598 replies to this topic

[eseedhouse]

For the fiscal year ending March 31, 2014, the BC provincial government ended up with a surplus of $353M!

 

And a five billion dollar year over year increase in the Provincial debt...

 

Ten billion dollars more since Christy came into office.

Edited by eseedhouse, 22 July 2014 - 12:01 PM.

[Mike K.]

Not sure where to put this - I thought of starting a new thread, but anyway I'll throw it here for now.

 

For the fiscal year ending March 31, 2014, the BC provincial government ended up with a surplus of $353M!

 

That's quite the accomplishment really given the general state of the economy. Only one other province ended the year with a surplus (Saskatchewan).

 

Cutting is never fun. The Liberals have done a good job at trying to keep spending in check, which I applaud them for. It's much easier to say 'yes' when the lobbyist and special interest groups come knocking.

 

Yes, this is a great thing.

 

But at least $100 million of that money should be going towards infrastructure improvements on the south Island. We need at least two interchanges and more needs to be done to the Malahat.

[Nparker]

If they sold the roof on BC Place stadium another $500 million could be raised.

[jonny]

And a five billion dollar year over year increase in the Provincial debt...

 

Ten billion dollars more since Christy came into office.

 

Have the provincial financial statements been released? I can't find them for fiscal 2014.

 

The increase in debt isn't a great thing, but BC is hardly Ontario or California in this regard. Right now is probably the best time in human history to have debt.

 

I will say that debt is sort of an odd thing with all of the Crown Corps. Nearly $16B of that debt is BC Hydro debt...I'd hardly classify that as a 'bad' thing as far as the provincial government is concerned (Hydro has been investing in new infrastructure, etc.). 

 

Lots of the Crown Corps are cash cows to the province. On a cash flow basis, that debt isn't bad unless its PAVCO which loses money every year.

 

What BC has accomplished is quite the feat given there haven't been any massive cuts and revenues were actually down this year.

[jonny]

If they sold the roof on BC Place stadium another $500 million could be raised.

 

Yes, that was a stupid expenditure.

 

I don't know why the Province didn't just chip in on the Whitecaps waterfront stadium idea and make it dual purpose for the CFL/MLS. We probably could've made money on the deal if the BC Place site had been sold for redevelopment.

[Mike K.]

Controlled debt is a good thing for a whole slew of reasons.

[thundergun]

Have the provincial financial statements been released? I can't find them for fiscal 2014.

Yep, came out last week - http://www.fin.gov.b..._14/Pa13_14.htm

[eseedhouse]

 

The increase in debt isn't a great thing, but BC is hardly Ontario or California in this regard. Right now is probably the best time in human history to have debt.

 

 

Then why the obsession with "balancing" the budget?  You can't have it both ways, surely.  If increasing the debt is O.K., then running a deficit should be OK, for the same reasons.  If you see a deficit is bad then it seems to me that you should see debt as bad.  Boasting about a balanced budget while running up the debt is logically incoherent as far as I can see.

 

Actually, given the state of the economy, the consolidated government sector in Canada should be running a significant deficit, but admittedly the provinces have little control over that.

[Mike K.]

Debt is not a bad thing if managed properly and part of a "balanced" budget, be it a family budget, corporate budget or a provincial budget, is to manage debt. Since we're ending things off with a surplus this means we're paying off our debts and spending our money wisely ...most of the time.

[jonny]

Running a deficit can be OK. Times get lean, but at the end of the day deficits should balance out with surpluses. Structural deficits like in some provinces and states are really bad.

 

Cash is king. A business, or government, can survive indefinitely if it loses money and accumulates debt as long as it has sufficient cash flows to pay for its current obligations. Think Ballard Power. I don't think they've ever made a cent, but they, like any organization, can maintain a going concern as long as they have sufficient cash to pay off what are known as current obligations, or accounts payables which are due within a year.

 

Debt can be OK - it depends on what you are doing with that debt though. If you racking up debt on your credit card eating out and buying fancy clothes, that is bad. If you go from zero debt to a huge amount of debt in one year because you buy a new house, that's not bad.

 

Where debt becomes very useful is when you are paying for big ticket items like a massive new power generating facility or a new highway. In terms of cash management, it doesn't make any sense to save for 20 years to save up to build that new highway. That would just be poor asset management.

 

Long running significant deficits are bad because you are spending more in the current year than your revenues can cover. You have to make up for that deficit somehow - you can't just default on those obligations! How do you get that cash then to pay for those current obligations that are over and above your revenues for the year? Debt. The government will issue more bonds to cover operating expenditures. 

 

When you are running a deficit, how are ever going to have a net retirement of your long term debt then? Well, you can't and that's where the biggest problem lies.

 

As government debt increases year over year, with no sign of prudent financial management the creditors get a little bit worried. When the creditors get concerned, government credit ratings get downgraded, and when that happens it costs more to service the same amount of debt. All of a sudden the deficit is worsened by a .5% or 1% increase in coupon payments. When there are billions of dollars in bonds to service, a small increase to interest rates has a huge impact. Government then needs more revenue to service the same amount of debt, etc.

[jonny]

Yep, came out last week - http://www.fin.gov.b..._14/Pa13_14.htm

 

Thanks - though those are the unaudited statements.

[thundergun]

^ There's a lot of links and info there and government's analysis etc aren't audited. The third link is the audited summary f/s that you're looking for: http://www.fin.gov.b...Stmts 13-14.pdf

[eseedhouse]

Debt is not a bad thing if managed properly and part of a "balanced" budget, be it a family budget, corporate budget or a provincial budget, is to manage debt. Since we're ending things off with a surplus this means we're paying off our debts and spending our money wisely ...most of the time.

 

This commits the fallacy of thinking that Government is a household.  It isn't.

 

A government sovereign in it's own currency, such as the Federal government of Canada, can never be insolvent in that currency.  It does not spend out of tax revenus but by direct money creation.  It can always purchase anything for sale in it's own currency.  It does not need to borrow to run a deficit.

 

Provinces are more like households because they do need to spend from tax revenue.  But there are many ways in which the constraints that apply to households do not apply to them in the same way.

 

How a government can rationally say they are in surplus by four hundred million dollars when the overall debt has risen by over a billion dollars in the same period, however, is not easily apparent.  Boasting about a "surplus" in such circumstances is simply lying.

 

 

Having pointed this out I will, for the sake of argument, go back to your "household" analogy for the rest of this post, because I think that your argument fails even on that assumption.

 

So, if we accept the "household" analogy as you seem to, this is llike a household borrowing ten thousand dollars in a year, putting $5,000 of that into a savings account and spending the rest on parties, and then claiming that it is $5,000.00 richer than it was at the start of the year!  I don't think an accountant would be impressed by that claim...

 

The focus of governments on the allegedly "balanced" budget is basically meaningless.  When at the same time people are without jobs and children are trapped in poverty there is no real "surplus" in any meaningful sense.

 

Now, if the government takes in more taxes than it spends this must mean, ipso facto, that the rest of us are in deficit to the exact same amount that the government is in "surplus".

 

A government surplus is a private sector deficit.  A four hundred million dollar "surplus" means, all other things being equal, that the rest of us are in a four hundred million dollar deficit.

 

The only justification for that would be that the government is going to use it to pay down our debt.  But they aren't paying it down, they are increasing it at record rates.  Good "fiscal management"?  Gimme a break!

[Mike K.]

That's all great and all, but who's talking about the federal government?

[eseedhouse]

That's all great and all, but who's talking about the federal government?

 

Try reading the whole post.

[Mike K.]

I tried but I only got as far as:

 

This commits the fallacy of thinking that Government is a household.  It isn't.

 

Provinces are more like households... [Mike enters the Twilight Zone and stops reading]...

[jonny]

Ed, you must be familiar with not for profit accounting since you were president of a union.

 

Are you familiar with the statement of operations (income statement) and the statement of financial position (balance sheet)? These are two different statements that report on the balances of totally different types of accounts.

 

The statement of operations (income statement) reports on the revenues and expenses over a given period of time. In this case that time period was April 1, 2013 to March 31, 2014. These accounts do not carry over to another year.

 

The statement of financial position reports on asset, liability and equity account balances at a specific period of time. These accounts do carry over to another year.

 

Having an excess of revenues over expenses (i.e. a 'surplus') in a given time period is very much achievable while having a net increase in liabilities on your statement of financial position. I don't have time to run through an accounting class here but investopedia.com may be of assistance to help understand the fundamentals.

[eseedhouse]

I tried but I only got as far as:

 

So you insist that your belief that governments are like households is not susceptable to actual evidence.  Do you think that the Earth is spherical too?

[concorde]

We could start by cutting all government wages.  Wait, we are tried that with the teachers and....