Summary

Budget 2006 focuses on Children

Budget 2006 allocates $421 million over four years towards enhancing services for children. This includes assistance for low income families; increased child and youth mental health funding; enhanced services for children at risk; and support for the fight against crystal meth.

• Included in these program enhancements are:
• $72 million for programs to care for and protect vulnerable children and youth, including child protection services and children in care;
• $100 million for future enhancements to child protection and family support services;
• $36 million to reduce waitlists for services to children and youth with special needs and their families;
• a $30 million grant to the Family Independence Fund to assist families with a child or adult with developmental disabilities keep the family member at home; and
• $2 million to combat production and use of crystal meth.

These program enhancements are possible due to BC’s strong economic performance.

Strong economic growth, but moderating

• Continued momentum in the employment, consumer spending, housing and non-residential construction sectors, and high levels of consumer and business confidence, are driving economic growth in BC. Following estimated GDP growth of 3.6 per cent in 2005, the BC economy is forecast to grow 3.3 per cent in 2006. This forecast is slightly more conservative than the Economic Forecast Council. Growth moderates to the 3.1  to 3.2 per cent range between 2007 and 2010.

In addition, BC’s economy has expanded faster than the national average over the last two years. This trend is expected to continue through to 2010.

With the broad based strength observed in the BC economy, employment growth has picked up and unemployment has fallen. At 5.9 per cent, the annual unemployment rate for 2005 was the lowest in 30 years.

However, with low unemployment rates, shortages of skilled workers are becoming more frequent in high technology, construction, health care and other highly skilled occupations.

Skills and Training

Recognizing the opportunities now available from a strong economy, as well as shortages in some sectors of the labour market, the budget allocates $400 million over four years towards skills and training, including:

• $90 million over the next three years for new tax credits to help meet the demand for skilled workers. The tax credit program will be designed in consultation with industry representatives from across the province;

• $39 million for the Industry Training Authority for increased apprenticeship training through both public and private institutions;
• $3 million for the Bladerunners youth employment program that assists disadvantaged youth gain on the job construction training, and apprenticeships; and expansion of the program to communities, such as Prince George;
• $50 million for a Natural Resources and Applied Science endowment to support research in sciences and engineering through grants and fellowships; and
• $40.5 million to help establish a new World Centre for Digital Media Education at the Great Northern Way Campus.

Tax reduction measures

Budget 2006 includes measures to keep taxes fair and competitive starting with tax relief for homeowners.

Homeowners will benefit by $309 million from changes to the homeowner grant including:

• An increase of 22 per cent in the basic grant to $570 from $470. The higher grant available for seniors, veterans and disabled people will also increase from $745 to $845. This represents the first increase since 1993;
• The threshold below which home owners receive the full homeowner grant is increased to $780,000 from $685,000, benefiting up to 27,000 homeowners; and
• Eligibility for the grant is expanded to include disabled persons purchasing a home that is already modified to meet their needs.

Other tax reductions to improve the competitiveness and fairness of the tax system include:

• Introducing a provincial sales tax exemption for repairing, maintaining or modifying software;
• Raising the vehicle surtax threshold to $55,000 from $49,000 so people can buy the pickups and heavy duty vehicles they require for work;
• Expanding and clarifying the sales tax exemption for production machinery and equipment;
• Increasing the Small Business Venture Capital tax credit budget by 25 per cent to allow an additional $16.7 million in venture capital;
• Extending the mining Flow-Through Share Tax Credit to 2008; and
• Expanding the eligible uses of coloured fuel to all unlicensed vehicles.

In total, the tax changes in this budget are valued at $733 million over four years. Approximately two thirds of these measures will benefit individuals and families, while the balance will support BC businesses.

Investing in schools, hospitals and roads

BC continues to invest in building and upgrading schools, universities, colleges, hospitals, roads and bridges to meet the needs of a growing economy. Operating debt will decline, consistent with budget surpluses. However, taxpayer-supported debt is expected to increase by an average 2.9 per cent annually over the next three years as government borrows to finance this new infrastructure.

Recognizing that rising construction costs are a current concern, the government has introduced a capital contingency of 5 per cent of taxpayer-supported capital spending in its three year capital plan as a prudent planning measure. This contingency is in addition to the contingencies included in individual project budgets.

Debt remains affordable

The growth in taxpayer-supported debt mainly due to capital investments is less than the growth in the overall economy, keeping debt affordable for future generations of British Columbians.

The taxpayer-supported debt to GDP ratio, a key measure of fiscal sustainability used by credit rating agencies, is forecast to decline. However the rate of decline slows in 2007/08 and 2008/09 reflecting higher capital spending levels and smaller surpluses in that period.

Government commits to maintain a downward trend in the taxpayer-supported debt to GDP ratio. Consistent with the recommendations of the Economic Forecast Council, a moving average is used to track the debt to GDP ratio trend.

Natural gas prices volatile forecast to moderate

The main risks to the fiscal plan lie in the potential for an unexpected slowdown in the US economy; the volatility of commodity prices, in particular natural gas prices; and the Canadian dollar. As well, the fiscal plan assumes that the status quo is continued for federal government policies regarding taxation and transfer payments to the provinces.

Natural gas prices have been high in the past six months and have also fluctuated widely. With milder than usual winter temperatures, natural gas prices have fallen in recent weeks. With a revenue impact of approximately $300 million for every $1 change in annual natural gas prices, lower than forecast prices pose a significant risk to the fiscal plan. To accommodate potential price swings in the coming fiscal year, a forecast allowance of $850 million has been included in the 2006/07 surplus forecast.

Up to $6.0 billion for the negotiating framework

The three year fiscal plan also incorporates the negotiating framework announced in November 2005 for future public sector compensation increases.

The framework includes:

• $1.0 billion in 2005/06 as an early incentive to reach agreement;
• $4.7 billion over 4 years for annual compensation increases; and
• Up to $300 million in 2009/10 for agreements with expiry dates not before March 31, 2010, subject to the surplus for 2009/10 exceeding $150 million.

This framework, totaling up to $6 billion by 2009/10 and representing 50 per cent of available revenues, is both fair to public sector employees and fair to British Columbians.