Mark Feb. 19 on your 2013 calendar. That’s the day the Liberals publish their version of an NDP classic from the 1990s called the Fudget Budget. It’s the day Finance Minister Mike de Jong slaps a black dust jacket on a crimson epic and calls it “balanced” reading.
The government has spent millions in advertising in the final weeks of 2012 to persuade voters it is a prudent manager of the public purse. In the face of mounting sober advice to the contrary, Premier Christy Clark and de Jong remain wedded to their promise of delivering a balanced budget in the new fiscal year.
These two are rushing headlong toward B.C.’s very own version of America’s fiscal cliff and they don’t seem to appreciate their peril. Clark & Co. are exiting 2012 under the darkest of clouds. Their Christmas Grinch is Moody’s Investor Service, which has deposited a lump of coal of biblical proportions in B.C.’s stocking.
Moody’s is the financial world’s Vatican. When this credit rating institution rains on your parade, it is best to start building an arc.
Moody’s has downgraded B.C.’s financial status to AAA-negative from AAA-stable. Moody’s blames it on our worsening financial situation, which has investors worried about the government’s ability to avoid increasing its massive overall debt load.
“A more subdued economic outlook, compounded with lower-than-anticipated natural gas resource revenues, along with continued expense pressures presents risks to achieving the fiscal plan and to stabilizing and ultimately reversing the recent accumulation in debt,” says Moody’s assistant vice-president Jennifer Wong, lead analyst for the province.
Bottom line? When it comes to managing our treasury, the Liberals are running on empty. On their watch, B.C.’s total debt has doubled in just over a decade from $33 billion to $66 billion. I have been harping on this theme ad nauseum. A province dedicated to holding the line on personal income taxes while constrained by shrinking resource revenues cannot keep growing its net debt by roughly $2 billion a year and claim to have a prudent fiscal plan.
Meanwhile, an unwelcome phrase — structural deficit — has crept into the discussion about this province’s fragile fiscal framework. It was flagged by NDP Leader Adrian Dix in a recent year-end interview. Dix understands that if he wins the election in May, he will inherit an empty vault. He knows that the 2013/14 budget will not be truly balanced, regardless of what Clark and de Jong claim.
He noted that the government has just moved revenue from the sale of Crown assets into next year as a one-time measure. In effect, he’s saying the Liberals are selling off land and posting the revenue entry in next year’s budget so they can claim a balanced budget.
“Look in the dictionary under structural deficit, you see these guys,” he says.
In B.C., we have grown accustomed to cyclical deficits and surpluses that mirror the cyclical fortunes of our resource-dependent economy. But, a structural deficit constitutes fiscal quicksand that does not relinquish its victims readily. A government slips into a structural deficit when the balance between revenues and expenditures becomes fundamentally skewed. Restoring balance requires new revenue growth such as hefty tax increases or dramatic spending cuts. Neither is an option in the pre-writ period.
As Feb. 19 approaches it will be increasingly difficult for Clark and de Jong to be taken seriously as they insist that red is black. M