THE NEED FOR A STRUCTURED DEBT REPAYMENT PLAN (2007)

Over the past few years, the provincial government under the direction of the Ministry of Finance has made incredible and very laudable strides in balancing its budget while maintaining many of the services that British Columbians both expect and rely on. During this time, the provincial government has recorded healthy surpluses due to good financial management and rising revenues. This has been a result of its commitment to establish a competitive tax environment and to implement measures to create an environment that will attract investors and encourage economic growth. As a result, BC has become the envy of the rest of Canada.

And the numbers have been very positive. The size of the surplus has continued to grow as the government fosters this positive economic climate. The most recent provincial budget delivered in February of 2007 predicts a surplus of $2.85 billion. The government’s budget and fiscal plan for 2007 to 2010 predicts surpluses in the range of $400 million for 2007/08, $150 million for 2008/09 and $150 million for 2009/10. Given that the provincial government takes a cautious approach to predicting economic growth there is every likelihood that the government’s actual surplus will once again end up being significantly larger than its estimates suggest.

While continued surpluses are something to celebrate, there are warning signs and concerns raised around the continued upward growth of the province’s accumulated total debt burden.

Debt as a % of GDP           2006/7             2007/8             2008/9           2009/10
Taxpayer supported           14.8%               14.8%              14.6%           14.1%
Total provincial                    19.2%              19.6%               19.6%           19.3%

The key with debt is that it be affordable. As with any business or household, can we afford what we borrow? The key measurement here is taxpayer supporter debt to GDP. This covers the amount of debt that is ours as taxpayers in relation to the amount of money the province earns from economic activity. As we can see this is projected to fall from 14.8% this year to 14.1% by 2009/10. It is this ongoing reduction that is the key to BC maintaining its AAA credit rating, and being able to borrow at the most competitive rates.

Provincial Debt Burden     2006/7             2007/8               2008/9           2009/10
Total provincial debt          34,352             36,837               38,681           39,981
Taxpayer supported          26,545             27,803               28,692            29,171

As we can also see, the provincial debt burden is expected to continue to climb from $34,352 billion in 2006/07 to $39,981 billion by 2009/10. Growth in the taxpayer-supported debt burden of somewhere in the region of 10% is of considerable concern to The Chamber without a legislated plan to reduce the burden for future generations when fiscally prudent.

The interest charge on this debt averages some $2 billion annually, an amount that covers the costs associated with running the government’s top four ministries. It is incumbent on a fiscally responsible government that the level of interest payment we leave to future taxpayers provide them with both a direct benefit while also ensuring that the debt payments left to future generations are as low as possible.

The Chamber appreciates that the increase in the provincial debt derives from the provincial government’s commitment to a significant capital infrastructure investment program. While The Chamber supports the need to address the significant investment deficit that is the result of a long history of underinvestment in capital infrastructure this must be done in a way that mitigates the cost for future generations.

The size of the debt and the opportunity costs associated with the interest charges continue to raise concerns in the community at large. For example, a survey of the small business community conducted for the Certified General Accountants Association of British Columbia by Synovate demonstrates the thinking within the small business community.

When surveyed in the fall of 2006 on the top priorities for the next provincial budget, BC businesses said that there should be a general reduction in personal income tax, followed by a greater reduction of the province’s accumulated debt. Thirty-six per cent of businesses give top priority to reducing personal income taxes and 30 per cent give top priority to reducing the province’s accumulated debt.

When second and third priorities are also taken into account, 60 per cent of those surveyed give some level of priority to reducing personal income taxes and 49 per cent give some level of priority to reducing BC’s accumulated debt. As government makes impressive strides in the area of personal income taxes, the concerns around the debt are likely to move into the number one position.

THE CHAMBER RECOMMENDS

That the provincial government:

1. introduce legislation that will provide a legal requirement that the provincial budget dedicate 50% of anticipated surpluses and no less than one-third of unanticipated surpluses directly to debt repayment; and

2. continue with this requirement until the total provincial debt-to-GDP ratio be reduced to 15%.