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Note: The electronic version of the following Topic Box is for
      informational purposes only.  The printed version remains
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BRITISH COLUMBIA'S STRUCTURAL DEFICIT

The budget deficit can be divided into two parts. The cyclical part of
the deficit results from changes in economic conditions. The other
part is the underlying, or structural, deficit -- the deficit that
would exist if employment and output were at their "normal", or
average, levels. The structural deficit results because of an
imbalance between what the government collects in revenue and what it
spends, independent of changes in economic conditions.

Governments typically run deficits during an economic slowdown. When
the economy is growing at less than its normal rate, expenditures on
social programs such as income assistance are higher than normal,
while revenues such as corporate income taxes are lower than average.
A return to normal economic conditions after a period of below-average
economic growth will eliminate the cyclical part of the deficit, but
will not affect the structural component.


                        THE STRUCTURAL DEFICIT

                   +- +--------------+ -+     +--------------+
                   |  |              |  |     |              |
                   |  |  Output Gap  |  |----|   Cyclical   |
                   |  |--------------| -+     |   Portion    |
                   |  |              |        |              |
     Potential ---|  |              |        |--------------|
    Output/GDP     |  |              |        |              |
                   |  |    Actual    |        |  Structural  |
                   |  |  Output/GDP  |        |   Portion    |
                   |  |              |        |              |
                   +- +--------------+        +--------------+
                          Output/                 Budget
                            GDP                   Deficit

          The output gap can be used to estimate how much of
          the budget deficit is cyclical -- the result of
          below-normal economic activity.


Structural deficit figures can be estimated using a concept called the
"output gap". This is the difference between potential and actual
output (gross domestic product) of the economy. The structural deficit
is calculated by removing the cyclical portion of the budget deficit
that is attributable to the output gap (see diagram).

Measures undertaken in the 1992 and 1993 budgets have contributed to a
reduction in the structural deficit from approximately $1.8 billion in
1991/92 to between $400 and $800 million in 1993/94. Because
structural deficits are difficult to calculate precisely, these are
rough estimates.