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The Fraser Institute: B.C. Government Debt Growing Under the Radar

VANCOUVER, BRITISH COLUMBIA -- (Marketwired) -- 06/03/14 -- British Columbia's growing government debt remains hidden in the province's capital budget-unnoticed by most taxpayers-and could pose serious fiscal challenges in the future, finds a new study released today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

The study, Capital Budgeting and Fiscal Sustainability in British Columbia, examines B.C.'s capital and operating budgets, and the sustainability of provincial finances.

"When the B.C. government says the 2014/15 budget is balanced, it's referring to the operating budget, which attracts most of the attention. But the capital budget, where the province borrows large sums of money to pay for long-term infrastructure spending, is in deficit and is largely overlooked," said Jean-Francois Wen, study author and professor of economics at the University of Calgary.

Governments typically borrow money to pay for capital spending such as roads, schools and hospitals, and record the annual interest payments and amortization expenses in the operating budget. While this accounting process helps spread the cost over many years, it disguises the true state of provincial finances.

For example, the B.C. government plans a $184 million surplus in its operating budget for 2014/15. Despite this projected surplus, government debt is slated to grow by $1.9 billion this year, to a total of $41.1 billion. In fact, B.C.'s debt will amount to 17.6 per cent of the provincial economy in 2014/15, up from 12.2 per cent or $24.9 billion in 2008/09.

"Any proclamations about balanced budgets by the B.C. government must be interpreted with caution in light of increasing debt levels," Wen said.

So why does capital debt matter?

High levels of capital debt could saddle the operating budget with increased interest payments and amortization expenses, which would derail balanced budget plans, prompting spending cuts, tax hikes or more borrowing.

"The B.C. government has promised to restrain spending growth over the next three years. But if it fails to deliver on that promise, provincial debt could spiral out of control," Wen said.

"High debt levels can also become a problem in the coming years, especially if interest payments on the debt increase," Wen said.

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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of think-tanks in 87 countries. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.

Contacts:
MEDIA CONTACTS:
Jean-Francois Wen
Professor of Economics, University of Calgary
(403) 220-2478
wen@ucalgary.ca

Charles Lammam
Resident Scholar in Economic Policy, Fraser Institute
(604) 714-4544
charles.lammam@fraserinstitute.org

Mark Hasiuk
Media Relations Specialist, Fraser Institute
(604) 688-0221 ext. 517
mark.hasiuk@fraserinstitute.org

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