delivery agencies will total $65.8 billion over the fiscal plan period (2013/14 to 2015/16) in support of education, health care, social services, housing, and transportation programs delivered by the agencies on behalf of government. These service delivery agencies include the SUCH sector (schools, universities, colleges and health organizations), Community Living BC, BC Housing Management Commission, BC Transit, and the BC Transportation Financing Authority. Transfers to these organizations comprise over 60 per cent of ministry spending.

 

Service Delivery Agency Spending

 

Service delivery agency spending is projected to total $28.1 billion by 2015/16, reflecting an increase of $1.6 billion over the three year fiscal plan period.

 

School district spending is projected to be $5.7 billion in 2015/16, an increase of $78 million over the three year period. The increase is due to base salary and benefits cost growth in line with collective agreements and capital asset amortization in relation to recent capital plan expenditures, partially offset by other administration cost reductions.

 

Spending in the post-secondary education sector is forecast to increase by $299 million (5.9 per cent) over the three year period, and will total $5.3 billion by 2015/16. The increase is due to general inflationary pressures and is net of planned administrative costs savings initiatives.

 

Health authority and hospital society spending is projected to rise from $12.5 billion in 2012/13 to $13.3 billion by 2015/16 — an increase of $833 million, or 6.7 per cent over the three year period. This spending increase reflects the projected volume increases in the healthcare services delivered by these organizations on behalf of government, and is projected to be funded by additional provincial grants and own-source revenue.

 

Projected spending by other service delivery agencies is forecast to increase by $399 million by 2015/16. This 11.8 per cent increase is largely due to increased transportation sector spending and related interest costs.

 

Capital Spending

 

Capital spending on schools, hospitals, roads, bridges, hydro-electric projects and other infrastructure across the province is expected to total $18.6 billion over the fiscal plan period. Provincial capital infrastructure investments are made through school districts, health authorities, post-secondary institutions, Crown agencies and ministries.

 

The total capital investment of $18.6 billion is comprised of $10.6 billion in taxpayer-supported capital investments and $8.0 billion in capital investments by commercial Crown corporations. These investments include capital spending that has been re-profiled from 2013/13 into subsequent years due to revisions in the timing of project work and changes to cash flows from various funding sources since the release of the February 2013 budget. In addition, these investments will support the ongoing implementation of the BC Jobs Plan and the province’s Pacific Gateway Strategy.

 

June Budget Update – 2013/14 to 2015/16

 

29



 

Three Year Fiscal Plan

 

Table 1.14 Capital Spending

 

 

 

Preliminary

 

Budget

 

 

 

 

 

 

 

Actual

 

Estimate

 

Plan

 

Plan

 

($ millions)

 

2012/13 1

 

2013/14

 

2014/15

 

2015/16

 

Taxpayer-supported

 

 

 

 

 

 

 

 

 

Education

 

 

 

 

 

 

 

 

 

Schools (K—12

 

509

 

533

 

494

 

481

 

Post-secondary

 

591

 

561

 

651

 

673

 

Health

 

742

 

886

 

809

 

783

 

BC Transportation Financing Authority

 

1,005

 

1,106

 

969

 

902

 

BC Transit

 

48

 

109

 

130

 

105

 

Government ministries

 

267

 

407

 

389

 

347

 

Other 2

 

117