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Province of British Columbia – ‘18-K/A’ for 3/31/20 – ‘EX-99.13’

On:  Wednesday, 9/16/20, at 11:36am ET   ·   For:  3/31/20   ·   Accession #:  1104659-20-105553   ·   File #:  333-82846

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 9/16/20  Province of British Columbia      18-K/A      3/31/20    5:18M                                    Toppan Merrill/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 18-K/A      Amendment to Annual Report by a Foreign Government  HTML     15K 
                or Political Subdivision                                         
 2: EX-99.11    Miscellaneous Exhibit                               HTML    135K 
 3: EX-99.12    Miscellaneous Exhibit                               HTML   1.24M 
 4: EX-99.13    Miscellaneous Exhibit                               HTML   2.90M 
 5: EX-99.14    Miscellaneous Exhibit                               HTML    748K 

Exhibit 99.13

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2020

British Columbia

Financial and Economic

Review

80th Edition

(September 2020)

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TABLE OF CONTENTS

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¹ Reflects information available as of June 26, 2020.

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2019 Overview

British Columbia’s economy experienced strong growth in 2019, with its annual performance outpacing the Canadian average for a sixth consecutive year.

Similar to previous years, Statistics Canada published only real dollar GDP by industry at basic prices in the preliminary release of its Provincial Economic Accounts in June 2020. As a result, the following analysis refers to these real GDP figures, as opposed to the commonly reported income and expenditure market prices data released late in the year.²

In 2019, B.C.’s real GDP growth of 2.8 per cent ranked third among provinces (behind Prince Edward Island and Newfoundland and Labrador), following similar growth of 2.7 per cent in 2018.

Chart 1.1 Provincial Economic Growth

Sources: Statistics Canada (Tables 36-10-0402-01 and 36-10-0434-03 - June 2020 Preliminary Industry Accounts)

Employment in B.C. increased by a solid 2.6 per cent in 2019. Labour market conditions remained tight, and growth in wages and salaries remained strong at 5.6 per cent. Consumer prices rose by 2.3 per cent in 2019. Domestic economic activity was supported by business activity, highlighted by robust output growth in non-residential construction subsectors, partly related to activity in the oil and gas industry. Although the forestry sector faced significant challenges in 2019, liquefied natural gas (LNG) development provided some support for economic growth and job creation in the province. Residential construction activity was also strong, with housing starts at an all-time high. In contrast, home sales and prices moderated, and consumer spending slowed somewhat, reflected by modest growth of 0.6 per cent in retail sales in 2019. Meanwhile, slower global economic growth, global trade policy uncertainty and lower commodity prices weighed on B.C.’s international merchandise exports.

British Columbia Economy

In 2019, service-producing industries represented 76 per cent of B.C.’s GDP and goods-producing industries accounted for 24 per cent. The real estate and rental and leasing service sector formed the largest share of the service-producing industries, followed by the retail trade and wholesale trade service sectors combined. At the same time, the construction sector made up the largest share of the goods-producing industries, followed by the manufacturing sector, and the natural resources sector.

Chart 1.2 Composition of British Columbia GDP by Industry

Source: Statistics Canada (Table 36-10-0400-01 – June 2020 Preliminary Industry Accounts)
(numbers may not add to 100 per cent due to rounding)

B.C.’s real GDP increased by 2.8 per cent in 2019, similar to the 2.7 per cent growth in 2018. Growth in goods-producing industries slowed somewhat further in 2019, while growth in service-producing industries improved.

B.C.’s goods-producing industries grew by 3.0 per cent in 2019, following 3.4 per cent growth in 2018. Output in the construction sector increased by a robust 10.2 per cent in 2019, outpacing the 3.7 per cent growth in 2018. This was driven by large gains in the engineering construction subsector, mainly related to activity in the oil and gas industry. Construction in the non-residential buildings subsector contributed positively. In contrast, output in the mining, quarrying, and oil and gas extraction sector rose by a modest 0.7 per cent, while output in the manufacturing sector declined and activity in some natural resource subsectors such as forestry and logging recorded significant losses.

Meanwhile, service-producing industries grew by 2.7 per cent in 2019, stronger than the 2.4 per cent growth in 2018. Output in the real estate and rental and leasing sector increased by 3.3 per cent in 2019, following moderate growth of 1.4 per cent in 2018. Output in the professional, scientific and technical services sector (+4.6 per cent) and in the health care and social assistance sector (+3.9 per cent) also contributed strongly.

Chart 1.3 British Columbia Real GDP Growth by Industry

Source: Statistics Canada (Table 36-10-0402-01 – June 2020 Preliminary Industry Accounts)

Note: Other includes industries such as transportation and warehousing, educational services, and professional, scientific and technical services

External Trade and Commodity Prices

Exports by destination:

The value of B.C.’s nominal international merchandise exports fell by 6.1 per cent in 2019, after increasing by 7.2 per cent in 2018 and by 12.5 per cent in 2017. B.C.’s merchandise exports to most countries and geographical regions declined in 2019.

B.C.’s merchandise exports to the U.S. decreased by 3.2 per cent in 2019 compared to 2018, the first annual decline since 2009. B.C.’s exports of wood products to the U.S. dropped by 19.9 per cent, the most notable decline and mainly reflecting lower exports of softwood lumber. Annual declines were also observed in exports of pulp and paper products and metallic mineral products. Meanwhile, gains in exports of natural gas, agricultural and food products, and machinery and equipment provided modest offsets.

B.C.’s merchandise exports to Japan declined by 10.5 per cent in 2019, accounting for almost one fifth of the drop in total international merchandise exports. B.C.’s exports of metallic mineral products fell by 36.2 per cent. Meanwhile, wood product exports dropped by 21.2 per cent, mostly due to lower exports of softwood lumber, while exports of pulp and paper products also declined.

B.C.’s exports to China decreased by 3.6 per cent, with gains in exports of metallic mineral products and coal providing a modest offset to declines in exports of softwood lumber and pulp. Meanwhile, B.C.’s merchandise exports to South Korea declined by 9.5 per cent in 2019, largely reflecting lower exports of coal and metallic mineral products.

Appendix Tables A1.7 and A1.8 provide further detail on exports by major market and commodity groups.

Chart 1.4 International Export Shares by Market

Source: BC Stats – accessed June 2020

Note: Other Asia includes Hong Kong, Taiwan, South Korea and India

(numbers may not add to 100 per cent due to rounding)

The share of B.C.’s international merchandise exports destined to the U.S. averaged 50.6 per cent in 2019, up from 49.0 per cent in 2018. Exports to China accounted for 14.9 per cent, up from 14.5 per cent. Exports to Japan represented 10.5 per cent, down from 11.0 per cent. Meanwhile, exports to South Korea represented 6.1 per cent, down slightly from 6.3 per cent.

Exports by commodity and prices:

In 2019, the value of B.C.’s nominal wood product exports declined significantly by 20.0 per cent, accounting for just over two-thirds of the decline in total international merchandise exports. Pulp and paper product exports also fell by 20.0 per cent, and metallic mineral product exports fell by 9.9 per cent, while coal exports declined by 9.2 per cent. Meanwhile, provincial exports of natural gas, machinery and equipment, and agricultural food products all increased.

After reaching record high levels in 2018, forestry product prices fell in 2019, particularly prices of lumber (-25.1 per cent) and pulp (-19.4 per cent). Meanwhile, most industrial metal prices declined, with copper down by 8.0 per cent and zinc down by a larger 12.9 per cent. In contrast, precious metal prices increased, with gold up by 9.6 per cent.

After rising sharply in 2017 and 2018, global crude oil price benchmarks retreated in 2019, with the West Texas Intermediate (WTI) price averaging $56.99 US/barrel for the year, a decline of 12.6 per cent from 2018. Metallurgical coal prices also declined significantly, while natural gas prices remained depressed.

Manufacturing shipments:

The nominal value of B.C.’s manufacturing shipments declined by 2.4 per cent in 2019, the first annual decline since 2009. Lower shipments of wood products (-24.9 per cent) and, to a lesser extent, paper products (-15.1 per cent) were largely responsible. These declines offset gains in shipments of food products (+6.3 per cent), fabricated metal products (+18.4 per cent) and electrical equipment and appliances (+9.0 per cent).

Chart 1.5 Lumber and Natural Gas Prices

Sources: Ministry of Forests, Lands, Natural Resource Operations & Rural Development; Ministry of Energy, Mines & Petroleum Resources.

Population

B.C.’s population on July 1, 2019 was 5.071 million people, an increase of 1.4 per cent from the same date in 2018. In 2019, B.C. welcomed a net total of 64,441 persons through international migration, a record high number of newcomers. Meanwhile, interprovincial migration contributed a net total of 9,551 persons, slightly more than in 2018. A natural increase of 5,032 persons (births minus deaths) also added to the province’s population count in 2019.

Map 1.1 Net Interprovincial and International Migration in B.C., 2019

Labour Market

Total employment grew by a solid 2.6 per cent in 2019, following moderate growth of 1.1 per cent in 2018. The labour force also grew by 2.6 per cent in 2019, partly reflecting an increase in the participation rate to 65.5 per cent, up from 64.9 per cent in 2018. Meanwhile, the unemployment rate remained at 4.7 per cent in 2019, the lowest provincial jobless rate in the country.

Total employment increased by 65,400 net new jobs in 2019. The distribution of these job gains was spread across the private sector (+45,700), the public sector (+10,000) and the self-employed (+9,700). The breakdown also showed increases in full-time employment (around +39,300) and part-time employment (around +26,200).

Service-producing industries in B.C. accounted for almost all of the net gain in total employment in 2019. The largest gains were in the wholesale and retail trade sector (+20,800) and the professional, scientific and technical services sector (+15,200). While employment rose across most other service sectors, goods-producing industries recorded a net loss of 14,400. The most notable employment losses were observed in the manufacturing sector (-8,600), mining, quarrying and oil and gas extraction sector (-2,100), and the forestry, logging and support activities subsectors (-1,700).

Appendix Table A1.5 provides more details on employment by sector and subsectors.

Table 1.1 British Columbia Population and Labour Market Statistics

Sources: Statistics Canada (Tables 17-10-0005-01, 17-10-0040-01, 17-10-0020-01, 14-10-0023-01 – accessed June 2020)

Inflation and Wages

B.C.’s annual Consumer Price Index (CPI) inflation rate was 2.3 per cent in 2019, following 2.7 per cent in 2018. Price increases were broad-based across all major categories of the CPI in 2019, led by food (+3.9 per cent), transportation (+2.6 per cent) and shelter (+2.4 per cent).

The disinflation (i.e. the decrease in the rate of inflation) observed last year was mainly due to volatile energy prices, most notably gasoline prices, which fell by 1.3 per cent in 2019. The annual CPI inflation rate excluding energy was 2.5 per cent in 2019, the same rate recorded in 2018.

Meanwhile, wages and salaries grew by 5.6 per cent in 2019, following growth of 6.0 per cent in 2018, still well above the long-term historical average of 4.7 per cent.

Table 1.2 British Columbia Price and Earnings Indicators

Sources: Statistics Canada (Tables 18-10-0005-01, 14-10-0064-01, 36-10-0221-01, 36-10-0205-01, 36-10-0224-01 – accessed June 2020)

Consumer Spending and Housing

B.C.’s nominal retail sales increased by a modest 0.6 per cent in 2019, following growth of 2.0 per cent in 2018. In 2019, increases were led by sales at general merchandise stores (+4.8 per cent), health and personal care stores (+5.2 per cent), and food and beverage stores (+1.3 per cent). Meanwhile, declines were mostly observed at motor vehicle and parts dealers (-2.7 per cent), building material and garden equipment and supplies dealers (-4.3 per cent), and sporting goods, hobby, book and music stores (-0.9 per cent).

Housing starts in B.C. totalled 44,932 units in 2019 (the highest annual level going back to 1955), up by 10.0 per cent from 40,857 units in 2018. Meanwhile, the value of residential building permits (a leading indicator of potential new housing activity) fell by 5.2 per cent in 2019, after increases of 18.5 per cent in 2018 and 16.6 per cent in 2017.

Chart 1.6 Housing Starts

 Sources: Canada Mortgage and Housing Corporation; Haver Analytics

Regional housing markets across the province continued to adjust to past increases in interest rates and to various federal and provincial measures. After declining by 24.5 per cent in 2018, MLS home sales declined by a further 1.5 per cent in 2019. At the same time, some moderation in regional house prices was observed. The MLS average home sale price in B.C. decreased by 1.6 per cent in 2019, following a modest increase of 0.4 per cent in 2018.

Chart 1.7 Home Sales and Price

Sources: Canadian Real Estate Association; Haver Analytics

Tourism

The number of international non-resident travellers to B.C. increased by 3.6 per cent in 2019 compared to the previous year, following growth of 4.5 per cent in 2018. The number of U.S. travellers to B.C. grew by 3.7 per cent in 2019 over the previous year, slightly slower than the 4.1 per cent growth in 2018. Meanwhile, the number of non-U.S. visitors grew by 3.4 per cent in 2019, following growth of 5.5 per cent in 2018.

Chart 1.8 Visitor Entries to British Columbia

Source: Statistics Canada (Table 24-10-0005-01 – accessed June 2020)

Global Economy

Overall, the International Monetary Fund estimates that global real GDP grew by 2.9 per cent in 2019, down from 3.6 per cent growth in 2018. This slowdown was observed across advanced economies and emerging markets. With the exception of the Japanese economy, B.C.’s major trading partners generally saw their pace of growth slow in 2019 compared to the previous year. The U.S. economy expanded by 2.3 per cent in 2019, down from 2.9 per cent growth in 2018. Canadian economic output increased by a more moderate 1.7 per cent in 2019, down from 2.0 per cent in 2018. Overseas, while Japan’s economy grew by 0.7 per cent in 2019, up from 0.3 per cent in 2018, China’s growth slowed noticeably compared to the past few years, achieving 6.1 per cent growth in 2019 after growing by 6.8 per cent in 2018. The euro area grew by 1.2 per cent in 2019, down from 1.9 per cent growth in 2018.

United States

U.S. real GDP grew by 2.3 per cent in 2019, down from 2.9 per cent growth in 2018. Personal consumption, government spending and government investment made notable positive contributions to economic growth partly reflecting fiscal stimulus, while business fixed investment and exports were less supportive due to slower growth abroad and uncertainty regarding global trade policies.

The U.S. labour market tightened somewhat further in 2019, with the unemployment rate averaging 3.7 per cent, the lowest rate on record since 1969. The economy added over 169,000 jobs each month on average (down from approximately 192,000 jobs added in 2018), resulting in a 1.4 per cent increase in employment in 2019. The labour force participation rate rose in 2019 with 63.1 per cent of Americans eligible to work participating in the labour market, up slightly from 62.9 per cent in 2018.

New housing construction activity increased last year overall. The level of housing starts averaged 1.29 million units in 2019, up 3.2 per cent compared to 2018. Sales of new single-family homes in the U.S. increased by 10.7 per cent in 2019, while the median sale price decreased by 1.5 per cent. Sales of existing single-family homes increased by 0.5 per cent in 2019 and the median sale price of existing homes sold rose by 5.0 per cent.

The U.S. current account deficit (the combined balances of trade in goods and services income, and net unilateral current transfers) increased from $US449.7 billion in 2018 to $US480.2 billion in 2019. As a share of nominal U.S. GDP, the current account deficit averaged -2.2 per cent in 2019, largely unchanged from 2018.

Canada

The Canadian economy grew by 1.7 per cent in 2019, slower than the 2.0 per cent growth in 2018. Growth in household consumption and government spending moderated in 2019 compared to 2018, while business investment declined. Construction of residential structures edged lower for the second consecutive year, and investment in intellectual property products declined by a larger margin. Reflecting the economic slowdown abroad, growth in exports and imports slowed markedly, with net exports contributing marginally to annual economic growth.

Canadian labour market conditions improved somewhat further in 2019. Employment increased by a total of 398,200 jobs (or 2.1 per cent growth), stronger than the 241,100 jobs (or 1.3 per cent growth) in 2018. The unemployment rate averaged 5.7 per cent in 2019, down slightly from 5.8 per cent in 2018.

The number of Canadian housing starts declined by 2.0 per cent in 2019 to around 208,685 units, following a 3.1 per cent drop in 2018. The value of residential building permits decreased by 1.2 per cent, following a large increase of 5.3 per cent in 2018. MLS home sales (units) rebounded by 6.5 per cent in 2019, after dropping by 15.0 per cent over the previous two year period. The MLS average home sale price rose by 2.4 per cent to $500,779 in 2019.

Canadian retail sales increased by 1.6 per cent in 2019, down from 2.9 per cent in 2018. Adjusted for price movements, retail sales volumes rose by a modest 0.4 per cent in 2019, the weakest display in several years. The Canadian consumer price index rose by 1.9 per cent in 2019. The consumer price index excluding often volatile food and energy prices increased by a slightly higher 2.1 per cent.

Canada’s current account deficit narrowed to $47.0 billion in 2019 from $55.5 billion in 2018. As a share of nominal Canadian GDP, the current account deficit averaged -2.0 per cent in 2019 compared to -2.5 per cent in 2018.

The value of Canada’s exports of goods and services increased by 2.2 per cent in 2019, while imports of goods and services increased by a more moderate 1.5 per cent. The stronger increase in exports was partly driven by a 6.9 per cent gain in exports of crude oil. There were also broad-based increases in exports of services, which increased by 4.4 per cent in 2019.

Asia

China’s real GDP expanded by 6.1 per cent in 2019, following 6.8 per cent growth in 2018, broadly continuing the trend of steadily lower annual growth rates. While net exports rebounded and contributed positively to economic growth in 2019, this was outweighed by markedly slower growth in consumption and investment.

Japan’s real GDP increased by 0.7 per cent in 2019, better than the 0.3 per cent growth posted in 2018. Stronger growth in domestic demand led by government spending and public sector investment helped to bolster overall economic growth in 2019, despite a small decline in net exports.

Europe

The euro area’s real GDP grew by 1.2 per cent in 2019, notably slower than the 1.9 per cent growth in 2018 and 2.5 per cent growth in 2017. With the exception of two smaller euro area economies, 17 of the 19 euro member countries saw their economies expand more slowly in 2019 compared to 2018. After growing by 1.5 per cent in 2018, Germany’s large economy grew by 0.6 per cent in 2019, well below the euro area average of 1.2 per cent. France’s economy grew by 1.5 per cent in 2019, down from 1.8 per cent growth in 2018. Italy’s economy grew by 0.3 per cent in 2019, after 0.8 per cent growth in 2018. Meanwhile, Spain’s economy expanded by 2.0 per cent, still slower than the 2.4 per cent growth it achieved in 2018.

Outside the euro area, the U.K. economy expanded by 1.4 per cent in 2019, slightly better than the 1.3 per cent growth posted in 2018 but still below growth rates over the previous few years. Economic uncertainty related to Britain’s departure from the European Union likely contributed to the underperformance of the U.K. economy over the past two years.

Chart 1.9 Global Economic Growth

Sources: International Monetary Fund (April 2020); Haver Analytics

Financial Markets

Some major central banks implemented more accommodative monetary policies in 2019 to cushion their economies against a global economic growth slowdown amplified by U.S.-China trade tensions. The US Federal Reserve (Fed) lowered its federal funds target rate three times in 2019, from the 2.25 to 2.50 per cent range to the 1.50 to 1.75 per cent range. The Fed also restarted quantitative easing policies to support its policy stance on interest rates and the stronger demand for liquidity in money markets.

In contrast, the Bank of Canada maintained its target for the overnight interest rate at 1.75 per cent throughout 2019. Nevertheless, short and longer-term Government of Canada bond yields declined largely in tandem with US Treasury benchmark bond yields.

After averaging 77.2 US cents in 2018, the value of the Canadian dollar depreciated to 75.4 US cents in 2019, despite some narrowing of Canadian-U.S. interest rate differentials throughout most of last year. The lower value of the Canadian dollar primarily reflected the broad-based appreciation of the US dollar alongside slowing global economic growth and trade policy concerns.

Chart 1.10 Canadian Dollar

Source: Bank of Canada – accessed June 2020

Note: Reflects the Bank of Canada’s new calculation methodology starting January 1, 2017.

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Historical Data Volatility

Individual economic variables have unique characteristics. An important characteristic from a budgeting and planning perspective is the historical data volatility of a variable. Typically, variables that are more volatile over history are more difficult to forecast than variables that are more stable.

One of the most common measurements of data volatility is the standard deviation, which is frequently reported by agencies such as Statistics Canada and the Bank of Canada. Roughly speaking, the standard deviation of a variable measures how far the individual data points are from the average (mean) of all the data points in the series on an absolute basis (that is, without regard to whether each data point is above or below the average).

If a variable’s data points are generally close to the average, then the standard deviation will be relatively low (meaning that the variable is relatively stable). An example of a relatively stable variable is presented in Chart 1, which displays the annual growth rate of B.C.’s population.

Chart 1 – An Example of Historical Data Stability

*Percentage points

Sources: Statistics Canada; Haver Analytics; Ministry of Finance calculations

Conversely, if a variable’s data points are generally spread out from the average, then the variable will have a relatively high standard deviation (meaning that the variable is relatively volatile). The annual growth rate of the natural gas price in Chart 2 is an example of a relatively volatile variable.

The standard deviations and averages of selected key economic variables’ growth rates over different time periods are presented in Table 1. For instance,

Chart 2 – An Example of Historical Data Volatility

B.C. real GDP growth had a standard deviation of 1.7 percentage points and an average of 2.3 per cent from 2009 to 2018. This means that, on average, real GDP growth rates were 1.7 percentage points away from the average annual real GDP growth rate of 2.3 per cent over this period.

Standard deviations can vary widely across indicators and time. Variables such as the natural gas price and housing starts were relatively volatile from 2009 to 2018, while variables such as population and the consumer price index were relatively stable (see Chart 3). Meanwhile, some variables like the exchange rate and housing starts have become more volatile over time, whereas other variables like population have become more stable (see Table 1).

Chart 3 – Recent Data Volatility

*Based on the annual per cent change of calendar year data from 2009 to 2018

Sources: Statistics Canada; Haver Analytics; Ministry of Energy, Mines S Petroleum Resources; Ministry of Finance calculations

The Ministry of Finance manages the uncertainty associated with data volatility by incorporating prudence in the Province’s budget and fiscal plan.

¹ Calendar and fiscal year data yield similar data volatility results

² Measured as the mean

Sources: Statistics Canada; Haver Analytics; Ministry of Energy, Mines & Petroleum Resources; Ministry of Forests, Lands, Natural Resource Operations & Rural Development; Ministry of Finance calculations

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During the first three quarters of the year, government managed the 2019/20 fiscal plan through changes to the contingencies allocation and changes to the forecast allowance as the revenue outlook was revised. The forecast of the operating surplus ranged between $148 million and $203 million in the three quarterly reports, down slightly from the $274 million surplus estimated in Budget 2019 (see Tables 2.1 and 2.5). However, the impacts of the COVID-19 global pandemic and government’s response measures resulted in significant impacts to government’s finances in the last quarter of the fiscal year.

The Province ended the 2019/20 fiscal year with a $321 million deficit, a decline of $524 million from the $203 million surplus forecast in the Third Quarterly Report (see Table 2.1). This reflected a $666 million reduction in revenue, a $158 million increase in expense, partly offset by the $300 million forecast allowance incorporated in the Third Quarterly Report projection. Revenue losses in the last quarter included over $800 million in personal income tax, non-residential property tax and net income of commercial Crown corporations. This was mainly due to the negative impacts of the global pandemic on employment income in the 2020 calendar year (lower personal income tax revenue); reduced equity market valuations at March 31, 2020 (higher ICBC losses); and an average 25 per cent reduction in 2020 commercial property tax rates that government announced as part of the suite of response measures.

Revenue was $387 million lower than Budget 2019 due to decline in revenues from taxation, natural resources and lower commercial Crown corporation net income, partially offset by higher fees and miscellaneous revenue, investment earnings, and contributions from the federal government. (See Revenue section for further details.)

Chart 2.1 2019/20 Surplus (Deficit) - Major Changes from Budget 2019

Decline of $595 million, resulted in a $321 million deficit

Total government expenses were $708 million higher than Budget 2019, mainly due to higher spending through statutory appropriations; higher spending on programs that are cost-recovered from third parties; and higher net spending by service delivery agencies. These increases were partially offset by lower ministry spending and favourable prior-year liability adjustments. (See Expense section for further details.)

The changes in revenue and expense are partly offset by the Budget 2019 forecast allowance of $500 million.

Taxpayer-supported capital spending on hospitals, schools, post-secondary institutions, transportation infrastructure, and social housing totalled $4.8 billion. This is $1.6 billion less than Budget 2019 mainly due to scheduling delays across health and transportation sectors.

Self-supported capital spending of $4.4 billion was $112 million higher than budget. (See Capital section for further details.)

Government’s total debt balance ended the fiscal year $387 million lower than forecast in Budget 2019. The variance is primarily due to lower opening debt balance and lower than expected capital spending. (See Debt section for further details.)

Financial information in this publication, including this chapter and Appendix 2, is sourced from the government’s 2019/20 Public Accounts.

Revenue

Revenue totaled $58.7 billion in 2019/20, $387 million lower than the Budget 2019 projection and up 2.7 per cent from 2018/19. Compared to budget, lower revenues from taxation, natural resources and commercial Crown corporation net income were partially offset by higher revenues from fees, investment earnings, miscellaneous sources and federal government transfers.

Changes of the major revenue components from Budget 2019 are outlined as follows.

Chart 2.2 Revenue Changes from Budget 2019

Total revenue decreased by $387 million

Income Tax Revenue

Personal income tax revenue was down $398 million mainly reflecting the expected decline in employment and household incomes in 2020 due to the impacts of the COVID-19 pandemic. During the year, other influencing factors on personal income tax revenue included weaker tax assessments for the 2018 calendar year resulting in a lower tax base. These declines were offset by the impacts of stronger household income growth in 2019 and effective January 2020, the introduction of a new personal income tax rate of 20.5 per cent on taxable income over $220,000.

Corporate income tax revenue was up $819 million mainly due to increased instalments from the federal government and higher entitlement in respect of prior years. The $512 million increase in instalments reflects an improved federal government outlook of the 2019 national tax base (corporate taxable income). The 2018 B.C. corporate income tax returns were stronger than expected resulting in a $297 million improvement to the prior years’ settlement payment. In 2018, B.C. taxable income rose 8.7 per cent annually compared to the 4.2 per cent annual increase in the net operating surplus of B.C. corporations assumed in the Budget 2019.

Table 2.2.2 Corporate Income Tax Revenue Changes from Budget 2019 

Other Tax Revenue

Sales tax revenues were $212 million lower than budget mainly due to lower than expected retail sales and expenditures on durable, semi-durable and non-durable goods. In particular, sales of motor vehicles and parts declined 2.7 per cent in 2019. It is likely that measures taken to help limit the spread of the coronavirus outbreak contributed to reduced consumer purchases of taxable items and sales tax revenue. However, an estimate of the effects cannot be made due to insufficient information detailing monthly expenditures.

Table 2.2.3 Consumption and Other Tax Revenue Changes from Budget 2019 

Property transfer tax revenue was $301 million lower than budget due to lower residential sales values. Compared to 2018/19, revenue declined $217 million (11.9 per cent) as the average tax per residential transaction fell 8.4 per cent, partly offset by a 1.0 per cent increase in the number of residential transactions. Revenue from the foreign buyers’ tax (included in total property transfer tax revenue) was $138 million compared to the $190 million budget assumption, indicating market moderation and less speculative activity.

Fuel tax revenue was down $13 million from budget mainly due to lower than assumed diesel purchases. Sales volumes of diesel were down 4.6 per cent annually compared to 2.0 per cent growth expected at budget.

PART 2 – FINANCIAL REVIEW

Carbon tax revenue was down $31 million from budget mainly due to lower consumption of natural gas, diesel and gasoline. As planned, on April 1 2019, carbon tax rates rose to $40 per tonne of carbon dioxide equivalent emissions, an increase of $5 per tonne from the previous year.

Tobacco tax revenue was down $51 million from budget reflecting a decline in consumption volumes due in part to consumer lifestyle changes including purchases of alternatives such as vaping products.

Property tax revenue was $388 million lower than budget mainly due to lower revenues from non-residential school taxes and the speculation and vacancy tax. Lower non-residential school tax revenue mainly reflects the reduction in school property tax rates for commercial properties by an average of 25 per cent in the 2020 calendar year announced as part of government’s response to the COVID-19 pandemic. The speculation and vacancy tax revenue was $54 million in 2019/20, $131 million below the budget estimate ($185 million), based on declarations by property owners for the 2019 calendar year.

Insurance premium tax revenue was $66 million higher than budget due to higher than expected activity and higher premiums charged by industry reflecting increased assessments of risks including earthquakes and floods.

Employer health tax revenue was $43 million higher than budget mainly reflecting higher growth in wages and salaries in 2019 than assumed at budget.

PART 2 – FINANCIAL REVIEW

Natural Resources Revenue

Natural gas royalties were $157 million lower than budget due to lower prices for natural gas and byproducts and increased utilization of the royalty and infrastructure credit programs. Byproducts include pentane, condensate and butane whose prices are more closely aligned to oil rather than natural gas. Natural gas prices averaged $0.63 ($Cdn/gigajoule, plant inlet) in 2019/20, 12.5 per cent below budget. Prices for the byproducts were also lower than expected, ranging from down 12.8 per cent for pentane to down 82.9 per cent for butane.

¹ Includes Crown land tenures and fees and levies collected by the BC Oil and Gas Commission.

Coal, metals and other minerals revenue was $58 million higher than budget mainly due to higher coal production volumes, lower operating costs and capital expenditures in coal mine operations as well as the impacts of higher copper production reflecting improved copper grades and a more efficient extraction process.

Revenue from other energy sources was $62 million lower than budget mainly due to the impacts of lower petroleum prices and production volumes as well as the effects of lower Mid-Columbia (Mid-C) electricity prices. In 2019/20, petroleum prices averaged $54.72 per barrel, down 15.2 per cent from budget ($64.50) and Mid-C electricity prices averaged $26.48 ($US per mega-watt hour), down 18 per cent from the budget assumption ($32.48). Lower average electricity prices during the year were a result of weak natural gas prices, high snowpack accumulation in Northern California and mild temperatures throughout the Pacific North West.

Forests revenue was $167 million lower than budget mainly due to lower than expected stumpage revenue from timber tenures resulting from reduced Crown harvest volumes, partially offset by a higher average stumpage rate. The total Crown harvest volumes for 2019/20 were 42.2 million cubic metres, 26 per cent below budget mainly reflecting more than two dozen permanent and temporary mill closures in the Interior and on the Coast. Mill closures were a result of tightening provincial timber supply resulting from the cumulative effects of the mountain pine infestation, wildfires, labour relations disputes and the continuing US duties on softwood lumber exports. Lumber prices for SPF 2x4 averaged $372 ($US/1000 bf) in 2019, down 2 percent from the budget assumption ($380). Logging tax revenue was lower than budget due to increases in losses carried back and higher refunds related to overpayments of instalments during the year.

PART 2 – FINANCIAL REVIEW

Other natural resource revenues, comprised of revenue from water rentals and hunting and fishing licenses, were $27 million lower than budget mainly due to lower water rentals revenue.

Other Taxpayer-Supported Sources

Revenue from fees, investment earnings and other miscellaneous sources totaled $10.7 billion, up $715 million from budget. Fee revenue totaled $5.6 billion, up $185 million from budget mainly due to improved revenues from post-secondary institutions and health authorities, higher MSP premium revenue, partly offset by lower revenues from the K-12 school districts. Miscellaneous revenue totaled $3.8 billion, $463 million above budget mainly due to higher vote recoveries related to the PharmaCare program, improved results for taxpayer-supported Crown corporation and agencies and increased income tax penalties collected by the Canada Revenue Agency. The higher vote recovery funding had an equal and offsetting expense increase. Revenue from investment earnings was $1.3 billion, up $67 million from budget due to prudence adopted at budget and the timing of cash flows during the year.

Part 2 – Financial Review

Federal Government Transfers

Contributions from the federal government totaled $9.5 billion, $112 million above budget.

Canada Health Transfer and Canada Social Transfer entitlements were $90 million higher than budget mainly due to one-time Canada Health Transfer funding of $68 million. This one-time contribution was B.C.’s share of the federal government’s $500 million response to the COVID-19 pandemic to provide critical health care system needs and to support mitigation efforts as needed. In addition, increased entitlement resulted from a higher B.C. share of the national population than assumed at budget (13.49 per cent compared to 13.47 per cent forecast at budget).

Other federal government contributions were up $22 million from budget. SUCH¹ sector entities received $50 million higher contributions, mainly by post-secondary institutions. Ministries received $48 million higher vote recovery funding in support of local government services and transfers, disability assistance and other program spending, partially offset by lower vote recoveries in support of public transit and labour market development. The increased vote recovery funding had an equal and offsetting expense increase. These increases were partially offset by $29 million lower entitlement of B.C.’s share of the federal cannabis excise tax reflecting fewer than expected licensed retail establishments and $50 million lower transfers to taxpayer-supported Crown corporations mainly due to changes in the timing of contributions to the BC Housing Management Commission.

Part 2 – FINANCIAL REVIEW

Commercial Crown Corporations

The net income of commercial Crown corporations (government business enterprises) was $2.9 billion in 2019/20, $393 million lower than Budget 2019, and $913 million higher than 2018/19. The variance from budget in overall earnings is mainly due to lower ICBC operating results.

British Columbia Hydro and Power Authority

BC Hydro’s net income of $705 million was $7 million lower than the amount included in Budget 2019. The lower net income was mainly the result of higher capital project write-offs and a provision for potential non-compliance penalties under the Mandatory Reliability Standards.

Provincial regulation was previously implemented to improve BC Hydro’s capital structure, which required the corporation’s annual dividend payment to the Province to be reduced by $100 million per year until it reaches zero. The corporation’s dividend payment in respect of 2019/20 was zero, down from the 2018/19 payment of $59 million.

British Columbia Liquor Distribution Branch

BC Liquor Distribution Branch (LDB) net income of $1.1 billion was $13 million lower than Budget 2019, and $3 million higher than 2018/19. Net income is the contribution made to the Province by the LDB from beverage alcohol and non-medical cannabis sales in the province. The decrease in net income was mainly due to higher administration expenses and lower than planned cannabis revenues.

British Columbia Lottery Corporation

BC Lottery Corporation’s net income of $1.3 billion (net of payments to the federal government) was $60 million lower than Budget 2019, and a decrease of $69 million over the prior year. The 2019/20 change was mainly due to the measures put in place to respond to the COVID-19 pandemic.

Insurance Corporation of British Columbia

The Insurance Corporation of British Columbia’s (ICBC) net loss of $376 million was $326 million higher than the $50 million loss projected in Budget 2019, and a $777 million improvement from the 2018/19 loss. The COVID-19 global pandemic had a significant negative impact on ICBC’s bottom line. The sudden and significant negative impact to the economy and global investment markets resulted in a large investment impairment charge. Further, the market downturn caused a reduction in market yields, which resulted in a lower rate to discount claims liabilities, increasing claim costs.

More information about commercial Crown corporations’ financial results and performance measures is provided in each corporation’s Annual Service Plan Report available at its respective website.

Part 2 – FINANCIAL REVIEW

PART 2 – FINANCIAL REVIEW

PART 2 – FINANCIAL REVIEW