The British Columbia finance ministry says that a stronger economic outlook for 2006 is bolstering the province’s surplus, but emerging economic and natural resource risks pose challenges.

The surplus for 2006/07 is forecast at $1.2 billion, up from the $600 million expected at budget. Improved surpluses are also forecast for 2007/08 and 2008/09.

Total revenue for 2006/07 is forecast to be just over $1 billion higher than budget, due to increased taxation revenue and higher B.C. Hydro net income. These improvements are partially offset by a $774 million drop in natural gas revenue.

Total government spending is forecast to be $722 million higher than budget for 2006/07, due to higher forest fire costs, incentive payments for agreements concluded in 2006/07, and additional spending by school districts, universities and colleges, and health authorities.

“Overall, B.C.’s economy is performing very well this year and that’s having a positive impact on the province’s bottom line,” said finance minister Carole Taylor. “But there are a few areas where a watchful eye is needed.”

“Natural gas prices are always volatile, and prices have been much lower than forecast for the February budget. Our natural gas revenues this year are down by three-quarters of a billion dollars. And a weakening U.S. housing market and the risk of slower growth in the U.S. economy pose risks to the economic outlook for both British Columbia and Canada as a whole,” she said.

Solid employment gains, strength in housing market activity and stronger retail sales contributed to the improved economic outlook for 2006, the ministry noted. B.C.’s economic growth is now forecast at 3.6% compared to 3.3% at budget. For 2007, economic growth remains unchanged from budget at 3.1%, reflecting cautious assumptions for growth in the U.S.

“With any fiscal plan, there are things you can influence and others you can’t,” said Taylor. “With some risks, like a slowing U.S. economy, the best you can do is anticipate the consequences – but you can’t control it. And then there are things that you can influence, like public sector compensation.”

“Since the February budget, we ratified 138 negotiated agreements covering 98% of British Columbia’s public sector. Having that certainty for the next four years is a real benefit to the fiscal plan.”

The taxpayer-supported debt-to-GDP ratio, a key measure of debt affordability, continues its downward trend. The ratio is forecast to decline to 15.7% in 2006/07.