State of the BC Economy Presentation for the Pacific Northwest Intergovernmental Audit Forum

September 2014

Ministry of Finance

BC Government Reporting Entity & Budget Process

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Federal Provincial Federal/Provincial

Foreign Policy Health Agriculture

National Defence Education Employment

Criminal Law Social Welfare Housing

Citizenship Property and Civil Rights Environment

Immigration Natural Resources Economic Development

Trade Local Affairs Income Security

Aboriginal Issues Justice

Indirect Taxation Transportation

Communication

Direct Taxation

Jurisdictional authority in Canadian federation

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The BC Government reporting entity

School Districts

Central Government (Ministries &

Premier’s Office)

Service Delivery Crown Corporations

Universities & Colleges

Major Health Authorities & other health

organizations

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Budget planning process

• Budgeting and financial management – Budget Transparency and Accountability Act

– Balanced Budget and Ministerial Accountability Act

– Financial Administration Act

• The fiscal plan is a rolling 3-year plan – Budgeting: 3-year Fiscal Plan

– Reporting: Public Accounts

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• Treasury Board Staff prepares the annual budget and 3-year fiscal plan

• The annual estimates are debated by members of the legislative assembly following tabling in the legislature

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Drivers of government finances

Revenue: • Population

• Personal income

• Interest rates and consumer spending

• Corporate profits, GDP and inflation

• Commodity prices, exchange rates

• Weather

• Government policies and practices

Expense: • Population and demographics • Interest rates and inflation • Service utilization • Caseload • Unemployment • Compensation • Technology • Weather • Government policies and

practices

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Health 42%

Education 27%

Social Services 8%

Debt Service 6%

Other 17%

Total Revenue Estimated at $44.8 Billion in Budget 2014/15

Total Expenditures Estimated at $44.4 Billion in Budget 2014/15

Tax (PIT, CIT, sales,

property etc.) 49%

Natural Resource

7%

Other (fees, investment

earnings etc.) 21%

Federal Government Contributions

16%

Commercial Crown

Corporation Net Income

6%

British Columbia revenues and expenditures (Budget 2014)

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Structure of BC Economy & Outlook

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Average annual real GDP growth, 2007 - 2012, per cent

1.2 1.2 0.8 0.7

0.1

-0.2 -0.6

-1.4 -2.0

-1.0

0.0

1.0

2.0

BC Canada US Germany France Japan UK Italy

Sources: Statistics Canada for BC and Canadian real GDP growth; IMF World Economic Outlook April 2014 for other countries’ real GDP growth. Note: The data represent average annual compound growth rates from 2007 to 2012.

Economic activity in Canada – best in G7

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Other 14.4%

Finance and Insurance 5.9%

Real Estate, Rental and Leasing

17.7%

Transportation and Warehousing

5.5%

Construction 7.9%

Natural resources 7.7%

Manufacturing 7.0%

Wholesale and Retail Trade 10.2%

Public Administration 6.0%

Health care and social assistance

6.8%

Educational services 5.5%

Professional, scientific and technical services

5.4%

Source: Statistics Canada

Shares of BC GDP at basic prices (chained $2007) by major industry, 2013

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Structure of the BC economy

2.2

2.7

1.9

2.3

0.0

1.0

2.0

3.0

4.0

BC real GDP outlook

BC real GDP (annual per cent change)

Sources: Ministry of Finance and Private Sector average (Economic Forecast Council subset consisting of BMO, CIBC, IHS Global Insight, RBC, Scotiabank and TD).

2014 2015

Private Sector Average (August 29, 2014)

Ministry of Finance First Quarterly Report

Private Sector Average (August 29, 2014)

Ministry of Finance First Quarterly Report

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BC economic indicators year-to-date versus outlook

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British Columbia Economic IndicatorsYear to Date September 2014

Jan. to Aug. 2014 First Quarterly Reportchange from Outlook for 2014

Jan. to Aug. 2013

Employment ……………………………… 0.5 0.5Retail sales* ……………………………… 5.6 3.2Housing starts (units) …………………… 27,879 25,900Consumer price index…………………… 0.9 1.3* Data to June

Data seasonally adjusted unless otherwise noted

Per cent change (unless otherw ise noted)

Source: Statistics Canada

BC employment (000s, sa)

Mar 2009: 2,204

2009 2010 2011 2008

Aug 2014: 2,328

Jul 2008: 2,276

BC employment

2012 2013 2014 2,180

2,220

2,260

2,300

2,340

2,380

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BC retail sales ($ millions, sa)

Jun 2008: 4,957

Dec 2008: 4,379

Jun 2014: 5,605

BC retail sales

Source: Statistics Canada

2009 2010 2011 2008 2013 2012 2014 4,100

4,500

4,900

5,300

5,700

15

0

10,000

20,000

30,000

40,000

50,000

60,000

28,847*

Source: Canada Mortgage and Housing Corporation * BC housing starts average (January 1990 to Aug 2014)

Mar 2009: 11,452

Feb 2008: 49,385

BC housing starts (units, saar)

Aug 2014: 34,864

BC housing starts

2009 2010 2011 2008 2013 2012 2014 16

Canadian mortgage rules

• Maximum amortization period of 25 years • Minimum down payment of 5 per cent (for owner occupied

housing) or 20 per cent (for non-owner occupied) • Maximum refinancing of 80 per cent of the value of the home • Maximum borrowing of 65 per cent of the value of the

property through home equity lines of credit • Federally backed mortgage insurance is available only for

homes with a purchase price of less than $1 million • Insurance is mandatory for down payments below 20 per

cent

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Owner’s equity as a share of residential assets

35.0

40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

Source: National Bank of Canada for US share; Statistics Canada for Canada share.

1994 1996 2000

(per cent)

1998 2010 2004 2006 2008 2012

Canada 2014 Q1: 69.9 %

US 2014 Q1: 53.6 %

2002 1992 1990

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1,600

2,000

2,400

2,800

3,200

3,600

Source: BC Stats

May 2009: $1,916

Oct 2008: $3,050

Jul 2014: $2,927

BC exports

BC merchandise exports ($ millions, sa)

2009 2010 2011 2008 2013 2012 2014 19

US46.4%

Japan12.1%

China19.8%

Other Asia

9.2%Other12.4%

Ontario BC

US78.5%

Asia5.2%

Other16.3%

US88.5%

Asia6.0%

Other5.5%

Alberta

Source: BC Stats (totals may not add due to rounding)

Average annual share of international goods exports by province, 2013 (per cent)

BC’s trade diversity

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AAA credit rating

Source: Standard and Poor’s

*Credit rating downgrades between 2009 and 2013 **Greece upgraded in December 2012 from Selective Default

CREDIT RATING COMPARISONS AAA AA+ AA AA- A+ A A- BBB BB B CCC

BC •

Canada •

Germany •

Switzerland •

United States*

•

France* •

Japan* •

Italy* •

Greece** •

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Contact information

Sadaf Mirza Chief Economist/Executive Director (250) 387-9023 Sadaf.Mirza@gov.bc.ca

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