Ministry forecast remains prudent relative to private sector

BC Real GDP %change

2011
4

2012

2.8

2.8 2.3

2.0

0 Private Sector Ministry of Finance Private Sector Ministry of Finance

Source: BC Ministry of Finance and average private sector forecast (BMO, CIBC, Global Insight, RBC, Scotiabank and TD as of August 19, 2011)

Slide 1

BC employment recovering slowly

BC employment (000s, sa) 2,350 Jul 2008: 2,276 2,300 Jul 2011: 2,274

2,250

2,200 Mar 2009: 2,203

2,150

2,100

2,050

2006

2007

2008

2009

2010

2011
Slide 2

Source: Statistics Canada

BC retail activity mixed

BC retail sales ($ millions, sa) 5,000 Dec 2007: 4,946 4,750 May 2011: 4,921

4,500

4,250 Dec 2008: 4,385 4,000

3,750 2006
Source: Statistics Canada

2007

2008

2009

2010

2011
Slide 3

BC housing starts trending flat while prices are elevated

BC housing starts (units SAAR) 60,000 BC residential average price (dollars, SA) 720,000

50,000

Residential Prices

620,000

520,000 40,000 420,000 30,000 320,000 20,000 Housing Starts 10,000

220,000

2006

2007

2008

2009

2010

2011

120,000

Source: Canada Mortgage and Housing Corporation

Slide 4

Exports recovery on track

BC total merchandise exports ($ billions, sa) 3.5 Oct 2008: $3.1B 3.1 Jun 2011: $2.8B

2.7

2.3

1.9 May 2009: $1.9B 1.5

Source: BC Stats

2006

2007

2008

2009

2010

2011
Slide 5

Slowing pace of US real GDP growth

US Real GDP (Second Estimate, annualized q/q %change)

6.0 4.0 2.0 0.0 -2.0 -4.0 -6.0 -8.0 -10.0 2007
Source: US Bureau of Economic Analysis * Advance estimate, subject to revision

3.6

3.8 3.0 1.7 1.3 1.7

3.9

3.8 2.5 2.3 1.3 0.4

*

0.5 -0.7 -1.8 -3.7

-6.7 -8.9 2008 2009 2010 2011

Slide 6

US consensus outlook deteriorates in 2011

Forecast annual per cent change in US real GDP, 2011

4.0 3.2 3.0 3.2

3.1 2.9 2.7 2.5 2.5

2.0

1.8

1.0

0.0 Jan Feb Mar Apr May Jun Jul Aug

Slide 7 Source: Consensus Economics

Fiscal plan gap greater with PST/GST

Fiscal plan deficit before measures required to balance the budget ($ millions)

Projection prior to reverting to PST/GST

(309) (1,145)

152

(734) (458) (805)

First Quarterly Report update

(2,778)

2010/11

2011/12

2012/13

2013/14

Slide 8

Three-year cumulative changes prior to reverting to PST/GST

($ millions)

Total cumulative change: ($537) million

334 244

(82) (379) (624)

(30)

Taxation Revenue

Natural Resources

Other Revenue

Federal Contributions

Commercial Crowns

Expense

Slide 9

Three-year cumulative impact of returning to PST/GST

($ millions)

Total cumulative change: ($2,314) million

456 (119) (580) (836) (1,019)

(216)

HST 2011 Transition Payment

PST versus HST

PIT Relief Related to HST

Other Revenue Impacts

HST Prior Year Transition Reimbursement

Other Expense Impacts Slide 10

Taxpayer debt burden higher with PST/GST

Taxpayer-supported debt to GDP ratio before measures required to balance the budget

First Quarterly Report update

18.4% 18.1% 17.5%
18.2% after measures

17.4% 17.3% 15.8% 16.7%

Projection prior to HST referendum

2010/11

2011/12

2012/13

2013/14

Slide 11

Managing the change

Government will consult with British Columbians on measures to close the $458M deficit gap in 2013/14 Measures must consider:
Slower revenue growth of 2.8% compared to 3.3% at Budget 2011 The need to direct resources towards increasing demand for services Negotiating wage mandate Infrastructure requirements to rehabilitate and modernize existing facilities

Slide 12

Other challenges
Economic risks
Return to recession in the US economy European debt crisis: threat to financial stability Slower Asian demand for BC products Further appreciation of the Canadian dollar Further weakening of the US dollar

Fiscal risks
Volatile commodity and energy prices

Treaty Negotiations and the New Relationship

Slide 13

Next Steps
Budget Consultation Paper Budget 2012 Development Process Report on Budget Consultation Second Quarterly Report Economic Forecast Council Budget 2012 Sept 8 Fall by Nov 15 by Nov 30 Dec 9 Feb 21, 2012

Slide 14

Slide 15