Hot natural gas prices may boost B.C.'s surplus

Derrick Penner
Vancouver Sun
16-Sep-2005

British Columbia has an estimated $1.4-billion budget surplus, but if natural gas prices remain high, and one of B.C.'s most prominent economists is right, the surplus is likely to becomes even bigger.

Helmut Pastrick, chief economist for Credit Union Central B.C., said he believes the province's projections revealed Wednesday in its budget update are still conservative.

"I'm of the view we'll see higher numbers," Pastrick said. "I still put economic growth at a higher level, more growth in housing."

Pastrick added that, assuming there are no spending surprises, the government is likely to see an even bigger surplus.

Finance Minister Carole Taylor's budget update projects the government will take in $34.5 billion by the end of 2005-06 -- a $1.4-billion gain from the $33.1 billion that was written into government's February budget -- which will help raise its overall surplus to $1.3 billion.

Tax recoveries, estimated at $15.5 billion in Taylor's update, are running $753 million ahead of February's budget. Resource revenues, pegged at $4.4 billion in the revision, are also $488 million ahead of expectations written into the earlier budget.

The province, however, may not be being generous enough in its projections for its resource revenues given the performance of natural gas prices versus the assumptions used by Ministry of Finance staff to calculate its revised expectations.

Royalties on B.C.-drilled natural gas are the biggest source of provincial resource revenue, which the ministry estimated at $1.8 billion in Taylor's budget update, $199 million ahead of February's expectations.

Taylor's updated fiscal plan shows that her staff based that projection on $6.51 per gigajoule average price for natural gas to the end of the 2005-06 fiscal year.

Prices on Thursday, however, hit $10.17 at the Sumas hub, the main distribution point for gas exports to the U.S. West Coast, and have averaged $7.67 since the start of the government's fiscal year in April.

In an interview, Taylor said the province will hold to a conservative approach to setting its expectations, which are based on the projections of industry experts.

"Everyone realizes that this is a moving target," she said. "If you look at natural gas [prices], we don't know if we can sustain these levels."

Taylor added that despite knowing that B.C.'s economy was still performing well, the results of her staff's budget revision were still unexpected.

"We certainly anticipated that the numbers would be better than the February budget, but I'd say it was a surprise on the upside, even from those expectations," she said.

However, Taylor added that besides the additional spending and tax breaks and spending increases that government has already committed to, she will not succumb to temptation and start spending more of the surplus.

Within the additional $753 million in taxes the province expects to take are some $282 million in additional personal income tax revenue and $190 million more in property transfer taxes. The expectation for corporate income tax revenues was also raised -- by $140 million.

Taylor said the province will continue to re-examine the competitiveness of its tax regime, but does not expect any more tax cuts in the immediate future.

"I think there are other priorities for this [budget] update," Taylor said.

In 2006, she noted, government will be under pressure to give its employees wage increases after several years of an official wage freeze, though the province does not know how long the current economic boom will last.

"There are a lot of issues, and if you're a prudent manager, which is what I'd like to be, you make sure your budget will withstand a few disappointments," Taylor said.

Peter Simpson, CEO of the Greater Vancouver Home Builders' Association, said a change to the property transfer tax is one measure his organization would like to see.

depenner@png.canwest.com

RISING REVENUE TIDES:

The provincial government is collecting more revenue than it expected this year, some $1.4 billion more than was pencilled in to its February budget, according to Finance Minister Carole Taylor's budget update released Wednesday. Here are some of the revised expectations:

Total revenue:

$34.5 billion +$1.4 billion

Taxation revenue: $15.5 billion

+$753 million, including:

- Personal income tax: $$5.5 billion +$282 million

- Property transfer tax: $650 million +$190 million

- Corporate income tax: $1.2 billion +$140 million

Natural resource revenue: $4.4 billion +$488 million, including:

- Natural gas royalties: $1.8 billion +$199 million

- Forests revenue: $1.2 billion +$166 million

- Energy and minerals: $775 million +$62 million

- Columbia River treaty: $305 million +$55 million

Other provincial revenue: $6.7 billion +84 million

Contributions from federal government: $5.6 billion +$131 million

Crown corporation income: $2.3 billion

-$56 million, including:

- B.C. Lottery: $892 million +/- 0

- Liquor distribution branch: $779 million +/- 0

- ICBC: $224 million +48 million

- B.C. Hydro: $329 million

-$66 million

- B.C. Rail: $39 million

-$37 million