The British Columbia government will incur a deficit of nearly $500 million this year as it boosts spending on health care, education, social services and infrastructure, according to the 2009 budget tabled on Tuesday.

The budget includes almost $14 billion in infrastructure projects across the province, including plans to build and upgrade housing, hospitals, schools and roads to stimulate the economy. The infrastructure investment is expected to create up to 88,000 jobs.

“Despite unprecedented global economic turmoil, we are improving public services and making critical investments to create tens of thousands of jobs and position British Columbia as a leader in the coming economic recovery,” said B.C. Finance Minister Colin Hansen. “Our immediate investment in infrastructure will help stimulate the economy, maintain stability and keep British Columbians working during the downturn — every job counts.”

After a widespread review of government spending that kicked off in the fall, the government is reallocating $1.9 billion to strengthen health, education and social services.

Over the next three years, health care funding will increase by $4.8 billion. By 2011/12, total provincial health spending will be $17.5 billion — an increase of 65% since 2001.

The budget also invests $228 million over three years in post-secondary education to enhance access to institutions, expand health education programs, and fulfill the commitment to increase the number of trained physicians in B.C.

The increased spending, combined with reduced revenue in the economic downturn, will result in a deficit of $495 million for 2009/10 and $245 million for 2010/11. The government expects to return to balanced budgets by 2011/12.

“There is no doubt that volatile commodity prices, instability in financial markets and weaker global economies have had a detrimental effect on our revenues,” said Hansen. “Our enduring commitment to sound fiscal management and prudent budgeting ensures we will not leave a legacy of deficit budgets for future generations.”

While no new tax cuts are in store for B.C. residents, the government is moving ahead with a cut in the general corporate income tax rate from 11% to 10.5%, effective Jan. 1, 2010, and to 10% effective Jan. 1, 2011. The cuts were previously proposed in the 2008 Revenue Neutral Carbon Tax Plan.

The government also moved forward with its plan to accelerate tax cuts for small businesses. Effective Dec. 1, 2008, the rate fell from 3.5% to 2.5%–a reduction initially planned for 2011. The accelerated tax rate reduction means a 44% tax cut for small business in 2008.

B.C. investors will be impacted by the budget through a cut to the provincial personal income tax dividend tax credit to 3.4% from 4.2%. Effective Jan. 1, 2010, this change maintains integration between the personal and corporate income taxes as a result of the Dec. 1, 2008 reduction in the small business corporate income tax rate to 2.5% from 3.5%.

The Investment Industry Association of Canada applauded the B.C. government’s move to accelerate the reduction in the business tax rate, but criticizes its lack of further incentives to promote capital investment.

“We are disappointed the budget has not gone further, given fiscal maneuverability, to introduce further incentives to promote capital investment, such as tax credits for small companies, wider eligibility beyond mining companies for flow-through shares, harmonization of the provincial sales tax with the federal GST and legislative amendments to improve the effectiveness of the International Financial Centre to attract foreign investment,” the association commented.

IE