B.C.'s finance minister says the province's deficit has tripled because of the rejection of the HST and that is going to mean cuts to government spending in the years ahead.
In his latest quarterly report, Minister Kevin Falcon says scrapping the HST will cost the province $2.3 billion over three years but the government still intends to balance its budget by 2014.
"People need to understand it is going to be a government that is going to be run very, very tightly from a fiscal point of view," said Falcon.
The minister says it's a sober assessment, but he intends to protect health care and education. Other ministries and agencies will be looking for ways to cut costs, he says.
In August, British Columbians voted to scrap the province’s controversial harmonized sales tax in a province-wide referendum. Falcon has said the transition to reinstate the PST is expected to take at least 18 months.
Revenues also below forecasts
The message is a sharp departure from Falcon's earlier forecasts. The projected deficit has grown from less than a billion dollars to $2.8 billion.
"While B.C. has seen moderate improvement in some economic indicators through the first half of 2011, the province is maintaining its prudent forecast of two per cent real GDP growth in 2011 and moderating its 2012 forecast to 2.3 per cent due to the worldwide deteriorating economic climate," said Falcon.
"Revenues are forecast to increase by an average of just 2.8 per cent annually over the next two years, compared to the Budget 2011 projection of 3.3 per cent," he said.
"Lower natural resource revenue and commercial Crown corporation income, partly offset by improvements in taxation and other revenue sources, mean cumulative losses projected at $537 million over the three years of the fiscal plan before the impacts of returning to the PST are factored in. "
"The decision to extinguish the HST and revert back to the PST is forecast to increase the cumulative losses to more than $2.3 billion by 2013-14, with further losses anticipated in the following year not covered by the current fiscal plan."
"This includes $1.6 billion in 2011-12 associated with reimbursing the federal HST transition funding and a more than $700 million loss from lower tax revenue and increased spending over the three years ending 2013-14."
Previous forecasts revised
In July, before the results of the HST referendum were released, Falcon announced the B.C. government finished the 2010-11 financial year with a much smaller deficit than it forecast and said the province was on track to balance its budget in 2013-14.
The province ended the 2010/11 fiscal year with a $309-million deficit — about $1.4 billion less than forecast last year. The deficit is the amount the government is spending each year more than the revenue it takes in.