EX-99.4 5 a13-18792_1ex99d4.htm EX-99.4

EXHIBIT 99.4

 

2013

British Columbia

Financial and Economic

Review

 

73rd Edition

(August 2013)

 

 

 



 

 

 



 

Table of Contents

 

 

 

2013 Financial and Economic Review — August 2013

 



 

 

 



 

Table of Contents

 

Chapter One — Economic Review

1

2012 Overview

3

British Columbia Economy

4

External Trade and Commodity Prices

5

Population

7

Labour Developments

8

Inflation

8

Consumer Expenditure and Housing

9

Tourism

10

External Environment

10

United States Economy

10

Canadian Economy

11

International Economy

12

Financial Markets

13

Conclusion

14

 

Charts

1.1

 

Provincial economic growth

3

1.2

 

Composition of British Columbia real GDP by industry

4

1.3

 

British Columbia real GDP growth by industry

5

1.4

 

Export shares by market

6

1.5

 

Lumber and natural gas prices

7

1.6

 

Retail sales

9

1.7

 

Visitor entries to British Columbia

10

1.8

 

External economic growth

12

1.9

 

Canadian dollar

13

 

 

 

 

Map

 

 

1.1

 

Net interprovincial and international migration in BC, 2012

7

 

 

Tables

 

1.1

 

British Columbia Population and Labour Market Statistics

8

1.2

 

Price and Earnings Indices

9

 

 

Chapter Two — Financial Review

15

2012/13 Overview

17

Revenue

18

Expense

24

Provincial Capital Spending

26

Taxpayer-supported Capital Spending

27

Self-supported Capital Spending

28

Major Capital Projects

29

Financing Capital Spending

32

Provincial Debt

32

Taxpayer-supported Debt

33

Self-supported Debt

34

Debt Indicators

35

Credit Rating

36

Statement of Financial Position

36

Pension Plans

38

Contractual Obligations

39

2012/13 Public Accounts Audit Qualification

41

 

2013 Financial and Economic Review — August 2013

 

i



 

Table of Contents

 

Charts

 

2.1

 

2012/13 deficit — major changes from Budget 2012

17

2.2

 

Revenue changes from Budget 2012

18

2.3

 

Expense changes from Budget 2012

24

2.4

 

Capital spending, 2012/13

26

2.5

 

Capital spending changes from Budget 2012

27

2.6

 

Financing taxpayer-supported capital spending

32

2.7

 

Provincial debt components

33

2.8

 

Debt changes from Budget 2012

33

2.9

 

Taxpayer-supported debt to GDP ratio

34

2.10

 

2012/13 changes in financial position

37

 

 

 

 

Tables

 

2.1

 

Operating Statement

17

2.2

 

Consumption and Other Tax Revenue Changes from Budget 2012

19

2.3

 

Energy and Mineral Revenue Changes from Budget 2012

20

2.4

 

Forest Revenue Changes from Budget 2012

20

2.5

 

Other Revenue Changes from Budget 2012

21

2.6

 

Revenue by Source

22

2.7

 

Expense by Ministry, Program and Agency

23

2.8

 

Capital Spending

28

2.9

 

Capital Expenditure Projects Greater Than $50 Million

30

2.10

 

Provincial Debt Summary

34

2.11

 

Key Debt Indicators — 2008/09 to 2012/13

35

2.12

 

Interprovincial Comparison of Credit Ratings, July 2013

36

2.13

 

Net Liabilities and Accumulated Surplus

37

2.14

 

Pension Plan Balances

38

2.15

 

Taxpayer-supported Contractual Obligations

39

2.16

 

Financial Statement Impact of Auditor General Qualifications

41

 

 

 

Chapter Three — Commercial Crown Corporations Review

43

 

 

Introduction

45

 

 

BC Hydro and Power Authority

45

 

 

BC Liquor Distribution Branch

49

 

 

BC Lottery Corporation

51

 

 

Insurance Corporation of BC

54

 

 

Columbia Power Corporation

57

 

 

Transportation Investment Corporation

58

 

 

British Columbia Railway Company

59

 

 

Charts

 

3.1

 

Domestic electricity supply versus demand

47

3.2

 

Liquor sales by category

50

3.3

 

Interprovincial gaming comparisons

53

3.4

 

ICBC bodily injury claims loss cost trend

56

3.5

 

ICBC collision claims loss cost trend

56

 

 

 

 

Map

 

3.1

 

500 kV transmission system and major generating stations

46

 

2013 Financial and Economic Review — August 2013

 

ii



 

Table of Contents

 

Tables

 

3.1

 

British Columbia Hydro and Power Authority Five-Year Income Statement

48

3.2

 

Liquor Distribution Branch Five-Year Income Statement

49

3.3

 

British Columbia Lottery Corporation Five-Year Income Statement

51

3.4

 

Insurance Corporation of British Columbia Five-Year Income Statement

54

3.5

 

Columbia Power Corporation Five-Year Income Statement

57

3.6

 

Transportation Investment Corporation Five-Year Income Statement

59

3.7

 

British Columbia Railway Company Five-Year Income Statement

60

 

 

 

Appendix 1 — Economic Review Supplementary Tables

61

 

 

 

Tables

 

A1.1A

 

Aggregate and Labour Market Indicators

62

A1.1B

 

Prices, Earnings and Financial Indicators

63

A1.1C

 

Other Indicators

64

A1.1D

 

Commodity Production Indicators

65

A1.2

 

British Columbia Real GDP at Market Prices, Expenditure Based

66

A1.3

 

British Columbia GDP at Basic Prices, by Industry

66

A1.4

 

British Columbia GDP, Income Based

66

A1.5

 

Employment by Industry in British Columbia

67

A1.6

 

Capital Investment by Industry

68

A1.7

 

British Columbia International Goods Exports by Major Market and Selected Commodities, 2012

69

A1.8

 

British Columbia International Goods Exports by Market Area

70

A1.9

 

Historical Commodity Prices (in U.S. Dollars)

71

A1.10

 

British Columbia Forest Sector Economic Activity Indicators

72

A1.11

 

Historical Value of Mineral, Petroleum and Natural Gas Shipments

73

A1.12

 

Petroleum and Natural Gas Activity Indicators

73

A1.13

 

Supply and Consumption of Electrical Energy in British Columbia

74

A1.14

 

Components of British Columbia Population Change

75

 

 

 

 

Appendix 2 — Financial Review Supplementary Tables

77

 

 

 

 

Tables

 

A2.1

 

2012/13 Forecasts — Year in Review

78

A2.2

 

Operating Statement — 2001/02 to 2012/13

79

A2.3

 

Statement of Financial Position — 2001/02 to 2012/13

80

A2.4

 

Changes in Financial Position — 2001/02 to 2012/13

81

A2.5

 

Revenue by Source — 2001/02 to 2012/13

82

A2.6

 

Revenue by Source Supplementary Information — 2001/02 to 2012/13

83

A2.7

 

Expense by Function — 2001/02 to 2012/13

84

A2.8

 

Expense by Function Supplementary Information — 2001/02 to 2012/13

85

A2.9

 

Full-Time Equivalents (FTEs) — 2001/02 to 2012/13

86

A2.10

 

Capital Spending — 2001/02 to 2012/13

87

A2.11

 

Provincial Debt — 2001/02 to 2012/13

88

A2.12

 

Provincial Debt Supplementary Information — 2001/02 to 2012/13

89

A2.13

 

Key Provincial Debt Indicators — 2001/02 to 2012/13

90

A2.14

 

Historical Operating Statement Surplus (Deficit)

91

A2.15

 

Historical Provincial Debt Summary

92

 

2013 Financial and Economic Review — August 2013

 

iii



 

Table of Contents

 

Appendix 3 — 12-Year Financial Review: 2001/02 to 2012/13

93

Introduction

95

Operating Overview

96

Revenue Trends

97

Expense Trends

99

Capital Spending Trends

102

Debt Trends

105

 

 

Charts

 

A3.1

 

Nominal GDP, Revenue and Base Expense Trends

96

A3.2

 

Revenue Share Trends

97

A3.3

 

Real Per Capita Revenue Trends

99

A3.4

 

Base Expense Share Trends

100

A3.5

 

Real Per Capita Base Expense Trends

101

A3.6

 

Historical Taxpayer-supported Capital Spending

102

A3.7

 

Financing Taxpayer-supported Capital Spending

103

A3.8

 

Historical Self-supported Capital Spending

104

A3.9

 

Historical Taxpayer-supported Debt

105

A3.10

 

Historical Self-supported Debt

106

A3.11

 

Debt to GDP ratios

107

A3.12

 

Components of Changes in Taxpayer-supported Debt

107

 

 

 

Appendix 4 — Supplementary Information

109

General Description of the Province

111

Geography

111

Physiography

111

Climate and Vegetation

111

Population

112

Constitutional Framework

112

Provincial Government

113

Legislature

113

Executive

113

Judiciary

114

Provincial Government Jurisdiction

114

Annual Financial Cycle

114

Planning and Budget Preparation

115

Implementation and Reporting

115

Evaluation

116

Accountability

116

Government’s Financial Statements

116

Government Reporting Entity

116

Compliance with GAAP

117

 

 

Topic Box

 

Summary of Tax Changes Announced in 2013

118

 

 

Charts

 

A4.1

 

Financial Planning and Reporting Cycle Overview

115

 

 

 

 

Tables

 

A4.1

 

Provincial Taxes (as of July 2013)

122

A4.2

 

Interprovincial Comparisons of Tax Rates — 2013

127

 

2013 Financial and Economic Review — August 2013

 

iv



 

 

Chapter One

 

 

 

Economic Review 1

 

 


1 Reflects information available as of July 24, 2013

 

2013 Financial and Economic Review — August 2013

 



 

 

 



 

Chapter 1 — Economic Review

 

2012 Overview

 

British Columbia’s economy continued to grow in 2012, and performed well relative to most other Canadian provinces.

 

Similar to previous years, Statistics Canada published only real dollar industry-side GDP data in the preliminary release of its Provincial Economic Accounts in April 2013. As a result, the following analysis refers to real GDP figures at basic prices, as opposed to the usual market price definition.

 

BC’s economy grew by 1.7 per cent in 2012 (the fourth highest growth rate among provinces), which was lower than the 2.6 per cent growth observed in 2011. Most indicators of economic performance increased in 2012 relative to 2011, but a broad slowing trend was evident in several key areas of the economy.

 

Chart 1.1 Provincial Economic Growth2

 

 

Source: Statistics Canada, April 2013 Preliminary Industry Accounts

 

Externally, BC’s international merchandise exports struggled in 2012, falling by 4.2 per cent over 2011. Meanwhile, shipments of manufactured goods grew modestly, rising by 2.0 per cent on the year.

 

Domestically, BC housing starts increased by 4.0 per cent in 2012 to average about 27,500 annualized units for the year. Retail sales also improved in 2012, climbing 1.9 per cent alongside rising consumer confidence.

 

Statistics Canada’s provincial and territorial economic accounts periodically undergo historical revisions, which are much broader in scope than the regular revisions undertaken on an annual basis. These historical revisions are reserved for incorporating updated international accounting standards, as well as conceptual, classification, presentational and major statistical changes. The most recent revision (released November 2012) includes major changes to the provincial and territorial expenditure and income accounts. The latest revisions date back to 2007 and include data up to 2011.

 


2 Provincial and National real GDP estimates are based on Statistics Canada’s preliminary industry accounts, released in April 2013. Further information on British Columbia’s economic performance will be available in November 2013, when Statistics Canada releases revised GDP data for 2012 and previous years for the full income and expenditure accounts, including nominal data.

 

2013 Financial and Economic Review — August 2013

 

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Chapter 1 — Economic Review

 

It is anticipated that revisions dating back to 1981 may be released later in 2013. Some of these conceptual changes involve providing more disaggregation of existing information, while other changes involve the inclusion of new categories that were not previously being captured in the data. Updated economic accounts data for 2007 to 2011 can be found in the Appendix 1 tables (Tables A1.1A, A1.1B, A1.2, A1.3 and A1.4).

 

British Columbia Economy

 

BC has a mature, diversified economy. In 2012, services-producing industries accounted for 75.6 per cent of BC’s real GDP and goods-producing industries accounted for 24.4 per cent. The two biggest service industries were real estate, rental and leasing (17.4 per cent of BC’s total real GDP) and wholesale and retail trade (10.0 per cent of BC’s total real GDP). At the same time, construction and manufacturing produced the highest amount of GDP in the goods sector in 2012, with construction accounting for 8.1 per cent of BC’s total GDP and manufacturing making up 7.2 per cent.

 

Chart 1.2 Composition of British Columbia real GDP by industry

 

 

Source: Statistics Canada

 

In total, BC’s real GDP increased by 1.7 per cent in 2012 after growing by 2.6 per cent in 2011. Growth slowed in 2012 compared to 2011 in both the service-producing and goods-producing industries.

 

Output in the province’s service-producing sectors increased by 1.8 per cent in 2012, down slightly from the 2.1 per cent rise recorded in 2011. Notable real GDP growth in 2012 on the service side was recorded in the professional, scientific and technical services sector (+2.7 per cent), real estate, rental and leasing sector (+2.7 per cent) and transportation and warehousing sector (+2.5 per cent).

 

Meanwhile, output in BC’s goods-producing sectors increased just 1.6 per cent in 2012, a substantial drop from the 4.3 per cent growth recorded in 2011. Growth in the construction sector (+4.5 per cent) and manufacturing sector (+0.9 per cent) on the year helped offset contractions in the agriculture, forestry, fishing and hunting sector (-1.9 per cent) and mining, quarrying, and oil and gas extraction sector (-0.5 per cent).

 

2013 Financial and Economic Review — August 2013

 

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Chapter 1 — Economic Review

 

Chart 1.3  British Columbia real GDP growth by industry

 

 

Source: Statistics Canada, April 2013 Preliminary Industry Accounts

 

External Trade and Commodity Prices

 

Exports by destination:

 

BC’s merchandise exports fell 4.2 per cent in 2012, after surging by 14.1 per cent in 2011 and 13.5 per cent in 2010. The decline in export activity reflected weakening economic conditions abroad, as demand for BC goods fell among many of the province’s main trading partners. A notable exception was China, whose demand for BC exports (primarily coal) continued to grow in 2012.

 

Exports of BC goods to the US fell 1.1 per cent in 2012 after growing 5.7 per cent in 2011. Tough wood product exports to the US grew 24.8 per cent in 2012 with support from the gradually recovering US housing market, this gain was more than offset by falling US-bound exports of BC’s natural gas (-32.0 per cent) and pulp and paper products (-7.3 per cent).

 

The value of BC merchandise exports to China grew by 19.8 per cent in 2012 after growing by 25.2 per cent in 2011. The annual gain in 2012 was driven largely by coal exports (+92.2 per cent), while both softwood lumber and pulp exports to China fell on the year (by 1.4 per cent and 4.0 per cent, respectively). Appendix Tables A1.7 and A1.8 provide further detail on exports by major market and commodity groups.

 

The share of BC’s total goods exports to China continued to increase in 2012, with 18.4 per cent sent to that country, up from 14.7 per cent in 2011. In addition, the share of BC’s total exports to the US grew in 2012 for the first time since 2001, while economic weakness in Western Europe, Japan and South Korea limited BC exports to those areas.

 

2013 Financial and Economic Review — August 2013

 

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Chapter 1 — Economic Review

 

Chart 1.4  Export shares by market

 

 

Source: BC Stats

 

Commodity exports and prices:

 

The annual decline in BC goods exports in 2012 was mainly the result of falling energy product exports, which were down by 21.1 per cent from 2011. Declines were also observed in exports of pulp and paper products (-6.9 per cent) and metallic mineral products (-1.0 per cent), while exports of wood products (+8.2 per cent) and machinery and equipment (+12.7 per cent) gained on the year.

 

The price of natural gas continued to fall in 2012. The Plant Inlet natural gas price averaged just $1.36 C/GJ in 2012, over a dollar lower than the average price of $2.47 C/GJ recorded the previous year.

 

The price of oil fluctuated somewhat through 2012, but remained at historically high levels for a second consecutive year. The West Texas Intermediate daily oil price averaged $94.05 US/barrel on the year, down slightly from the $94.88 US/barrel recorded the previous year.

 

Buoyed by strengthening US housing starts, prices for SPF lumber improved substantially in 2012, rising by 17.6 per cent on the year after remaining fairly flat in 2011. However, the price of pulp and newsprint both fell in 2012, with pulp down 15.3 per cent and newsprint down 0.5 per cent from 2011.

 

·                  Lumber prices averaged $299 US per thousand board feet in 2012, an increase from $254 US in 2011;

 

·                  Pulp prices averaged $814 US per tonne, down from $961 US in 2011; and

 

·                  Newsprint prices dropped to $621 US per tonne from $625 US per tonne in 2011.

 

Manufacturing shipments:

 

BC shipments of manufactured goods grew modestly in 2012, up 2.0 per cent on the year following a gain of 7.4 per cent in 2011. Annual shipments increased for wood products (+7.6 per cent) and transportation equipment (+21.8 per cent), while declines were observed for shipments of manufactured paper products (-13.0 per cent) and primary metal products (-5.9 per cent).

 

2013 Financial and Economic Review — August 2013

 

6



 

Chapter 1 — Economic Review

 

Chart 1.5  Lumber and natural gas prices

 

 

Source: Madison’s Lumber Reporter and Ministry of Natural Gas Development

 

Population

 

BC’s population grew by 1.0 per cent as of July 1, 2012. During the 2012 calendar year, BC’s population increased by 45,996 persons. Most of this growth was attributable to the 35,985 persons BC welcomed via net international migration. Meanwhile, interprovincial migration in BC was negative for a second straight year in 2012, as a net total of 8,657 persons left BC for other provinces. A natural increase of 11,615 persons also added to the total population of the province for 2012.

 

Map 1.1   Net interprovincial and international migration in BC, 2012

 

 

Source: BC Stats

 

2013 Financial and Economic Review — August 2013

 

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Chapter 1 — Economic Review

 

Labour Developments

 

Employment in BC grew by 1.7 per cent (or 37,800 jobs) in 2012, faster than the 0.8 per cent growth observed in 2011. Full-time employment rose by 2.8 per cent (or 49,200 jobs), while part-time employment fell by 2.2 per cent (or -11,300 jobs). BC’s unemployment rate dropped 0.8 percentage points to average 6.7 per cent in 2012, lower than the national average of 7.2 per cent. Meanwhile, BC’s labour force expanded by 0.9 per cent in 2012 following an increase of 0.6 per cent in 2011.

 

Employment in BC’s services sector rose by 1.4 per cent (or 26,200 jobs) in 2012 compared to 2011. Major job gains occurred in health care and social assistance (+13,200 jobs), educational services (+10,200 jobs) and information, culture and recreation (+6,600 jobs). On the other hand, service sector job losses were observed in accommodation and food services (-10,200 jobs), professional, scientific and technical services (-9,100 jobs) and public administration (-6,500 jobs).

 

BC’s goods-producing industries experienced a 2.6 per cent increase in 2012, adding 11,700 jobs compared to 2011. Annual job gains in the manufacturing sector (+15,300 jobs), primary industries sector (+5,900 jobs) and utilities sector (+2,100 jobs) more than offset losses in the construction sector (-11,700 jobs) — see Appendix Table A1.5 for more details.

 

Table 1.1 British Columbia Population and Labour Market Statistics

 

 

 

Units

 

2008

 

2009

 

2010

 

2011

 

2012

 

Population (as of July 1)

 

(thousands)

 

4,384

 

4,460

 

4,530

 

4,577

 

4,623

 

 

 

(% change)

 

1.7

 

1.7

 

1.6

 

1.0

 

1.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Migration

 

 

 

 

 

 

 

 

 

 

 

 

 

International

 

(persons)

 

54,094

 

50,389

 

37,193

 

35,368

 

35,985

 

Interprovincial

 

(persons)

 

10,849

 

9,672

 

6,212

 

(120

)

(8,657

)

Labour Force

 

(thousands)

 

2,376

 

2,403

 

2,443

 

2,458

 

2,479

 

 

 

(% change)

 

2.4

 

1.1

 

1.7

 

0.6

 

0.9

 

Employment

 

(thousands)

 

2,266

 

2,218

 

2,257

 

2,275

 

2,313

 

 

 

(% change)

 

2.0

 

(2.1

)

1.7

 

0.8

 

1.7

 

Unemployment Rate

 

(%)

 

4.6

 

7.7

 

7.6

 

7.5

 

6.7

 

 

Source: Statistics Canada (CANSIM Tables 051-0005, 051-0012, 051-0037, 282-0087, 282-0002 – accessed June 2013)

 

Inflation

 

Consumer prices in BC rose by 1.1 per cent in 2012 compared to 2011, a marked slowdown from the 2.4 per cent inflation rate observed the previous year. The uptick in consumer prices in 2012 occurred as increases in the prices of non-durables, semi-durables and services more than offset price declines for durable goods. Rising gasoline, electricity and food prices pushed up overall prices for non-durables, while higher prices for restaurants, education and public transportation provided upward inflationary pressure on the services side. Higher prices for items such as clothing and footwear contributed to the price inflation in the semi-durables component. Meanwhile, prices for durables fell due to lower prices for home entertainment and furniture.

 

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Chapter 1 — Economic Review

 

Table 1.2 Price and Earnings Indices

 

 

 

Units

 

2008

 

2009

 

2010

 

2011

 

2012

 

Consumer Price Index

 

(2002=100)

 

112.3

 

112.3

 

113.8

 

116.5

 

117.8

 

(British Columbia)

 

(% change)

 

2.1

 

0.0

 

1.3

 

2.4

 

1.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Weekly Earnings

 

($)

 

777.9

 

797.9

 

822.7

 

837.3

 

854.4

 

 

 

(% change)

 

4.1

 

2.6

 

3.1

 

1.8

 

2.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation of Employees 1

 

($ millions)

 

102,192

 

100,335

 

102,413

 

107,496

 

n/a

 

 

 

(% change)

 

4.0

 

(1.8

)

2.1

 

5.0

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Primary Household Income 1

 

($ millions)

 

137,095

 

135,575

 

139,055

 

146,351

 

n/a

 

 

 

(% change)

 

3.4

 

(1.1

)

2.6

 

5.2

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Operating Surplus (corporations) 1

 

($ millions)

 

25,176

 

17,091

 

25,052

 

25,177

 

n/a

 

 

 

(% change)

 

2.5

 

(32.1

)

46.6

 

0.5

 

n/a

 

 


1 As of November 2012 Provincial Economic Accounts

Source: Statistics Canada (CANSIM Tables 326-0020, 282-0072, 384-0040, 384-0037 - accessed June 2013)

 

Consumer Expenditure and Housing

 

Despite monthly values peaking in February 2012 and trending relatively flat through the remainder of the year, retail sales in BC advanced by 1.9 per cent annually in 2012 after growing by 3.2 per cent in 2011. Notable gains were achieved at clothing and clothing accessories stores, beer, wine and liquor stores, and motor vehicle and parts dealers. BC ranked fifth among provinces in retail sales growth on the year.

 

Chart 1.6 Retail sales

 

 

Source: Statistics Canada

 

After registering a slight decline in 2011, BC housing starts improved in 2012, rising by 4.0 per cent to reach about 27,500 units. An annual gain of 9.1 per cent in multiple unit starts offset a decline of 6.0 per cent in single unit starts. At the same time, residential building permits (a leading indicator of potential new housing activity) grew by 9.8 per cent in 2012 over 2011.

 

2013 Financial and Economic Review — August 2013

 

9



 

Chapter 1 — Economic Review

 

Home sales in BC fell by 11.8 per cent in 2012 compared to the previous year, following a 2.8 per cent increase in 2011. Home prices in BC fell in 2012 after two consecutive years of solid increases, with the average home price dropping 8.3 per cent from 2011 levels to reach about $515,000.

 

Tourism

 

The number of international travelers to BC remained flat in 2012 compared to the previous year, after falling 3.6 per cent in 2011. The number of non-US visitors grew by 1.9 per cent in 2012, but the number of travelers from the US fell by 0.6 per cent on the year. Since 2001, the number of travelers to BC has decreased in each year except for two (2004 and 2010), and currently registers at levels observed in the early 1990s.

 

Chart 1.7 Visitor entries to British Columbia

 

 

Source: Statistics Canada

 

External Environment

 

Considerable economic uncertainty plagued the international environment during 2012, and growth rates slowed in many areas compared to the previous year. Overall, the world economy grew by 3.2 per cent in 2012, down from the 4.0 per cent gain recorded in 2011. GDP in the euro area contracted by 0.6 per cent in 2012 following two years of modest growth. Chinese GDP grew 7.8 per cent on the year, moderating from the 9.3 per cent growth rate observed in 2011. Meanwhile, growth in the Japanese and US economies each accelerated in 2012, yet both remained at low rates.

 

United States Economy

 

In 2012, the US economic landscape was characterized by an ongoing, sluggish recovery from the 2008/09 recession and substantial fiscal uncertainty due to political gridlock in Congress. US real GDP expanded by 2.2 per cent overall in 2012, a slight improvement from the 1.8 per cent growth observed in 2011.

 

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Chapter 1 — Economic Review

 

The US employment situation remained weak in 2012. Tough the US economy created 2.2 million jobs in 2012, the level of employment in 2012 was still 3.9 million jobs lower than it was in 2007. The unemployment rate dropped from 8.9 per cent in 2011 to 8.1 per cent in 2012, but did so alongside falling participation in the labor force and nevertheless remained high by historical standards.

 

The US housing market began a nascent recovery in 2012, as housing starts grew by 28.1 per cent on the year to average 780,000 units. Meanwhile, home prices increased by 2.8 in 2012, but were still 29.9 per cent below the historically high level observed in 2006.

 

The US current account deficit (the combined balances on trade in goods and services income, and net unilateral current transfers) increased in 2012 to reach $475 billion from $466 billion in 2011.

 

Canadian Economy

 

The Canadian economy grew by 1.8 per cent in 2012 following a 2.6 per cent increase in 2011, as real GDP advanced in every province except for New Brunswick and Newfoundland and Labrador. Canada’s services-producing industries improved by 1.8 per cent in 2012, slower than the 2.2 per cent growth registered the previous year. At the same time, growth in the country’s goods sector rose by 1.8 per cent in 2012, down from 3.5 per cent in 2011.

 

Canada’s current account deficit widened in 2012 to reach $62.2 billion after recording a balance of $48.5 billion the previous year. The value of Canadian merchandise exports rose 1.9 per cent in 2012, a notable deceleration from the 12.1 per cent growth observed in 2011 as exporters grappled with a strong currency and weak external demand. The growth of manufactured goods shipments also slowed on the year, with the total value of Canadian shipments increasing by 3.5 per cent in 2012 following a gain of 8.0 per cent in 2011.

 

Canada’s labour market grew steadily throughout 2012, as the number of jobs in the economy increased by 201,500 jobs (or 1.2 per cent) over 2011. At the same time, the national unemployment rate edged down 0.2 percentage points in 2012 to average 7.2 per cent on the year.

 

Canadian housing starts grew strongly in 2012, climbing 10.8 per cent to average 214,800 units, after growing by 2.1 per cent in 2011. Residential building permits also advanced on the year, up 8.8 per cent in 2012 following a gain of 2.3 per cent during the previous year. However, national home sales fell by 1.2 per cent in 2012 (likely dampened by stricter mortgage rules introduced by the federal government mid-year) after increasing 2.6 per cent in 2011.

 

Canadian retail sales advanced 2.5 per cent in 2012 compared to the previous year, after a 4.1 per cent annual increase in 2011. Retail sales in 2012 were likely supported by the gains in national employment and consumer confidence that occurred during the year.

 

2013 Financial and Economic Review — August 2013

 

11



 

Chapter 1 — Economic Review

 

International Economy

 

The European sovereign debt crisis continued to unfold in 2012, weighing on confidence and increasing uncertainty in the euro area and throughout the world. The severity of the crisis eased somewhat during the year as the European Central Bank resolved to preserve the euro currency at all costs. This commitment helped ease interest rates for some heavily indebted countries such as Spain and Italy, but did not prevent many core and peripheral European countries from slipping into recession. Overall, the euro area’s economy shrank by 0.6 per cent in 2012 after growing by 1.4 per cent in 2011.

 

Japan’s economy rebounded in early 2012 due to rebuilding efforts following the earthquake and tsunami that rocked the country in 2011, but then contracted sharply in the latter half of the year. In total, Japan’s gross domestic product grew 2.0 per cent in 2012 after shrinking by 0.6 per cent in 2011.

 

Economic growth in China slowed in 2012, hindered by weakening external demand for its products and government policies aimed at cooling the country’s booming property market. The Chinese economy grew 7.8 per cent growth on the year after expanding by 9.3 per cent in 2011 and by 10.4 per cent in 2010.

 

Overall, the International Monetary Fund estimates that global real GDP grew by 3.2 per cent in 2012, a slower rate than the 4.0 per cent growth observed the year before. Global economic activity in 2012 was constrained by sluggish demand, heightened uncertainty, and policy tightening in many developed and emerging economies.

 

Chart 1.8 External Economic Growth

 

 

Source: International Monetary Fund, April 2013

 

2013 Financial and Economic Review — August 2013

 

12



 

Chapter 1 — Economic Review

 

Financial Markets

 

The Bank of Canada held the overnight target rate at 1.00 per cent throughout 2012, where it has remained since September 2010. On several occasions throughout the year, Bank officials cited external headwinds to the Canadian economy (stemming largely from the recession in Europe and slower-than-anticipated growth in emerging markets like China) as the primary reasons for their decision to maintain the target rate at 1.00 per cent.

 

The slow US economic recovery pushed the US Federal Reserve to hold its intended federal funds rate in the 0.00 to 0.25 per cent range throughout 2012. Reserve officials have held the rate in this highly accommodative range since December 2008 and pledged in 2012 to continue doing so until the US unemployment rate falls below 6.5 per cent, as long as inflation remains contained. The Federal Reserve also embarked on a third bond buying program (dubbed QE3) in September 2012 in advance of tax increases and spending cuts scheduled for January 1, 2013, which never fully materialized (known as the fiscal cliff).

 

After beginning 2012 at 99.1 US cents, the value of the Canadian dollar remained fairly close to parity throughout the year and averaged 100.1 US cents overall. As in 2011 when the Canadian dollar averaged 101.1 US cents, the dollar’s high value in 2012 was attributed to relative weakness in the US dollar as well as strong commodity prices.

 

Chart 1.9 Canadian Dollar

 

 

Source: Bank of Canada

 

2013 Financial and Economic Review — August 2013

 

13



 

Chapter 1 — Economic Review

Conclusion

 

BC’s diverse economy continued to grow in 2012, but at a slower pace than was observed the year before. The province’s real GDP expanded by 1.7 per cent on the year after growing by 2.6 per cent in 2011. While BC’s economic growth in 2012 was higher than most other Canadian provinces, it was slightly below the national average for the year.

 

Domestically, employment in BC increased by 1.7 per cent in 2012, or by 37,800 jobs, as gains in full-time employment outweighed losses in part-time employment. Meanwhile, BC’s annual unemployment rate dropped 0.8 percentage points to average 6.7 per cent on the year, lower than the national average of 7.2 per cent. BC housing starts improved by 4.0 per cent in 2012 to reach about 27,500 units, and BC retail sales climbed 1.9 per cent on the year.

 

Internationally, the value of BC merchandise exports sank 4.2 per cent in 2012 following two years of very strong growth, as demand for BC commodities waned among many of the province’s main trading partners. Shipments of manufactured goods also slowed in 2012, growing by just 2.0 per cent on the year after rising 7.4 per cent the previous year.

 

2013 Financial and Economic Review — August 2013

 

14



 

 

Chapter Two

 

 

 

Financial Review 1

 


1 Reflects 2012/13 Public Accounts released on July 23, 2013.

 

2013 Financial and Economic Review — August 2013

 



 

 

 



 

Chapter 2 — Financial Review

 

2012/13 Overview

 

Table 2.1 Operating Statement

 

($ millions)

 

Budget
2012
 1

 

Actual
2012/13

 

Actual
2011/12 
1

 

Revenue

 

43,101

 

42,055

 

41,832

 

Expense

 

(43,869

)

(43,201

)

(42,047

)

 

 

(768

)

(1,146

)

(215

)

Liability for repayment of HST transition funding

 

 

 

(1,599

)

Deficit before forecast allowance

 

(768

)

(1,146

)

(1,814

)

Forecast allowance

 

(200

)

 

 

Deficit

 

(968

)

(1,146

)

(1,814

)

Capital spending:

 

 

 

 

 

 

 

Taxpayer-supported capital spending

 

3,757

 

3,279

 

3,565

 

Self-supported capital spending

 

3,346

 

2,764

 

2,744

 

 

 

7,103

 

6,043

 

6,309

 

Provincial Debt:

 

 

 

 

 

 

 

Taxpayer-supported debt

 

38,736

 

38,182

 

34,659

 

Self-supported debt

 

18,667

 

17,634

 

15,534

 

Total debt (including forecast allowance)

 

57,603

 

55,816

 

50,193

 

Taxpayer-supported debt-to-GDP ratio

 

17.2

%

17.0

%

15.9

%

 


1 Figures have been restated to reflect government accounting policies in effect at March 31, 2013, and the impact of Statistics Canada methodology change for measuring economic growth.

 

The provincial government ended the 2012/13 fiscal year with a deficit of $1,146 million, $178 million larger than budget and a $668 million improvement over the previous year’s deficit (see Table 2.1).

 

Revenues were $1,046 million lower than budget primarily due to a 17 per cent reduction in natural resource revenue compared to budget. Other revenue decreases reflected lower federal transfers and a delay in the sale of the Little Mountain property. (See Revenue section for further details.)

 

Chart 2.1 2012/13 deficit — major changes from Budget 2012

 

 

2013 Financial and Economic Review — August 2013

 

17



 

Chapter 2 — Financial Review

 

Total government expenses were $668 million lower than budgeted as $910 million in ministry savings, prior year liability adjustments, and deferred service delivery agency spending, were partially offset by $242 million in statutory spending, mainly for tax credit transfers and natural disaster related costs. (See Expense section for further details.)

 

The $200 million forecast allowance absorbed a portion of the above impacts limiting the increase to the budgeted deficit to $178 million.

 

Financial information in this publication, including this chapter and Appendix 2, is derived from the government’s 2012/13 Public Accounts.

 

Revenue

 

In 2012/13, revenue totaled $42.1 billion — $1,046 million lower than budget and up 0.5 per cent from 2011/12. Compared to budget, lower revenues from natural resources, taxation sources, fees, miscellaneous sources and federal transfers were partially offset by higher revenue from personal income, forest, investment earnings and commercial Crown corporations.

 

Chart 2.2 Revenue changes from Budget 2012

 

 

Personal income tax

 

Personal income tax revenue was up $347 million mainly due to the effects of stronger 2011 tax assessments. This was partially offset by lower estimated 2013 personal income growth reflecting relatively slower employment growth in the first three months of 2013.

 

Corporate income tax

 

Corporate income tax revenue was down $62 million mainly due to decreased instalment payments from the federal government reflecting deterioration in the national corporate tax base outlook and lower tax assessments for 2010 and prior years, partly offset by improved 2011 tax results. The 2011 BC corporate income tax base rose only 11.6 per cent annually compared to a 16.3 per cent increase in BC corporate profits, indicating the volatility associated with corporate income tax revenues.

 

2013 Financial and Economic Review — August 2013

 

18



 

Chapter 2 — Financial Review

 

Harmonized sales tax

 

Revenue from harmonized sales tax was down $53 million from budget due to higher deductions relating to rebates and lower input tax credits, partially offset by a higher 2012/13 tax base.

 

Table 2.2 Consumption and Other Tax Revenue Changes from Budget 2012

 

 

 

Revenue

 

 

 

 

 

Public

 

 

 

changes

 

 

 

Budget

 

Accounts

 

 

 

($ millions)

 

Indicators (annual percent change)

 

2012

 

Forecast

 

Harmonized sales

 

(53

)

Nominal consumer expenditures

 

4.3

%

3.8

%

Social service

 

25

 

Nominal business investment

 

4.2

%

6.8

%

Tax on designated property

 

(5

)

 

 

 

 

 

 

 

 

(33

)

 

 

 

 

 

 

 

 

 

 

BC Consumer Price Index

 

1.9

%

1.1

%

Fuel

 

(47

)

BC housing starts

 

-5.4

%

4.0

%

Carbon

 

(52

)

Real GDP

 

1.8

%

1.9

%

Tobacco

 

(38

)

 

 

 

 

 

 

Property transfer

 

(135

)

 

 

 

 

 

 

 

 

 

 

Gasoline volume growth

 

1.0

%

-2.4

%1

Other taxes

 

(18

)

 

 

 

 

 

 

 


1 Reflects 2012/13 actuals.

 

Fuel tax

 

Revenue from fuel tax was $47 million lower than budget reflecting lower gasoline consumption, likely due in part to higher pump prices.

 

Carbon tax

 

Carbon tax revenue was $52 million lower than budget due to weaker sales of gasoline and natural gas.

 

Tobacco tax

 

Tobacco tax revenue was $38 million below budget mainly due to a decline in consumption levels, partly reflecting the shift in public attitudes towards smoking.

 

Property transfer tax

 

Revenue from property transfer tax was $135 million lower than budget due to the effects of a weak housing market in latter half of 2012 which continued in 2013, as evident from annual declines in average property prices and the number of transactions.

 

Natural gas royalties

 

Natural gas royalties were $229 million below budget as lower prices and production volumes were partly offset by reduced utilization of credit and royalty program offsets. The full-year average price of $1.51 ($Cdn/gigajoule, plant inlet) was 40 per cent below budget reflecting weak North American market demand and high storage levels.

 

2013 Financial and Economic Review — August 2013

 

19



 

Chapter 2 — Financial Review

 

Coal, metals and other minerals

 

Revenue from coal, metals and other minerals was $242 million below budget due to a one-time prior year adjustment, the effects of higher mining costs and the impact of lower commodity prices.

 

Table 2.3 Energy and Mineral Revenue Changes from Budget 2012

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

changes

 

 

 

Budget

 

 

 

 

 

($ millions)

 

Indicators

 

2012

 

Actual

 

Natural gas royalties

 

(229

)

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

 

$

2.52

 

$

1.51

 

 

 

 

 

Production (annual change)

 

12.8

%

-1.5

%

Coal, metals and other minerals

 

(242

)

Metallurgical coal price ($ US/tonne)

 

$

218

 

$

177

 

 

 

 

 

Copper price ($ US/lb)

 

$

3.68

 

$

3.61

 

Columbia River Treaty electricity sales

 

(36

)

Electricity price ($ US/Mwh)

 

$

31.58

 

$

24.84

 

 

 

 

 

Oil price ($ US/bbl)

 

$

97.07

 

$

91.99

 

Petroleum royalties and other 1

 

(34

)

Bonus bid cash reciepts ($ million)

 

$

294

 

$

115

 

 

 

 

 

Bonus bid price per hectare ($)

 

$

1,200

 

$

1,105

 

 

 

(541

)

Hectares disposed (thousands)

 

245

 

104

 

 


1 Includes Sale of Crown land tenures where revenue is recognized over nine years.

 

Columbia River Treaty

 

Receipts from electricity sales under the Columbia River Treaty were $36 million below budget due to lower electricity prices.

 

Other energy

 

Other energy-related revenue sources were $34 million below budget mainly due to weaker sales of Crown land leases and the impact of lower oil prices. Cash sales of Crown land tenures were below budget due to lower hectares disposed and a weaker average bid price per hectare. However, the average bid price during the year at $1,105 per hectare marks the sixth consecutive year that bid prices exceeded $1,000 per hectare.

 

Forests

 

Forests revenue was $29 million above budget due to higher stumpage revenue, reflecting higher stumpage rates and lumber prices, and increased recoveries of fire prevention costs, partly offset by the effects of a higher Canadian dollar, lower harvest volumes and reduced entitlement of the federal government border tax collections. Despite higher US lumber shipments, BC’s entitlement of border tax collections under the Softwood Lumber Agreement, 2006 was $18 million below budget reflecting the lower effective export tax rate in the agreement for higher lumber prices.

 

Table 2.4 Forest Revenue Changes from Budget 2012

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

changes

 

 

 

Budget

 

 

 

 

 

($ millions)

 

Indicators

 

2012

 

Actual

 

Stumpage from timber tenures

 

39

 

SPF 2x4 ($ US/1000 bf, calendar year)

 

$

260

 

$

300

 

BC Timber Sales

 

(3

)

Total stumpage rate ($/m3)

 

$

5.26

 

$

6.01

 

Softwood Lumber Agreement border tax

 

(18

)

Harvest volumes (million m3)

 

65.0

 

62.6

 

Logging tax and other receipts

 

11

 

Export tax rate (percent)

 

11.3

 

7.5

 

 

 

29

 

US lumber exports (billion bf)

 

5.1

 

5.5

 

 

2013 Financial and Economic Review — August 2013

 

20



 

Chapter 2 — Financial Review

 

Other taxpayer supported sources

 

Other taxpayer supported revenue — including fees, licences, investment earnings and other miscellaneous sources — was $361 million below budget mainly due to a delay in the completion date of the sale of the Little Mountain property to the 2013/14 fiscal year. This decline was partly offset by an improvement in investment earnings.

 

Table 2.5 Other Revenue Changes from Budget 2012

 

 

 

Revenue

 

 

 

 

changes

 

 

 

 

($ millions)

 

 

Fees and Miscellaneous Sources

 

 

 

 

Taxpayer supported crowns

 

(311

)

mainly delayed completion date of Little Mountain property sale

Taxpayer supported SUCH entities

 

(47

)

mainly health authorties & post-secondary institutions

Other

 

(93

)

mainly MSP premiums and value of land issued as free Crown grants

Investment earnings

 

90

 

 

Total other

 

(361

)

 

 

Federal government

 

Federal government contributions were down $215 million reflecting a $240 million decrease in the Canada Health Transfer and Canada Social Transfer entitlements mainly due to a lower population share. The reduced population share reflects the impacts of the preliminary Statistics Canada Census net undercount estimates which also included revisions to prior years. The assumed population share in 2012 was 13.11 per cent compared to 13.28 per cent forecast in budget.

 

The decline in entitlements was partly offset by a $25 million improvement in other federal government transfers mainly due to higher direct funding to the post-secondary institutions.

 

Commercial Crown corporations

 

Commercial Crown corporation net income of $2.8 billion was $81 million above budget and $92 million higher than 2011/12.

 

·             BC Hydro net income was $57 million lower than plan, reflecting a reduction in allowed return on deemed equity for 2012/13 to 11.73 per cent from 12.75 per cent. This return is set by the BC Utilities Commission to reflect the allowed return for the most comparable investor-owned energy utility regulated by the commission — FortisBC Energy Inc.

 

·             Liquor Distribution Branch income was up $24 million from plan mainly due to stronger sales in wines and spirits and lower operating expenses.

 

·             BC Lottery Corporation income was up $3 million from plan reflecting higher net income from lottery operations and operating cost savings, partially offset by lower revenue from casino and gaming operations.

 

·             ICBC results were up $105 million from plan mainly due to increased revenue from higher vehicle growth and average premiums, lower operating costs and higher investment income. These improvements were partially offset by higher claims costs.

 

2013 Financial and Economic Review — August 2013

 

21



 

Chapter 2 — Financial Review

 

Table 2.6 Revenue by Source

 

 

 

Budget

 

Actual

 

Actual

 

($ millions)

 

2012 1

 

2012/13

 

2011/12 1

 

Taxation

 

 

 

 

 

 

 

Personal income

 

6,630

 

6,977

 

6,427

 

Corporate income

 

2,266

 

2,204

 

2,002

 

Harmonized sales

 

6,003

 

5,950

 

5,779

 

Other sales 2

 

98

 

118

 

151

 

Fuel

 

937

 

890

 

928

 

Carbon

 

1,172

 

1,120

 

959

 

Tobacco

 

652

 

614

 

636

 

Property

 

2,013

 

1,985

 

1,913

 

Property transfer

 

893

 

758

 

944

 

Corporation capital

 

 

1

 

(5

)

Insurance premium

 

424

 

433

 

411

 

 

 

21,088

 

21,050

 

20,145

 

Natural resource

 

 

 

 

 

 

 

Natural gas royalties

 

398

 

169

 

339

 

Forests

 

533

 

562

 

482

 

Other natural resource 3

 

2,055

 

1,742

 

1,991

 

 

 

2,986

 

2,473

 

2,812

 

Other revenue

 

 

 

 

 

 

 

Medical Services Plan premiums

 

2,047

 

2,047

 

1,919

 

Other fees 4

 

2,876

 

2,849

 

2,806

 

Investment earnings

 

1,083

 

1,173

 

1,022

 

Miscellaneous

 

3,047

 

2,623

 

2,715

 

 

 

9,053

 

8,692

 

8,462

 

Contributions from the federal government

 

 

 

 

 

 

 

Health transfer

 

4,051

 

3,887

 

3,858

 

Social transfer

 

1,631

 

1,555

 

1,526

 

Harmonized sales tax transition payments

 

 

 

580

 

Other federal contributions

 

1,575

 

1,600

 

1,743

 

 

 

7,257

 

7,042

 

7,707

 

Commercial Crown corporation net income

 

 

 

 

 

 

 

BC Hydro

 

566

 

509

 

558

 

Liquor Distribution Branch

 

906

 

930

 

909

 

BC Lottery Corporation (net of payments to the federal government)

 

1,115

 

1,118

 

1,099

 

ICBC

 

146

 

251

 

102

 

Transportation Investment Corporation (Port Mann)

 

(48

)

(60

)

(17

)

Other

 

32

 

50

 

55

 

 

 

2,717

 

2,798

 

2,706

 

Total revenue

 

43,101

 

42,055

 

41,832

 

 


1 Figures have been restated to reflect government accounting policies in effect at March 31, 2013.

2 Includes social service tax, the continuation of the tax on designated property and the hotel room tax in 2010/11.

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

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

 

A detailed review of revenue changes by quarter is available in Appendix Table A2.1. Further information on commercial Crown corporations is provided in Chapter 3.

 

2013 Financial and Economic Review — August 2013

 

22



 

Chapter 2 — Financial Review

 

Table 2.7 Expense by Ministry, Program and Agency

 

 

 

2012/13

 

 

 

 

 

Budget

 

Contingencies

 

Restated

 

 

 

Actual

 

($ millions)

 

2012 1

 

Allocation

 

Budget

 

Actual

 

2011/12 1

 

Office of the Premier

 

9

 

 

9

 

8

 

9

 

Aboriginal Relations and Reconciliation

 

80

 

17

 

97

 

97

 

92

 

Advanced Education, Innovation and Technology

 

1,981

 

 

1,981

 

1,977

 

1,977

 

Agriculture

 

68

 

1

 

69

 

65

 

74

 

Children and Family Development

 

1,333

 

 

1,333

 

1,327

 

1,333

 

Citizens’ Services and Open Government

 

533

 

10

 

543

 

527

 

562

 

Community, Sport and Cultural Development

 

311

 

18

 

329

 

329

 

405

 

Education

 

5,315

 

45

 

5,360

 

5,360

 

5,264

 

Energy, Mines and Natural Gas

 

449

 

18

 

467

 

465

 

453

 

Environment

 

129

 

13

 

142

 

138

 

143

 

Finance

 

173

 

10

 

183

 

212

 

189

 

Forests, Lands and Natural Resource Operations

 

602

 

9

 

611

 

674

 

562

 

Health

 

16,177

 

 

16,177

 

15,930

 

15,567

 

Jobs, Tourism and Skills Training

 

232

 

35

 

267

 

265

 

261

 

Justice

 

1,110

 

46

 

1,156

 

1,190

 

1,174

 

Social Development

 

2,457

 

 

2,457

 

2,446

 

2,426

 

Transportation and Infrastructure

 

807

 

 

807

 

804

 

807

 

Total ministries and Office of the Premier

 

31,766

 

222

 

31,988

 

31,814

 

31,298

 

Management of public funds and debt

 

1,287

 

 

1,287

 

1,197

 

1,238

 

Contingencies

 

300

 

(248

)

52

 

11

 

22

 

Funding for capital expenditures

 

1,062

 

16

 

1,078

 

946

 

1,181

 

Refundable tax credit transfers

 

1,091

 

 

 

1,091

 

1,188

 

931

 

Legislative and other appropriations

 

125

 

10

 

135

 

123

 

132

 

 

 

35,631

 

 

35,631

 

35,279

 

34,802

 

Liability for repayment of HST transition funding

 

 

 

 

 

1,599

 

Prior year liability adjustments

 

 

 

 

(159

)

(99

)

Consolidated revenue fund expense

 

35,631

 

 

35,631

 

35,120

 

36,302

 

Expenses recovered from external entities

 

2,756

 

 

2,756

 

2,715

 

2,576

 

Funding provided to service delivery agencies

 

(21,127

)

 

(21,127

)

(21,165

)

(21,210

)

Ministry and special office direct program spending

 

17,260

 

 

17,260

 

16,670

 

17,668

 

Service delivery agency expense:

 

 

 

 

 

 

 

 

 

 

 

School districts

 

5,569

 

 

5,569

 

5,577

 

5,500

 

Universities

 

4,050

 

 

4,050

 

3,943

 

3,807

 

Colleges and institutes

 

1,095

 

 

1,095

 

1,105

 

1,095

 

Health authorities and hospital societies

 

12,431

 

 

12,431

 

12,519

 

12,116

 

Other service delivery agencies

 

3,464

 

 

3,464

 

3,387

 

3,460

 

Total service delivery agency expense

 

26,609

 

 

26,609

 

26,531

 

25,978

 

Total expense

 

43,869

 

 

43,869

 

43,201

 

43,646

 

 


1 Amounts have been restated to reflect government accounting policies and organization in effect at March 31, 2013.

 

2013 Financial and Economic Review — August 2013

 

23



 

Chapter 2 — Financial Review

 

Expense

 

In 2012/13, government expenses totaled $43 billion; $668 million (1.5 per cent) lower than budget and $1,154 million higher than the previous year (excluding the impact of the $1,599 million one-time HST transition funding repayment in 2011/12).

 

Chart 2.3 Expense changes from Budget 2012

 

 

Consolidated Revenue Fund

 

Ministries were able to realize a total of $319 million in operating savings.

 

Health spending was down $247 million, mainly due to lower than anticipated take-up of new initiatives in Regional Health Services, and savings from lower MSP and PharmaCare costs (Ministry of Health).

 

Other savings included lower spending on corporate services and technology solutions of $16 million (Ministry of Citizens’ Services and Open Government), savings of $11 million from efficiencies in employment programs service delivery (Ministry of Social Development). Expenditure management initiatives in other ministries totaled $45 million.

 

In addition to the ministry specific savings above, other expense reductions in the Consolidated Revenue Fund included interest cost savings of $90 million due to reduced borrowing requirements (Management of Public Funds and Debt Vote) and $53 million in unused allocations for Contingencies, legislative and other appropriations.

 

During the year, government invoked standing statutory authority to cover $242 million in unforeseen costs. These included:

 

·                  $97 million in additional refundable tax credit transfers;

 

·                  $71 million in direct fire response costs (Ministry of Forests, Lands and Natural Resource Operations);

 

·                  $39 million for emergency food response costs under the Emergency Program Act (Ministry of Justice);

 

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Chapter 2 — Financial Review

 

·                  $28 million for student loan forgiveness (Ministry of Finance);

 

·                  $4 million under the Public Inquiry Act (Ministry of Justice); and

 

·                  $3 million in other areas.

 

Liabilities accrued in prior years were adjusted downward by $159 million to reflect actuarial valuations and other updated information. These included reductions to:

 

·                  lower government self insurance claim costs of $28 million and employee long term benefits obligations of $19 million (Ministry of Finance);

 

·                  a reduction to the Health Benefits Trust liability of $37 million and MSP cost accruals of $25 million (Ministry of Health);

 

·                  correction of an investment write down in the Children’s Education Fund in a prior year of $19 million (Ministry of Education);

 

·                  lower integrated workplace and technology solution costs of $12 million (Ministry of Citizen’s Services and Open Government); and

 

·                  $19 million in other adjustments.

 

Recovered Expenses

 

Program spending funded or co-funded by parties outside of government was $41 million lower than budget. This reduction incorporates a $136 million decrease relating to a change in accounting treatment for the flow-through of MSP payments from ICBC and WCB for accident-related medical costs.

 

Excluding this accounting policy change, expenses recovered from third parties increased $95 million, including a $48 million increase in commissions and allowances, a $17 million increase in employee benefit costs, a $12 million increase in the distribution of gaming proceeds to local governments, a $10 million increase in fiscal agency loan interest costs, and various other increases totaling $8 million.

 

Operating Transfers

 

Operating grants paid to government agencies increased by $170 million primarily due to higher grants to health authorities ($96 million) and housing and social services initiatives ($154 million) in support of higher agency spending noted below, offset by lower transportation funding ($46 million) and other grants ($34 million).

 

The increase in grants resulted in an overall decrease in expense due to the related party nature of these transfers, which represent an expense to ministries, but revenue to service delivery agencies. If there is no increase in service delivery agencies spending resulting from the increase in transfers, as is the case in 2012/13, the overall expense has been deferred to future years.

 

Service Delivery Agency Spending

 

Service delivery agency spending was $78 million lower than budget, including a $62 million increase in health organizations’ employee benefit liability. Excluding this adjustment, operating costs were $140 million lower than budget.

 

School districts’ spending was $8 million higher due to higher salary and wage costs ($18 million), offset by lower other net operating costs ($10 million).

 

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Chapter 2 — Financial Review

 

Post-secondary institution spending was $97 million lower than budget, mainly due to reduced third party research grants and associated spending ($83 million), a reduction to operating costs over and above salary increases ($9 million), lower capital asset amortization ($6 million), offset by other minor cost increases ($1 million).

 

Health authority and hospital society spending, before a $62 million increase adjustment in employee benefit liability, was up $26 million due to a growing demand for healthcare services delivered by these organizations on behalf of government. This increased spending was funded by additional provincial grants and own-source revenue.

 

An overall reduction of $77 million in other service delivery agency spending reflects delays in funding issued to regional authorities for transportation infrastructure spending ($70 million) and other capital improvements ($55 million), as well as interest cost savings ($38 million). These reductions were partially offset by increases in community living spending ($48 million), housing subsidy costs ($25 million), and higher spending by other agencies ($13 million).

 

A detailed review of the above changes by quarter is available in Appendix Table A2.1. Further information on 2012/13 spending by function is provided in Appendix Table A2.7.

 

Provincial Capital Spending

 

Capital spending in 2012/13 totaled $6.0 billion (see Chart 2.4). Spending on power generation and transmission projects is entirely self-supported, reflecting the commercial activities of BC Hydro and Columbia Power Corporation.

 

Spending on highways and public transportation is primarily taxpayer-supported, but includes the Port Mann Bridge replacement, which is a self-supported project to be funded from tolls. Spending on health facilities, schools and post-secondary institutions includes taxpayer-supported and contributions from external parties. Spending by government ministries is entirely taxpayer-supported; other spending is a mix of taxpayer-supported and self-supported.

 

Chart 2.4 Capital spending, 2012/13

 

 

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Chapter 2 — Financial Review

 

Chart 2.5 Capital spending changes from Budget 2012

 

 

Taxpayer-supported Capital Spending

 

In 2012/13, government spent $3.3 billion on taxpayer-supported infrastructure — $478 million below budget.

 

Education Facilities

 

Spending was $74 million less than budget, reflecting a $97 million decrease by post-secondary institutions (mainly by universities on their self-funded projects) partially offset by a $23 million increase by school districts.

 

School district expenditures reflect additional spending due to accelerated project approvals and school districts’ self-funded projects, such as site purchases by the Surrey Board of Education, partially offset by project scheduling changes.

 

Health Facilities

 

Spending was $137 million less than budget, reflecting scheduling changes for various projects, including the Children’s and Women’s Hospital, the Surrey Memorial Hospital’s Emergency Department/Critical Care Tower, and the Interior Heart and Surgical Centre.

 

Highways and Public Transit

 

Spending in the transportation sector was $106 million less than budget, mainly due to construction schedule changes to the Evergreen Line (reflecting finalization of the P3 contract) and changes in the timing of transit projects, including bus expansion, Expo Line Station upgrades, and the Kelowna Rapid Bus project.

 

Ministries and Other

 

Ministries spent $187 million less than budget due to lower than expected spending on government buildings and unused project reserves. This was partially offset by $26 million of higher than planned spending by other taxpayer-supported entities, mainly due to social housing project scheduling changes.

 

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Chapter 2 — Financial Review

 

Table 2.8 Capital Spending

 

 

 

Budget

 

Actual

 

Actual

 

($ millions)

 

2012

 

2012/13

 

2011/12

 

Taxpayer-supported

 

 

 

 

 

 

 

Education

 

 

 

 

 

 

 

Schools (K–12)

 

486

 

509

 

560

 

Post-secondary

 

688

 

591

 

655

 

Health

 

879

 

742

 

732

 

BC Transportation Financing Authority

 

1,069

 

1,005

 

921

 

BC Transit

 

90

 

48

 

37

 

BC Place redevelopment

 

 

6

 

194

 

Government direct (ministries)

 

454

 

267

 

245

 

Other 1

 

91

 

111

 

221

 

Total taxpayer-supported

 

3,757

 

3,279

 

3,565

 

Self-supported commercial

 

 

 

 

 

 

 

BC Hydro

 

2,361

 

1,929

 

1,703

 

Columbia River power projects 2

 

122

 

94

 

108

 

Transportation Investment Corporation (Port Mann Bridge/Highway 1)

 

606

 

540

 

734

 

BC Railway Company

 

13

 

10

 

9

 

Insurance Corporation of British Columbia

 

101

 

73

 

92

 

BC Lottery Corporation

 

116

 

97

 

74

 

Liquor Distribution Branch

 

27

 

10

 

19

 

Other 3

 

 

11

 

5

 

Total self-supported commercial

 

3,346

 

2,764

 

2,744

 

Total capital spending

 

7,103

 

6,043

 

6,309

 

 


1 Includes BC Housing Management Commission, Provincial Rental Housing Corporation, and other service delivery agencies.

 

2 Joint ventures of the Columbia Power Corporation and Columbia Basin Trust.

 

3 Includes post-secondary institutions self-supported subsidiaries.

 

Self-supported Capital Spending

 

Commercial Crown corporations spent $2.8 billion on capital projects in 2012/13 — $582 million less than budget.

 

BC Hydro

 

BC Hydro spent $432 million less than projected in Budget 2012, mainly due to scheduling shifts on the Northwest Transmission Line, Interior to Lower Mainland transmission, Dawson Creek / Chetwynd area transmission, and Mica Units 5 and 6 generation projects.

 

Port Mann Bridge Replacement

 

The Transportation Investment Corporation spent $66 million less than planned on this project, mainly reflecting the contractor’s reprioritization of capital spending to ensure Phase 1 completion of the Port Mann Bridge.

 

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Chapter 2 — Financial Review

 

Other Corporations

 

The Insurance Corporation of BC spent $28 million less than planned, mainly reflecting delays in capital spending for technology enhancements and facilities upgrades. BC Lottery Corporation spending was $19 million less than budget, mainly reflecting delays in the gaming management system project, replacement of slot machines and other capital programs.

 

The remaining commercial Crown corporations accounted for a net $37 million decrease in spending, mainly due to scheduling impacts.

 

Major Capital Projects

 

Significant capital projects (those with multi-year budgets totaling $50 million or more) are shown in Table 2.9. During 2012/13, $2.9 billion was invested in these larger projects that will provide long-term social and economic benefits for the province. As projects are completed, or new ones receive Treasury Board and/or Crown corporation board approval, the projects are removed or added from the $50 million table. During the fiscal year 13 projects were completed and 13 new projects added, as shown below.

 

Capital expenditure projects greater than $50 million — completions and new projects in 2012/13

 

Completions

 

New

School districts

Full-day kindergarten

 

Belmont Secondary

Burnaby Central Secondary

 

 

 

 

 

Post-secondary institutions

UBC — Pharmaceutical Sciences and Centre for Drug Research and Development

 

University of Victoria — Superconducting electron accelerator at TRIUMF Emily Carr University of Art and Design — Campus redevelopment at Great Northern Way

 

 

 

Health facilities

Fort St. John Hospital and Residential Care

 

North Island Hospitals

Expansions to Kelowna General and Vernon Jubilee Hospitals

 

Lakes District Hospital

Jim Pattison Outpatient Care and Surgery Centre

 

Queen Charlotte/Haida Gwaii Hospital

 

 

Royal Inland Hospital

 

 

 

Transportation

 

 

Evergreen Line Rapid Transit

 

 

 

Other taxpayer-supported

BC Place redevelopment

 

Single Room Occupancy Hotels renovations

Vancouver Convention Centre expansion project

 

Okanagan Correctional Centre

 

 

 

Power generation and transmission

Columbia Valley transmission

 

Merritt area transmission

Stave Falls spillway gate reliability upgrade

 

Iskut extension project

Fort Nelson generating station upgrade

 

Surrey area substation project

Revelstoke Unit 5 generation

 

 

Cheakamus spillway gate reliability upgrade

 

 

 

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Chapter 2 — Financial Review

 

Table 2.9 Capital Expenditure Projects Greater Than $50 million 1

 

 

 

 

 

Project

 

Estimated

 

Anticipated

 

Project Financing

 

 

 

Year of

 

Cost to

 

Cost to

 

Total

 

Internal/

 

P3

 

Federal

 

Other

 

($ millions)

 

Completion

 

Mar 31, 2013

 

Complete

 

Cost

 

Borrowing

 

Liability

 

Gov’t

 

Contrib’ns

 

 

 

Taxpayer-supported

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

School districts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revelstoke Elementary and Secondary 2

 

2012

 

57

 

3

 

60

 

58

 

 

 

2

 

Alberni District Secondary 2

 

2012

 

52

 

6

 

58

 

54

 

 

 

4

 

Southern Okanagan Secondary

 

2013

 

40

 

14

 

54

 

52

 

 

 

2

 

Chilliwack Secondary

 

2013

 

38

 

20

 

58

 

58

 

 

 

 

Centennial Secondary

 

2015

 

5

 

57

 

62

 

62

 

 

 

 

Oak Bay Secondary

 

2015

 

1

 

51

 

52

 

50

 

 

 

2

 

Kitsilano Secondary

 

2015

 

2

 

60

 

62

 

62

 

 

 

 

Belmont Secondary

 

2015

 

4

 

52

 

56

 

30

 

 

 

26

 

Seismic mitigation program

 

2021

 

 

1,300

 

1,300

 

1,300

 

 

 

 

Total school districts

 

 

 

199

 

1,563

 

1,762

 

1,726

 

 

 

36

 

Post-secondary institutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

University of Victoria

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

– Superconducting electron accelerator at TRIUMF

 

2014

 

49

 

16

 

65

 

31

 

 

18

 

16

 

Emily Carr University of Art and Design

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

– Campus redevelopment at Great Northern Way

 

2016

 

2

 

132

 

134

 

113

 

 

 

21

 

Total post-secondary institutions

 

 

 

51

 

148

 

199

 

144

 

 

18

 

37

 

Health facilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Victoria Royal Jubilee Hospital — Patient Care Centre 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

– Direct procurement

 

2013

 

66

 

3

 

69

 

23

 

 

 

46

 

– P3 contract

 

2011

 

280

 

 

280

 

 

199

 

 

81

 

Northern Cancer Control Strategy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

– Direct procurement

 

2013

 

25

 

10

 

35

 

32

 

 

 

3

 

– P3 contract

 

2012

 

71

 

 

71

 

54

 

17

 

 

 

Lions Gate Hospital (Mental Health)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redevelopment

 

2014

 

15

 

47

 

62

 

38

 

 

 

24

 

Surrey Emergency/Critical Care Tower

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

– Direct procurement

 

2016

 

65

 

129

 

194

 

174

 

 

 

20

 

– P3 contract

 

2014

 

267

 

51

 

318

 

139

 

179

 

 

 

Lakes District Hospital

 

2015

 

3

 

52

 

55

 

46

 

 

 

9

 

Queen Charlotte/Haida Gwaii Hospital

 

2015

 

1

 

49

 

50

 

31

 

 

 

19

 

Royal Inland Hospital

 

2016

 

 

80

 

80

 

47

 

 

 

33

 

North Island Hospitals

 

2017

 

8

 

593

 

601

 

365

 

 

 

236

 

Interior Heart and Surgical Centre

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

– Direct procurement

 

2017

 

90

 

165

 

255

 

215

 

 

 

40

 

– P3 contract

 

2015

 

27

 

85

 

112

 

2

 

79

 

 

31

 

Children’s and Women’s Hospital

 

2019

 

36

 

644

 

680

 

532

 

 

 

148

 

Total health facilities

 

 

 

954

 

1,908

 

2,862

 

1,698

 

474

 

 

690

 

Transportation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

South Fraser Perimeter Road

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

– Direct procurement

 

2014

 

1,030

 

32

 

1,062

 

714

 

 

348

 

 

– P3 contract

 

2014

 

178

 

24

 

202

 

 

202

 

 

 

Evergreen Line Rapid Transit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

– Direct procurement

 

2016

 

196

 

346

 

542

 

327

 

 

74

 

141

 

– P3 contract

 

2016

 

74

 

815

 

889

 

 

259

 

343

 

287

 

Sierra Yoyo Desan Road upgrade

 

2014

 

107

 

30

 

137

 

137

 

 

 

 

Total transportation

 

 

 

1,585

 

1,247

 

2,832

 

1,178

 

461

 

765

 

428

 

 

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Chapter 2 — Financial Review

 

Table 2.9 Capital Expenditure Projects Greater Than $50 million 1 (continued )

 

 

 

 

 

Project

 

Estimated

 

Anticipated

 

Project Financing

 

 

 

Year of

 

Cost to

 

Cost to

 

Total

 

Internal/

 

P3

 

Federal

 

Other

 

($ millions)

 

Completion

 

Mar 31, 2013

 

Complete

 

Cost

 

Borrowing

 

Liability