British Columbia Finance Minister Kevin Falcon painted a rosy picture for the province’s economic outlook Friday morning before a group of Nanaimo business professionals.
Despite being in a budget deficit position until 2013-2014, and tasked with the burden of paying back $1.6 billion to the federal government for having to dismantle the harmonized sales tax, Falcon said B.C. is “in a better position than anywhere in the world” to improve its financial picture.
On a recent trip to Europe to promote B.C. bonds, Falcon said he realized that within many European countries struggling with high debt loads, there is plenty of capital sitting idle, waiting for the right opportunity to be invested.
“There is a lot of corporate money out there, a lot, but it’s scared money,” said Falcon. “It’s our job to promote investment and do something that is very un-Canadian, and that is to be aggressive in our sales job. They’ll be looking inward while we’ll be looking outward.”
He added Europe surprised him with its demand for B.C. bonds, based partly on exposure from the 2010 Vancouver Olympics but mostly because of B.C.’s financial picture, but that European financial issues can still “come home to roost in Canada.”
Currently, British Columbia has one of the lowest debt to gross domestic product ratios in the world at 18 per cent, an appealing number for investors. Canada is at 35 per cent while Germany, one of the strongest economies in Europe, is at 57 per cent. Economically-ailing countries like Ireland, Spain and Italy are close to 100 per cent while Greece is struggling to overcome a dibilitating143-per cent ratio.
Falcon said positive responses by B.C. ports, airports, rail and other transportation sectors, and with natural resources like metallurgical coal and natural gas, the province is in a good position to target foreign markets.
In the last year ending in November, B.C. exports were up 18 per cent.
Over the past few years, and with the collapse of the U.S. economy, B.C. has diversified and strengthened its economic position. Where prior to the economic downturn B.C. relied on the U.S. for the majority of its exports, it now relies on the U.S. for 50 per cent, Asia 30 per cent and the rest of the globe at 20 per cent.
Also, B.C. is just one of three provinces to maintain its Triple A credit rating — Alberta and Saskatchewan are the others. Canada also has a Triple A rating, which allows for borrowing at lower rates of interest.
Still, GDP growth in B.C. is expected to slow somewhat in 2012. The province made modest gains in 2010 with three per cent growth, and while some forecasters expect B.C. to reach as high as four per cent in 2012, Falcon is being conservative.
“I’m forecasting two per cent. Others have been much higher at three or even four per cent, but they’re starting to come down now, though not quite to where I’m at,” he said.
The deficit, triggered by the 2008 economic downturn, and HST debacle continue to dog the finance ministry, however.
Earlier this week, the provincial Liberals negotiated a five-year payback plan to Ottawa, which will require $320 million payments annually. The negotiated term, however, will save B.C. about $118 million in interest.
Falcon said he will take full responsibility for the 18 to 24-month transition date from HST to PST-GST, which has been criticized by many as taking too long.
Falcon said 30,000 businesses in B.C. have started up since the implementation of the HST and don’t have software compatible with the PST-GST system, more than half of the staff under the old system have moved on and the positions will have to be restaffed, and that re-establishing the PST-GST system is “like starting all over again.” Falcon also appointed a committee to find efficiencies to improve the incoming system, expected to begin in early 2013.
“I make no apologies for the transition period,” he said. “The rules for the transition in the housing sector alone are extremely complex. For all the people who think they can do this faster, be my guest,” adding, “as if it’s to our benefit to allow this joy to linger on.”
Falcon said he is certain the deficit will be reduced by the target year of 2013-2014, and that the government will find efficiencies without raising provincial income tax rates, which are some of the lowest in the country.
“I don’t think (raising taxes) is the right approach, I really don’t,” he said. “We have tried to make ourselves tax-competitive for a reason. We want to encourage British Columbians to be able to have as many dollars in their pockets as possible and to go out and invest that and spend that.”
He added that if all rate hikes including B.C. Hydro, B.C. Ferries and other utilities are rolled together, B.C. still has the second lowest overall taxes in Canada.
