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MLA Donna Barnett defends deficit

Interest savings taxpayers can 'take to the bank'

A report recently released by the Fraser Institute states British Columbia's debt is "hidden" in government's capital budget and it will pose "serious fiscal challenges" in the future.

The independent, non-partisan organization that scrutinizes public policy reports this debt may have gone unnoticed by taxpayers because the 2014/15 balanced budget refers to the operating budget and not the capital budget.

It acknowledges this refers to the money all governments typically borrow to pay for capital spending, such as roads, schools and hospitals.

However, University of Calgary economics professor Jean-François Wen, who authored the study, notes that while recording annual interest and amortization expenses in the operating budget does help spread the cost over many years, it "disguises the true state" of provincial finances.

"...where the province borrows large sums of money to pay for long-term infrastructure spending is in deficit and is largely overlooked.”

However, Cariboo-Chilcotin MLA Barnett says looking at the debt figure alone is only one piece of the fiscal picture, and doesn't take in the balance against the Gross Domestic Product (GDP).

"Contrary to the Fraser Institute's opinion, B.C.'s debt is affordable, well managed and supported by this government's track record of good debt

management."

She says the B.C. Liberal government's tax-supported debt-to-GDP ratio as a key measure of affordability is forecast to decline from 18.4 per cent in 2014/15 to 17.8 per cent in 2016/17, down from more than 20 per cent in 2013/14.

"That is the third-lowest debt-to-GDP ratio in Canada, and that's why we have maintained a triple A credit rating, which saves B.C. taxpayers millions of dollars in borrowing costs."

The Fraser Institute's Capital Budgeting and Fiscal Sustainability in British Columbia study examines the government's capital and operating budgets, and the sustainability of its finances.

In the report, Wen notes government debt is slated to grow by $1.9 billion this year, to a total of $41.1 billion.

He predicts 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 says, adding if it doesn't restrain spending growth over the next three years as promised, the debt could "spiral out of control."

High levels of capital debt could increase interest payments and amortization expenses, which would "derail" balanced budget plans, prompting spending cuts, tax hikes or more borrowing, he explains.

However, Barnett says borrowing builds important and necessary infrastructure from roads and bridges to hospitals and schools.

"It's all about infrastructure."

She says B.C. pays 4.1 per cent of its revenues go to pay interest on debt, compared to 9.3 per cent of Ontario's revenues – more than double the rate in B.C. that go towards debt interest.

Without its triple A credit rating preventing such rates to be seen here, that would deplete 2.3 billion from current services, Barnett says.

"We deliver amongst the most transparent financial reporting among the provinces, and reporting debt figures today comply with Canadian accounting principles."