Last year’s economic slowdown, has forced Canada’s province’s to tighten up on their finances according to Scotia Economics’ latest report, Fiscal Pulse: Provincial Budget Roundup, Fiscal 2003 … Bridging the Gap.

The report notes that cutbacks have limited the provinces’ slide from a collective surplus of almost $12 billion in fiscal 2001 to a modest $500 million deficit in fiscal 2002. And outside of British Columbia, the provinces posted a $700 million surplus for the fiscal year ending March 2002.

Scotia Economics observes that the B.C. government is proceeding with an ambitious and wide-ranging fiscal agenda to spur its economy and achieve its target of balanced books by fiscal 2005.

“A key assist for British Columbia over the next couple of years will be its energy sector — both petroleum and electricity,” says Mary Webb, senior economist, Scotiabank. “In addition, B.C. has the lowest provincial debt burden after Alberta, offering some latitude for restructuring.

The report notes that provinces opted for one-time measures to raise revenues and trim discretionary spending in 2002. This could give them less fiscal flexibility in 2003, if economic momentum continues to falter.

Scotia economists observe that the provinces have relied upon hikes in sin taxes and fees for fiscal 2003, with a significant assist from asset sales, enterprise earnings, deferred revenues and reserve funds. As for tax relief, “General federal and provincial tax relief of $5.6 billion this fiscal year primarily reflects scheduled cuts. It will be largely offset, however, by a $1.9 billion rise in tobacco taxes and a $3 billion jump in fees and social insurance premiums (including CPP/QPP).”

“Future tax cuts will be constrained as provincial revenues lag both the economic recovery and escalating expenditure demands into fiscal 2004,” says Webb.

“The provinces’ fiscal repair has slowed and the provincial net debt is expected to edge higher in fiscal 2003,” says Webb.”