British Columbia's Liberal government managed to post a $78-million surplus for last year, but it will not be able to keep its election promise to limit next year's projected deficit to $495 million, according to Finance Minister Colin Hansen.

Hansen said the global economic crisis cut government revenue by $1.5 billion during the 2008-09 fiscal year, making it a challenge for the government to have a fifth straight surplus, and he has since received more bad news from the federal government that there will be further declines in income tax and corporate revenue.

The grim financial news, which Hansen said he received in June after the May provincial election, forced him to admit on Thursday he's no longer confident the government will be able to meet the $495-million deficit target for next year, which it promised before the campaign.

"I can no longer say that I'm that optimistic," Hansen told reporters in Victoria.

Hansen refused to reveal how big he expects the deficit to be next year, but said he will release a revised budget in September.

"There are still some big challenges," he said. "We still see lots of volatility. We will have no shortages in challenges in locking down numbers."

The revenue cuts will also impact on another government promise to deliver a surplus budget within three years, Hansen said.

'Arrogant government can't get its story straight': NDP

Both the Opposition NDP and economists have already accused the government of long hiding the looming deficit, saying they believe it will be two or three times larger than the official government prediction.

"This admission puts the lie to the premier's fundamental election promise that he would contain the deficit and protect vital social programs from deep cuts," said New Democrat finance critic Bruce Ralston in a statement.

Ralston said that when B.C. NDP Leader Carole James challenged Premier Gordon Campbell's budget predictions during the recent election campaign, the premier accused her of fear mongering.

"This arrogant government can't get its story straight," said Ralston. "One day, the deficit is $495 million maximum and anyone who challenges that is fear-mongering. Another day and the deficit is ballooning and the government claims no one could have seen it coming."

Ralston also challenged Finance Minister Colin Hansen's explanation that he was unable to foresee next year's expanding deficit prior to the May election.

"The minister's effort to construct an alibi for this mess is just not credible," said Ralston.

"Colin Hansen claims the news that his numbers were flawed came from the federal government like a bolt out of the blue on June 24. But top business leaders have been warning him since February that his budget didn't add up.

"Now, British Columbians are paying the price. We're getting both a bigger deficit and cuts to programs. We've already seen the start, with massive funding shortfalls at the health authorities and school boards, and layoffs are coming to vital ministries like environment and forestry."

Surplus in 2008

Hansen said the government managed to run a surplus in 2008-09 by making cuts in all government departments. The largest declines in revenue, compared with the previous year, were:

• Personal income taxes, which fell by $863 million.
• Corporate taxes, which fell by $212 million.
• Social services taxes, which fell by $114 million.

Lower personal and corporate tax revenues were brought on by tax reductions linked to B.C.'s controversial carbon tax, but natural resource revenues increased by $70 million from last year, due primarily to higher natural gas prices, said Hansen.

Despite the drop in revenues, the government was able to increase spending in three core areas, said Hansen:

• Health-care spending rose by $885 million to $15.1 billion,
• Education budgets rose by $491 million to $10.5 billion.
• Social service spending rose by $200 million to $3.2 billion.

Approximately 75 per cent of the province's total operating costs are spent in these areas, he said.

"Through responsible fiscal management, the taxpayer-supported debt-to-GDP ratio, a key measure of the province's ability to repay debt, remains low," said Hansen.

"At the same time, British Columbia continued to maintain one of the strongest credit ratings among all Canadian provinces."

With files from The Canadian Press