Monitoring Government Finances

On February 15, 2005, the BC government will release the final budget of its mandate and its second balanced budget. Once again, the ICABC will be there to provide commentary.

In the meantime, a recent report by BC Auditor General Wayne Strelioff, FCA, entitled "Monitoring the Government's Finances," offers an eight-year review of several key financial and economic indicators he believes the government should use to supplement its financial statements. In his report, Strelioff also compares BC's financial condition to those of other Canadian jurisdictions.

Starting with the 2004/05 Budget, the government will be preparing its financial plans and reports in accordance with GAAP, which will ensure that the government publishes a complete accounting of the financial results of school boards, universities, colleges, and health authorities within its summary consolidated financial statements. BC will be the first jurisdiction in Canada to do so.

"Recent improvements in the government's financial reporting have been significant," Strelioff says in his report. "Now, I ask the government to provide a fuller discussion and analysis of major financial decisions, trends, and indicators, to help British Columbians more fully understand the financial direction of the government." This request is in line with the government's desire for greater disclosure-a desire indicated by the government's inclusion of a discussion and analysis with its most recent financial statements, marking a first in BC.

BC's financial situation

Revenues

Provincial revenues increased by $2.0 billion between 2002/03 and 2003/04, marking the first increase after two years of declining revenues. Of this increase, $1.5 billion came from taxation-the first increase in taxation revenues since the 2001 tax cuts, returning us to the same levels reached in 2000. Natural resources saw an increase in revenues by $0.4 billion, thanks primarily to an increase in permit fees and royalty revenue for petroleum and natural gas; this increase offset decreasing revenues from the forestry sector. Finally, Crown corporations saw revenues increase by $0.6 billion. (The two areas that saw revenues decline last year were Federal transfers and "other" sources.)

Expenses

Between 2002/03 and 2003/04, the government held the line on expenses ($39.7 billion). This fiscal restraint translated into increases in health, education, and Crown corporation spending, while the social services and "other" categories saw spending decline. Increases in Crown corporation spending were primarily due to BC Hydro's purchase of energy for resale. These costs were offset by higher profits.

Health continues to account for the largest portion of provincial spending, at $11.2 billion in 2003/04 or $2,694 per capita; in fact, with the exclusion of Crown corporation spending, health expenditures account for 38% of all government spending. Education accounts for 27.5% ($8.1 billion or $1,946 per capita).

Debt

In 2003/04, BC incurred a $ 1 billion deficit for the third consecutive year, the result of a $2.9 billion deficit in general programs offset by a $ 1.9 billion surplus from Crown Corporations. Overall, the province had an accumulated deficit of $4.7 billion at the end of 2003/04 (compared to $3.7 billion the previous year).

Comparing BC with other provinces

When comparing EC's financial situation to those of other western provinces and Ontario, 2003/04 brought us higher unemployment, moderate inflation, lower GDP per capita, and a stronger credit rating.

During this period, BC scored an unemployment rate of 8.1%, significantly higher than Alberta, which ranked lowest at 5.1%, and Ontario, the second worst performer at 7.0%. At the same time, GDP per capita was $34,342, placing BC lower than all but Manitoba ($32,741). Alberta led this category as well, scoring the highest GDP per capita ($54,100).

Positive results were seen for inflation and credit rating. EC's inflation rate (2.1 %) was lower than those of all the comparison provinces except Manitoba (1.8%). The highest inflation rate was seen in Alberta (4.4%). Meanwhile, BC continued to maintain its Aa2 credit rating,* a position it has held since 1998. This is the same credit rating held by Manitoba and Ontario, and the second highest in Canada behind Alberta (Aaa).

What's next?

While Strelioff was generally pleased with the government's financial statements, he did offer some recommendations about what should be done next to make EC's statements even more transparent. These include providing a full explanation of any significant transitions that may affect the province's fiscal health or its ability to provide services to British Columbians.

BC Partnership Amendment Act

The Partnership Amendment Act received Royal Assent on May 13, 2004. The Act will pave the way for limited liability partnerships (LLPs) here in BC. The LLP amendments and regulations came into force on January 17, 2005 (see page 5). For information about how to register an LLP, visit the BC government's corporate registry at www.fin.gov.bc.ca/registries/

* Source: http://bcauditor.com/PUBS/2004-05/Report7/monitoring-finances-Nov2004.pdf

By Michelle McCormick, Manager of Public Affairs

Copyright Institute of Chartered Accountants of British Columbia Feb/Mar 2005
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