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Note: This electronic version of the BC Budget 94 document is
      for informational purposes only.  The printed version
      remains the official version.
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B.C. BUDGET 94

Delivered in the Legislative Assembly
March 22, 1994
by
Honourable Elizabeth Cull
Minister of Finance and Corporate Relations



INTRODUCTION

I am pleased to present the third budget of this New Democrat
administration -- a budget that builds a prosperous and secure
British Columbia.

In our first two budgets, we had to respond to some serious
problems -- we had to cut spending growth and reduce the deficit.

We met these challenges, and British Columbia now has a firm
fiscal foundation.

Thanks to the efforts of all British Columbians, our economy has
turned around.

We now have one of the strongest economies and best job creation
records in North America.

We have one of the best deficit reduction records in Canada.

We have the second-lowest overall taxes in Canada.

We have the lowest debt, in relation to the size of our economy,
of any province.

And we have the highest credit rating of any province.

In preparing this 1994 Budget, I consulted extensively with
groups and individuals across British Columbia.

In these meetings, British Columbians clearly told me their
concerns.

They want us to hold the line on taxes, to be tough on spending,
and to eliminate the deficit as quickly as possible.

They are concerned about their own job security and about their
children's future in a rapidly changing economy.

And they want us to focus on building the future -- investing in
people and ensuring that British Columbians have the skills they
need to prosper in the new economy.

Honourable Speaker, this budget responds to these concerns and
puts forward our plan for British Columbia's economic future.

We recognize that government alone cannot build our economy and
create stable long-term jobs.

This is a challenge which requires the initiative of many groups
and individuals -- in the private sector as well as the public
sector.

But it is government's job to focus on the future -- to make sure
prosperity today leads to economic security tomorrow -- with new
jobs and new business opportunities everywhere in British
Columbia.

We as a government have two key goals.

One is to eliminate the deficit and ensure that British Columbia
remains on a sound financial footing.

The other is to build British Columbia's economic foundations for
the 21st century.

Over the last two years, we have made substantial progress in
getting British Columbia's fiscal house in order -- cutting
spending growth in half and reducing the deficit by over $1
billion.

But, equally important, we have done it while protecting the
health of our families and the education of our children.

And we have avoided the economic nose dive that would have
occurred had we repeated the radical restraint of a decade ago.

Honourable Speaker, this 1994 budget builds on the progress we
have already achieved.

*  It reduces the deficit significantly for the third year in a
   row.

*  It puts forward a plan to achieve a balanced budget by
   1996/97.

*  It continues to reduce the rate of spending growth by cutting
   waste and finding new efficiencies.

*  It continues to make the tax system fairer for ordinary people
   and business.

*  And it puts the lid on taxes for three years.

Honourable Speaker, our most important goal is to build British
Columbia's economic foundations for the 21st century.

That means:

*  Making the new public investments required for private sector
   growth.

*  Maintaining quality health care and education for B.C.'s
   families and children.

*  Putting new skills in the hands of British Columbians.

*  Ensuring a long-term future for forest workers and their
   communities.

*  And providing support for small- and medium-sized businesses
   in the forefront of B.C.'s transition to a new economy.

In our first two budgets, we began moving towards these goals.

Our economy performed well last year, but it would be
irresponsible to sit back now and take our long-term future for
granted.

Unless we continue to lay the foundations for longer-term
progress, we will not be able to pass on a prosperous and
sustainable economy to our children.

Honourable Speaker, this budget introduces new initiatives to
help ordinary people, communities and business all over British
Columbia -- initiatives to increase skills training, build roads
and public facilities, and revitalize forest communities.


ECONOMIC REVIEW AND OUTLOOK

Let me now review our economic performance and prospects in a bit
more detail.

British Columbia's economy grew by 3.2 per cent in 1993 -- our
strongest performance in four years.

As a result, Honourable Speaker, we now have one of the
healthiest economies in North America.

In 1993:

*  Exports grew by over 16 per cent.

*  Retail sales were up by 8 per cent.

*  Capital investment was up by over 8 per cent.

*  Housing starts reached 42,800 units, an all-time record.

*  And business bankruptcies fell by 20 per cent.

Over the last 12 months, 76,000 new jobs have been created in
British Columbia -- almost half the jobs created in all of
Canada.

That's more than 200 new jobs every day.

And, in 1993, 63 new businesses were incorporated every day.

British Columbia's strong performance is expected to continue
next year as the global economy recovers. Overall, our economy is
forecast to grow by 3.4 per cent in 1994.


MANAGING BRITISH COLUMBIA'S FINANCES

A Commitment to Eliminate the Deficit

However, sustaining economic growth over the longer term requires
continued strong management of the province's finances.

Unless we can reduce and eliminate the deficit, we will not be
able to continue providing first-rate education for our children
or quality health care for all of us.

In 1991 we inherited a financial mess.

We faced government spending that was growing at a rate of 12 per
cent each year -- far in excess of growth in the economy.

And we faced a federal government refusing to honour its funding
commitments to our hospitals, colleges and universities.

Spending exceeded revenue by $2.4 billion, and an independent
audit showed the deficit soaring to $3.4 billion by this year if
no action was taken.

When this government took office, the Premier pledged to cut the
deficit each and every year -- until finally eliminated.

Honourable Speaker, our first two budgets recorded steady
progress.

This budget continues that progress and lays out a plan to
achieve a balanced budget by 1996/97.


Progress to Date

Let me first summarize the financial results for fiscal 1993/94,
the year just ending.

I am pleased to announce that this government's spending will be
right on budget -- at just under $19 billion.

And, because our economy is prospering, revenue will be almost
$17.7 billion.

That is $220 million higher than projected in last year's budget.

Every penny of this new revenue has been used to cut the deficit
and hold down debt.

Therefore, the 1993/94 deficit will be $1.28 billion -- well
below our budget target of $1.54 billion.

That's a cut of over $1 billion in our first two budgets.


Reducing the Deficit in 1994/95

In this budget, Honourable Speaker, we are building on our record
of sound financial management.

British Columbia's continued strong economic growth means that
provincial government revenues for 1994/95 will total $18.73
billion -- an increase of 5.9 per cent.

Spending will total $19.63 billion.

That represents an increase of 3.5 per cent -- the smallest
increase in nine years.

In three budgets, we have cut the rate of spending growth by
almost three-quarters.

Honourable Speaker, in this budget British Columbia is taking
another major step forward -- bringing the deficit well under the
$1 billion mark.

The deficit for 1994/95 will be $898 million -- the third
significant drop in three years.

By the end of the coming fiscal year, we will have cut the
deficit by $1.5 billion -- a reduction of over 60 per cent since
we took office.


The Debt Management Plan

Honourable Speaker, I am also putting forward this government's
debt management plan.

In recent years, Canadians have become increasingly concerned
about the growth of government debt.

British Columbia is fortunate to have the lowest debt in relation
to the size of its economy of any jurisdiction in Canada.

However, the accumulation of debt -- if not controlled -- raises
the amount we must spend on interest payments, and reduces our
longer-term ability to fund key programs for people.

A workable debt plan must recognize that the debt supported by
B.C. taxpayers has two major components.

One component is the accumulation of government operating
deficits -- called the direct debt.

That's the equivalent of buying the groceries with your credit
card.

When the government spends more than it takes in, this type of
debt increases.

Halting the growth of direct debt requires a balanced budget.

The second major component of British Columbia's debt is the
amount the province borrows to build key assets like schools,
hospitals and roads.

Unlike the direct debt, this debt generates real economic returns
over time -- for example, an efficient transportation system and
a healthy, well-educated population.

This is similar to taking out a mortgage to buy a house.

Money is borrowed to buy a valuable asset and the debt is
gradually repaid on a fixed schedule.

A high level of in-migration to British Columbia in recent years
has increased the need for public assets of all kinds.

And the radical restraint of a decade ago created a backlog of
unfilled needs for new schools, justice facilities, colleges,
universities, and hospitals.

The debt incurred to build these facilities is backed by the
value of the assets.

The total replacement value of British Columbia's public assets
is $60 billion, more than double the level of outstanding public
sector debt.

Honourable Speaker, our debt management plan has two goals.

One is to eliminate the province's deficit.

The other is to ensure that the level of total tax-supported debt
reflects the province's ability to repay through increased
economic growth and revenues.

The progress we have made in reducing the deficit in this and
previous budgets has slowed the growth of British Columbia's
direct debt.

And we will build on this progress by eliminating the deficit by
1996/97.

In preparing this budget and the longer-term plan to eliminate
the deficit, the Premier directed that further progress be made
by reducing spending growth -- not by increasing taxes.

Like most other provinces, this government's deficit reduction
over the last two years relied on a combination of expenditure
controls and tax increases.

But taxpayers have done enough to help the government put our
province's fiscal house in order.

Therefore, for the next three years, there will be no new taxes
and no increase in existing tax rates.

*  No increase in personal income tax rates.

*  No increase in sales tax rates.

*  No increase in fuel tax rates.

*  No increase in corporation income and capital tax rates.

*  No increase in Medical Services Plan premiums.

*  No increase in average school and rural property tax levels.

*  No increase in property transfer tax rates.

Reaching our balanced budget goal without tax increases requires
a further reduction of spending growth to the two-per-cent level
in the next two budgets -- well below inflation and population
growth.

And in this budget, we are taking a further step to help cap and
reduce the growth in debt.

Honourable Speaker, the British Columbia Endowment Fund will be
wound up, and most of its assets sold to pay down government
debt.

This action will generate approximately $600 million for debt
reduction.


Increasing the Fairness of British Columbia's Tax System

Honourable Speaker, in addition to freezing taxes we are
introducing a number of tax cuts to increase the fairness of
British Columbia's tax system.

Together, these tax cuts total $112 million: half to improve
fairness for individuals and half for B.C. business.

FIRST, we are fulfilling a promise made during the last election
campaign and eliminating the property transfer tax for first-time
home buyers.

British Columbia's housing prices are the highest in Canada, and
this measure will help to make the dream of home ownership a
reality for thousands of young families.

The first-time home buyers' exemption will replace the existing
high-ratio tax relief program, and will be available to
qualifying home buyers who have resided in British Columbia for
at least one year.

The maximum qualifying purchase price will be $250,000 in the
Lower Mainland and Capital regions, and $200,000 elsewhere in the
province.

SECOND, we are increasing the home owner grant phase-out
threshold by $50,000 -- now the grant will be phased out only for
properties valued above $450,000.

This adjustment will ensure that 95 per cent of B.C. homeowners
are not affected by the phase-out of the home owner grant.

THIRD, we are restoring the trade-in allowance on purchases of
automobiles.

Consultations over the last year have shown that this measure has
had unintended effects for both buyers and sellers.

We are also raising the threshold for the tax on luxury vehicles
to $32,000.

This change reflects both price increases and concerns that
higher-priced vehicles needed to live and work in many northern
and rural parts of the province are not luxuries.

Honourable Speaker, this budget also ensures tax fairness for
municipalities.

During my pre-budget consultations, municipal governments
expressed concern over the level of municipal grants as well as
grants paid to municipalities in lieu of property taxes.

I am pleased to announce that this budget maintains the level of
unconditional grants to municipalities.

In addition, we will implement a new approach to determining
unconditional grants in future years which provides greater
predictability.

We will also undertake a thorough review of grants in lieu of
property taxes for provincial institutions such as universities,
hospitals and Crown corporations.

And we will take steps to improve fairness for communities which
bear the burden of providing services to these institutions.

This budget also introduces a package of measures to increase
fairness for business and help the private sector create jobs.

I will outline the details of these initiatives later on in this
budget address.


Controlling Costs and Cutting Waste

Honourable Speaker, bringing down the spending growth rate over
the last two years has challenged the public sector.

Adjusting for population and inflation, real government spending
per person declined last year.

This government's decision to rely solely on spending controls to
continue reducing the deficit creates an even greater challenge
to the public sector.

This year's spending growth of 3.5 per cent is well below last
year's growth, and only a fraction of the 12-per-cent growth rate
inherited from the previous administration.

And it represents another cut in real spending per person of 1.3
per cent.

Honourable Speaker, cutting waste and duplication means ensuring
that all government agencies are fulfilling a valid public
purpose.

In 1992, we launched an initiative to reduce the large number of
government boards, agencies and commissions.

This year, we continued to review each government body -- asking
some basic questions.

We asked if the public body was still performing a useful
function.

Or whether the service was performed more appropriately by the
private sector.

We asked whether there were other ways of providing the service
more efficiently, and at less cost to the taxpayer.

And we asked whether the public body was duplicating a service
provided elsewhere.

Honourable Speaker, as a result of this review, I am announcing
today the elimination of five major government entities.

*  FIRST, as I have already announced, the British Columbia
   Endowment Fund will be wound up with the proceeds used to
   reduce the province's debt.

*  SECOND, the Round Table on the Environment and the Economy
   will be eliminated. This advisory body has undertaken valuable
   work, but other government initiatives in environmental
   protection and economic development have made its role
redundant.

*  THIRD, the British Columbia Petroleum Corporation will be
   wound up. The deregulation of the natural gas industry has
   eliminated the need for this body, and its remaining functions
   can be more efficiently performed by the Ministry of Energy,
   Mines and Petroleum Resources.

*  FOURTH, the British Columbia Energy Council will be wound up
   during the coming year. Its remaining consultative and policy
   advisory functions can now be performed within the existing
   mandates of the B.C. Utilities Commission and the Ministry of
   Energy, Mines and Petroleum Resources.

*  FIFTH, Government Air Services will be wound up. Its air fleet
   will be sold and the government will contract with the private
   sector for emergency response, air ambulance, and other air
   travel requirements. An evaluation has shown that contracting
   these services to the private sector can achieve cost-savings.

Over the coming months, I am looking forward to receiving the
support of Members for additional steps to eliminate waste and
duplication.

Honourable Speaker, both elected and non-elected officials must
continue to do their part to hold down the cost of government.

We are continuing the salary freeze for MLAs and senior public
servants, as well as the five-per-cent cabinet pay cut announced
last year for the Premier and ministers.

We are also moving to ensure greater control and accountability
for salary costs in the broader public sector.

These costs account for about 50 cents of every dollar spent by
the provincial government.

But, until now, the government has had limited responsibility for
collective bargaining and executive compensation in schools,
hospitals, universities, and colleges.

Last year we established the Public Sector Employers' Council to
increase the effectiveness of public sector labour management
relations.

And we have instructed the new council to undertake a
comprehensive review of management compensation in the broader
public sector.

We have also taken specific measures to control costs and improve
efficiency in the provision of education and health services.

This year, additional funding for public schools will be
dedicated directly to children in classrooms.

These grants provide no new funds for salary increases, and put a
cap on school district administrative costs.

And over the coming year, we will implement a province-wide
teacher bargaining system to improve cost-effectiveness for B.C.
taxpayers and provide greater stability for students.

Health care is our largest single budget item, accounting for one-
third of government program spending.

A key goal of our New Directions initiative is to find more cost-
effective ways of providing high-quality health care.

As part of a new regional management structure for health care,
we are developing a series of new management arrangements to
achieve greater efficiency in purchasing, administration,
payroll, and executive compensation.

A recent audit identified potential savings of up to $50 million
from better hospital purchasing practices alone.

Honourable Speaker, taxpayers expect that income assistance will
be targeted to those in need, without fraud and abuse.

In January of this year, we announced a series of new measures to
combat welfare fraud and improve accountability.

These initiatives are expected to save $20 million annually, and
we will strengthen them in the coming year.

Honourable Speaker, we are also taking measures to improve tax
enforcement, minimize fraud, and ensure that everyone pays their
fair share.

We will increase our auditing and collection efforts, and there
will be higher penalties for tax evaders.

To help businesses comply, effective midnight tonight we are
introducing an amnesty period during which they can remit overdue
consumer taxes without penalty.

It will end on June 30th, 1994.

After the amnesty period, we will step up tax enforcement and
collection.

Honourable Speaker, some would like us to go further than the
measures I have just outlined.

They would like us to slash spending, eliminate the deficit this
year, and freeze our debt immediately.

However, eliminating the deficit immediately would mean:

*  long waiting lists for health care;

*  crowded classrooms;

*  a lower level of law enforcement; and

*  more young people turned away from universities and colleges.

Freezing our debt would mean an immediate halt to construction of
badly needed schools, hospitals, colleges, roads and other vital
infrastructure.

The experience of radical restraint right here in B.C. during the
early 1980s shows it doesn't work.

Not only would it make us less healthy, less well-educated and
less well off -- it would also reduce our ability as a province
to compete in a global economy.


Achieving Fairness in Federal-Provincial Cost-Sharing

Honourable Speaker, although we are well on our way to
eliminating the deficit and stabilizing our debt, a major source
of uncertainty remains.

This uncertainty relates to essential programs for people, cost-
shared between our province and the new federal government in
Ottawa -- health care, post-secondary education, and income
support.

The previous federal government attempted to deal with its
deficits by offloading its financial responsibilities for these
programs onto the provinces.

The result has been a steady decline in the federal share of
funding for essential services in our province.

That means British Columbia taxpayers have had to pay more and
more each year just to keep our essential programs from
deteriorating.

The impact on our deficit has been dramatic.

In the absence of federal offloading we would have recorded a
budget surplus of almost $900 million last year and a surplus of
almost $1.6 billion for this coming year.

That's $2.5 billion we could have used to reduce B.C.'s
accumulated debt.

Let me repeat -- British Columbia would have been in the black
last year and in the black this year, with no budget deficit, if
the federal government had lived up to its responsibilities.

The new Liberal government in Ottawa has stated that federal-
provincial cost-shared programs will be included in its major
review of social programs over the coming year.

However, even before undertaking this review, it has announced
its intention to continue offloading costs onto the provinces.

In its recent budget, the Liberal government announced that by
1996 it will reduce its payments for income support and post-
secondary education to 1993 levels.

If this happens, the provinces will have to assume even more of
the costs of providing these programs.

The funding problem for Canada's key social programs cannot be
resolved by a continuation of unilateral federal offloading.

A lasting solution requires a new, cooperative approach with the
provinces -- one which ensures that provincial responsibility to
provide key services is matched by access to adequate revenue
sources.

British Columbia has offered to play a positive and constructive
role in rebuilding a federal-provincial partnership that will
preserve our national social programs for the 21st century.


INVESTING IN LONG-TERM ECONOMIC GROWTH

Honourable Speaker, British Columbia's economy must create jobs
with a future.

Our economy is changing.

In the old economy we relied on a small number of well-
established markets for our products.

In the new economy, we must learn to compete in a wide range of
specialized global markets.

In the old economy, our competitive advantage lay in the high
quality of our natural resources.

In the new economy, it will be based on the quality and skills of
our workforce.

Honourable Speaker, we face challenges in building the new
economy.

*  The challenge of reconciling competing demands while getting
   the greatest social and economic value from a limited natural
   resource base.

*  The challenge of helping workers and their communities adapt
   to a changing economy.

*  And the challenge of creating a climate that encourages new
   private sector investment and growth.

Unless we take action now to meet these challenges, we will not
realize our full economic potential.

Our plan for long-term economic growth and job creation has five
key elements:

*  FIRST, providing the new public investments in infrastructure
   required to support private sector growth.

*  SECOND, making investments in people. That means giving
   priority to the health of our families and the education of
   our children.

*  THIRD, putting new skills in the hands of British Columbia's
   workers and young people.

*  FOURTH, ensuring a long-term future for British Columbia's
   forest workers and their communities.

*  And FIFTH, encouraging the growth of small- and medium-sized
   businesses to lead the transition to a new economy.


BC 21: Building BC for the 21st Century

Honourable Speaker, a strong, diversified private sector requires
an effective public sector investment strategy.

A strategy that will meet the needs of communities across the
province for key investments like roads, communications networks,
water and sewer systems, and educational facilities.

Public investment creates jobs in the short term and tangible
economic benefits in the long term.

Last year this government introduced BC 21, a major initiative to
increase the effectiveness of public investment and job creation
activities.

*  BC 21 meets vital needs for new public facilities -- in health
   care, education, child care, research and development, transit
   and ferries.

*  It ensures the maximum level of regional benefits from all
   public sector investment -- jobs, opportunities for private
   sector suppliers, and training for workers.

*  BC 21 plans and builds important transportation links using
   the B.C. Transportation Financing Authority.

*  It funds innovative regionally-based job creation and training
   opportunities.

*  And it supports community initiatives to build or improve
   neighbourhood facilities.

Honourable Speaker, we will continue to build on the success of
BC 21 during the coming year.

Public investment in schools, health care facilities, post-
secondary institutions, and justice facilities will total $1
billion in 1994/95.

To enable working families to take full advantage of education
and job opportunities, we will continue our three-year initiative
to create 7,500 new child care spaces.

And we will be introducing new initiatives to support quality
child care that meets the needs of families at a cost they can
afford.

A new consolidated capital planning process, put in place this
year, will ensure that major capital investments are made in the
most cost-effective way.

It will also ensure that British Columbians obtain the greatest
possible benefit from capital expenditures in terms of job
creation, training, skills development and regional economic
impact.

The B.C. Transportation Financing Authority will invest $300
million in 1994/95.

This investment will keep the Vancouver Island Highway on
schedule and allow us to make a start on other long-overdue
transportation projects during the coming months.

The Build BC Special Account will be continued with a budgetary
allocation of $100 million.

Priorities for the fund will include:

*  a continuation of the Community Grants Program;

*  new initiatives to support affordable housing; and

*  new partnerships with the private sector to help expand
   science and technology industries.

Honourable Speaker, the BC 21 initiative will be supplemented in
1994/95 by a new Canada-British Columbia infrastructure program.

This new federal-provincial-municipal program provides for a
total investment of $675 million over two years.

The provincial contribution will be $225 million over two years.

Funding will be targeted mainly to priorities set by local
government, with an emphasis on water, sewer, and local
transportation projects.


Protecting Health and Education

Our investment in people is even more important than our
investment in physical assets.

A healthy, well-educated population enhances both our quality of
life and our long-term economic performance.

In our first two budgets we gave the highest priority to
maintaining the quality of health and education services in the
face of a growing population and serious fiscal constraints.

This budget continues to reflect that priority.

Expenditures on health care for 1994/95 will be $6.4 billion.

That represents an increase of $200 million or 3.3 per cent over
the previous year.

While this increase is below those of the last few years, it is
significantly higher than those in other provinces.

For example, Alberta's budget contains a 10-per-cent cut in
health expenditures.

While British Columbians give the highest priority to maintaining
a first-rate health care system, they also know that rising costs
cannot simply be passed on to the taxpayer.

We must find better ways of providing first-class care.

Last year we introduced the New Directions initiative -- to
develop more cost-effective ways of ensuring a healthy
population.

We also introduced a landmark labour-management accord that
allows the necessary transition from expensive acute care to more
effective community-based care.

And we negotiated a settlement with British Columbia's doctors
that protects universal access to care within the means of
taxpayers.

This year, we are taking a number of measures to protect those
health programs experiencing the most serious cost pressures.

The cost of the Pharmacare program has grown from $215 million
five years ago to $365 million today.

To protect the viability of this important program we have
launched a new Therapeutics Initiative.

It will provide an independent scientific evaluation of new and
existing prescription drugs, and make recommendations on coverage
and use.

And the Minister of Health will be announcing a number of
additional measures to ensure the continued viability of the
Pharmacare program.

Honourable Speaker, during the coming fiscal year, we will spend
$3.38 billion on operating grants to elementary and secondary
schools.

That represents an increase of $130 million or four per cent over
last year's grant.

This increase provides full funding for enrolment increases, an
additional one per cent for operating cost pressures, and $30
million for children with special needs.

Operating grants for universities and colleges will be $1.06
billion -- up 3.4 per cent.


New Skills For a Changing Economy

Honourable Speaker, over the coming decades British Columbia's
economic success will depend on the skills of its workforce.

High skill levels are a critical factor in our ability to provide
knowledge-based industries and jobs with a future for ordinary
British Columbians.

We are at a crossroads where failure to move ahead decisively
would create a widening gap between the skills of our workforce
and those needed in the changing economy.

And the result of this failure would be increasing unemployment
and rising costs for social assistance.

Last summer, the Premier's Summit on Skills Development brought
together British Columbians from all walks of life to help chart
a plan of action.

In the coming days we will announce a comprehensive new skills
and training initiative.

This initiative will provide young people and working British
Columbians with the skills they need for jobs in a changing
economy.

We are making skills training programs more accessible.

And we are making improvements to high school and post-secondary
education to meet the needs of the real world.

In addition to the $34-million-grant increase for post-secondary
education, we are providing $90 million in new expenditures to
implement the new skills initiative in 1994/95.

Over the next two years, we are committing $200 million to this
important new initiative.

Together with the grant increase for post-secondary institutions,
this funding will create over 8,100 additional full-time post-
secondary spaces in 1994/95.


Revitalizing our Forest Sector

Honourable Speaker, the health of our forest industry is critical
for the survival of communities across British Columbia.

Yet our forests and the communities that depend on them are
facing serious problems.

Years of overcutting and poor management practices have led to a
decline in both the quantity and quality of the remaining
resource.

Employment in the forest industry has been declining for over a
decade, due to both mechanization and resource limits.

And the disputes over the use of our forest land base are
intense.

Taking action to overcome these problems and revitalize our
forest sector is one of this government's highest priorities.

In 1992, we launched the CORE process -- appointing an
independent commissioner to develop regional land-use plans on
the basis of community participation.

We initiated a province-wide Timber Supply Review to address the
legacy of overcutting and set harvest levels that are
sustainable.

We launched a $40-million Forest Worker Development initiative
under BC 21 to increase the level of silviculture in forest
communities while creating jobs and improving worker skills.

And we provided new funding through BC 21 to increase the Small
Business Forest Enterprise Program.

Honourable Speaker, we will continue to give priority to renewing
our forests over the coming year.

Despite the budgetary pressures we face, we are maintaining our
total silviculture spending at $275 million to ensure the long-
term viability of our wood supply.

We are increasing our funding for the Small Business Forest
Enterprise Program from $109 million to $140 million.

This new funding will increase the wood supply to smaller
manufacturers of high value-added products, and the cost will be
offset by new forest revenues.

Honourable Speaker, during this legislative session, we will
introduce the new Forest Practices Code.

And we are providing new funding of $20 million to ensure
implementation of this vital initiative.

Finally, over the coming months, we will be announcing a
comprehensive package of initiatives to ensure future jobs and
the sustainability of forest communities.

It will focus on investing in forest lands, protecting the forest
environment, ensuring higher levels of value-added manufacturing,
and assisting forest-based communities and workers in the face of
change.


Encouraging Private Sector Investment

While the public sector can provide essential support through its
investment in areas such as infrastructure, natural resource
management and skills, most job creation occurs in the private
sector.

It is the private sector, particularly small- and medium-sized
businesses, that is playing the lead role in British Columbia's
transition from the old to the new economy.

During my pre-budget consultations across the province, business
groups made it clear they were not looking for handouts.

They want better access to investment capital, less government
red tape, and a fair tax system.

Over the last two years we have already taken a number of
initiatives to help the private sector grow and create jobs.

*  We opened the B.C. Investment Office to match private sector
   investment with new opportunities and cut the red tape
   sometimes faced by new businesses.

*  We introduced the BC Focus program to assist new, innovative
   B.C. businesses.

*  We launched a BC Buy Smart program to help more B.C.
   businesses get government contracts.

*  And last year we lowered or eliminated corporation capital
   taxes for 3,500 small businesses.

In this budget, I am pleased to introduce a number of measures to
help small business grow and create jobs.

FIRST, we are increasing the threshold for the corporation
capital tax to $1.5 million of paid-up capital and the tax will
now be phased-in between $1.5 million and $1.75 million of paid-
up capital.

This change will eliminate or reduce the tax for another 2,000
small businesses.

SECOND, we are exempting cooperatives and incorporated family
farms from the corporation capital tax.

This change will reduce taxes by approximately $4 million and
help another 500 businesses.

THIRD, we are introducing measures to reduce the costs that small
businesses face in collecting and remitting taxes to government.

The required frequency for remitting sales and hotel room taxes
will be reduced, and the commissions paid to businesses for
collecting these taxes will be increased.

FOURTH, we are allocating another $10 million to the successful
BC Focus program.

This new funding will help innovative B.C. businesses raise the
equity capital they need to start up or expand.

Honourable Speaker, we are also introducing a package of tax
reductions and other measures to support the growth of key
sectors of British Columbia's economy.

FIRST, we are introducing an $18-million package to improve the
competitiveness of the mining industry.

British Columbia's mining industry is a vital part of our overall
economy and a major economic base for many communities.

It accounts for 16 per cent of our exports and many thousands of
skilled jobs.

Specific measures I am announcing today include a reduction of
the mineral tax rate for coal mines, an enhanced allowance for
capital expenditures on new or expanded mines, a new exploration
program, and funding to continue the Canada/BC Mineral
Development Agreement.

SECOND, we are spending $5 million more to help make tourism
marketing more effective. Programs will be cost-shared with the
private sector, and will provide an important boost to this key
regional industry.

THIRD, we are increasing support for British Columbia's cultural
sector by $1.8 million.

Part of this expenditure will be allocated to creating a new
funding partnership with the federal government and the private
sector.

FOURTH, we are reducing the jet fuel tax by one cent per litre
for international flights to advance the Vancouver International
Airport as a major North American gateway to the Pacific Rim.

Additional tax reduction measures are outlined in the budget
appendix.


CONCLUSION

Honourable Speaker, British Columbians have reason to feel good
about our province and its future.

British Columbia has come through a challenging economic period,
and we have emerged as Canada's strongest economy.

We have created more jobs than any other province.

We have the second lowest taxes of all Canadian provinces.

This government has the highest credit rating.

And we have the lowest government debt as a per cent of our
economy of all Canadian provinces.

This budget builds on that strength.

It is a practical and pragmatic budget with clear goals.

It focuses on areas where government can make a real difference,
and it recognizes that our economic future depends on the
initiative and talent of the private sector, the public sector,
and all British Columbians.

Honourable Speaker, this budget shows that our fiscal plan is on
track, and the sound fiscal management of the last two-and-a-half
years is starting to pay off.

It cuts the deficit for the third year in a row.

It puts forward our plan to balance the budget in two years.

It freezes taxes for the next three years.

And it includes $112 million in tax cuts to make the tax system
more fair and to encourage private sector growth.

But there is much more to be done if British Columbia is going to
maintain its position as the best place in Canada to live, work,
and do business.

This budget is focused on the tasks ahead.

It places a high priority on skills training, job creation and
the long-term health of our forest sector.

It recognizes the challenges we face as our province makes the
transition to a diversified value-added economy.

And it protects vital health and education services.

With this budget, we are taking concrete action to invest in the
future and make sure all British Columbians have a fair chance to
participate in the new economy.

Honourable Speaker, this budget proves that we've been listening
to British Columbians.

And we will continue listening and working with people all over
this province to build a healthy economy and a secure future for
everyone.

Thank you.





APPENDIX A

Economic Review and Outlook

Overview and Summary

The British Columbia economy grew an estimated 3.2 per cent in
1993. Growth was broadly based compared to recent years. The main
sources of growth were consumer spending, machinery and equipment
and residential investment. Exports also rebounded sharply from
1992 levels, which were depressed by shutdowns in the pulp, paper
and coal mining industries. However, import volumes grew faster
than exports due to the strength of domestic demand.

The labour market also improved in 1993 and was quite robust
compared to the rest of Canada. Employment rose 2.9 per cent,
compared to 0.9 per cent in the rest of the country (see Chart
A1). In British Columbia, 44,000 new jobs were created, 38,000 of
them full-time positions. Much of the private-sector job growth
was in self-employment rather than paid employment. Employment
declined 0.6 per cent in Vancouver, but rose 3.2 per cent in
Victoria and 7.9 per cent in the rest of the province.


[See Chart A1 in printed material]


During the first half of 1993, the number of people available for
work grew more slowly than employment, causing the unemployment
rate to dip to 8.6 per cent in October. However, by the beginning
of 1994, growth in employment and the labour force were running
neck and neck, and the unemployment rate rose to about 10 per
cent in January and February. The rapid growth in the labour
force was due, in part, to record levels of in-migration. In
1993, there was a net inflow of 80,435 people to British Columbia
from other countries and the rest of Canada, up nearly 11,000
from the previous record in 1992.

Looking ahead to 1994 and 1995, conditions in the world economy
should improve as recessions come to an end in Europe and Japan.
Despite recent interest rate increases due to fears of renewed
inflation in the United States, monetary conditions should remain
conducive to economic expansion, given the large amount of excess
capacity in the Canadian economy.

British Columbia's exports should continue to expand with
recovery overseas, and the North American economy still in the
early to middle stages of an expansion. In-migration to British
Columbia is likely to slow over the next few years as economic
conditions improve in the rest of Canada. This will reduce
housing pressures in areas that are popular destinations for new
residents. Nevertheless, annual population and employment growth
in excess of 2 per cent should keep consumer markets expanding.
Several major investments in the province that have been
announced recently will also provide a solid foundation for
economic growth.

The provincial economy is expected to grow 3.4 per cent in 1994
and just under 3 per cent over the 1994-98 period.



The External Environment


The International Economy

The North American economy grew rapidly in the fourth quarter of
1993, but the Japanese and German economies remained in a slump.
The Canadian and United States economies are expected to lead the
major industrial countries in economic growth in 1994. Conditions
in Japan and most of Europe are not expected to improve much
until well into 1994.

A broadly-based pickup in domestic demand helped to strengthen
economic activity in the United States in 1993. Growth was
dampened by slow growth in exports, surging imports and falling
government spending caused largely by defence cutbacks.
Residential repair and construction, a key market for British
Columbia wood products, was spurred by declining interest rates
and rebuilding following extensive flooding in the Midwest.
Housing starts rose 7.2 per cent to 1.29 million units in 1993
and are expected to total 1.37 million in 1994 and 1.42 million
in 1995. The strength of the United States economy resulted in
the value of British Columbia's exports south of the border
growing 26 per cent in 1993. The U.S. economy is expected to grow
3.0 per cent in 1994 and 2.8 per cent in 1995 (see Chart A2).

In Japan, both domestic and external demand were weak in 1993.
Japanese real gross domestic product (GDP) shrank in the fourth
quarter and was unchanged for the year. Consumer spending was
sluggish due to weak growth in employment and income. The higher
value of the yen adversely affected export growth and investment
spending, but excess industrial capacity and office space, and
depressed profits also took their toll. The only bright spot in
the Japanese economy has been housing starts, an important market
for British Columbia lumber. Starts rose about 5.9 per cent,
partly due to government loan programs. The value of the
province's wood exports to Japan rose over 60 per cent in 1993
due to consumption and price increases. Total exports to Japan
increased 19 per cent.


[See Chart A2 in printed material]


Japan's coalition government faces three major economic policy
problems: implementing its fiscal stimulus program, finding a way
for the over-valued yen to depreciate against major currencies
and at the same time satisfying U.S. demands for reduced trade
barriers. With domestic demand likely to decline (even with the
fiscal stimulus program) and the high value of the yen dampening
exports, no growth is expected in the Japanese economy in 1994.
In 1995, growth is expected to be 2.0 per cent, weak by
historical standards.

Other countries in the Asia-Pacific region currently form small,
but rapidly-growing potential markets for British Columbia and
Canada. Most countries in the region expanded rapidly in 1993.
Hong Kong, South Korea, Thailand and Singapore grew at rates of
between 5 and 10 per cent. China recorded another year of 13 per
cent growth and the government is trying to reduce growth to a
more sustainable rate of 9 per cent in 1994. Rapid growth is
expected to continue in the other countries.

Europe is in recession. The European economy shrank 0.6 per cent
in 1993, mainly due to recessions in Germany and France. Domestic
demand declined in most countries but the United Kingdom. The
west German economy shrank 1.9 per cent, which was partly offset
by growth in east Germany. Consumer demand stagnated as a result
of lower real incomes and lower employment. As a result of the
recession, British Columbia's exports to Europe declined in 1993.

The west German economy is expected to grow 1.0 per cent in 1994
and 2.0 per cent next year. Despite the expansion in the United
Kingdom, weak performances by Germany and France will hold
economic growth in Europe to just 1.2 per cent in 1994 and 2.1
per cent in 1995.



The Canadian Economy

The performance of the Canadian economy improved significantly in
1993, with real gross domestic product growing 2.4 per cent, more
than three times the 0.7 per cent growth rate in 1992. The major
contributor to Canadian economic growth was the expansion in
exports of goods and services, reflecting continued strong demand
from the United States and the depreciation of the Canadian
dollar against its U.S. counterpart.

Although economic growth has picked up, the economy continues to
operate well below potential. In the fourth quarter of 1993, the
industrial capacity utilization rate was 79.7 per cent, well
below its most recent peak of 86.9 per cent in the fourth quarter
of 1987. It is estimated that the Canadian economy is running
between 6 and 9 per cent below potential. This compares to an
"output gap" of 1 to 1.5 per cent in the United States.

Employment growth has barely kept up with labour force growth in
1993, keeping the national unemployment rate near 11 per cent.
Concerns about job security were reflected in the modest 1.6 per
cent increase in the volume of consumer spending. The housing
market remained weak east of the Rockies, with Canadian housing
starts falling to an eight-year low of 155,000 units. As a
result, residential investment fell 3.8 per cent. Plant closures
and corporate downsizing contributed to a 9.2 per cent drop in
the volume of non-residential construction. The one bright spot
in the economy, in addition to exports, was machinery and
equipment investment, which rose 8.5 per cent.

The weak economy pushed Canada's inflation rate down last year.
Consumer prices rose 1.8 per cent and average hourly earnings
were up 1.5 per cent. Wage settlements averaged 0.7 per cent in
1993, the second consecutive year that a record low was reached.
The rate of inflation slowed further as 1994 began, falling to
1.3 per cent in January. Inflation in Canada is expected to
decline further in 1994, with the one-time effect of federal and
provincial tobacco tax reductions lowering inflation to about 0.8
per cent. Also, there is considerable slack in the economy so
that even with stronger growth, inflation is unlikely to rise
significantly.

The Canadian economy is expected to grow 3.5 per cent in 1994 and
1995. Economic growth should accelerate due to stronger domestic
and external demand. Faster employment growth will result in
increased consumer spending. The recovery in Europe and Japan in
the second half of the year, and higher commodity prices will
boost exports and contribute to higher growth. Capital investment
will remain relatively weak due to excess capacity in several
sectors.



Financial Markets

Over the past year, the spread between Canadian and U.S. short-
term interest rates has narrowed to its current 0.3 per cent in
mid-March. Less than four years ago, the spread was more than 5
percentage points. Combined with the depreciation of the Canadian
dollar, the drop in short-term interest rates and the narrowing
spread represent a significant easing of monetary conditions in
Canada. This has been possible because inflation stayed in the
lower part of the target band set by the Bank of Canada. In
December, the federal government and the Bank of Canada announced
that monetary policy will aim at maintaining inflation in the 1
to 3 per cent range through 1998.

Monetary conditions in Canada continued to ease in the fourth
quarter of 1993 and early in 1994 as the result of a lower
currency and declining short-term interest rates (see Chart A3).
In February and March, interest rates rose in the United States
after the U.S. Federal Reserve raised its interest-rate target
for overnight loans from 3.0 to 3.25 per cent and signalled that
further increases were likely. The subsequent rise in market-
determined U.S. interest rates appears to be the result of rising
inflation expectations. Canadian interest rates rose in response
to the U.S. increases, despite lower inflation in Canada.


[See Chart A3 in printed material]


Because the Canadian economy continues to operate well below
potential and inflation pressure is virtually non-existent, the
outlook is for short-term interest rates to average about 4 per
cent for the year. The favourable inflation outlook should allow
long-term interest rates to continue the slow decline that was
interrupted in February and March as rates rose about 0.7
percentage points. Rates on 10-year-and-over government bonds
should average 6.8 per cent this year and 6.7 per cent in 1995.
Even with these declines, real long-term interest rates would
remain near 5 per cent next year.

The Canadian dollar started 1993 at 78 U.S. cents and finished
the year at 75 cents. A number of factors contributed to the
depreciation of the dollar.

*  In August, turmoil in the European monetary system spilled
   over to North America.

*  The October federal election caused some volatility, although
   less than many expected.

*  The increase in trade tensions between the United States and
   Japan and the resulting currency swings side-swiped the
   Canadian dollar.

*  Public discussion of government deficits and debt and Canada's
   growing external indebtedness created nervousness among
   foreign investors.

*  Canada-U.S. interest rate differentials narrowed.

The Canadian dollar is expected to average about 75 cents U.S.
this year and next. The effect of narrower Canada-U.S. interest
rate spreads and foreign concerns about Canada's fiscal problems
should be offset by the country's favourable inflation
performance. Rising commodity prices and exports would also lend
support to the currency.



British Columbia: 1993 Performance and 1994-95 Outlook

The British Columbia economy continued to outpace growth in the
rest of Canada during 1993. Most indicators suggest the province
remained the country's growth leader into 1994. The provincial
economy grew an estimated 3.2 per cent in 1993 compared to 
2.4 per cent for Canada as a whole. (See Table A1 for forecast
details and Table G1 for general economic indicators.)



The Domestic Economy

Economic activity in 1993 was driven by strong population growth,
which boosted consumer spending and residential investment, and
growth in machinery and equipment investment. A record level of
net in-migration to British Columbia in 1993, totalling 80,435
persons, supported growth in domestic demand. As well, the
depreciation of the Canadian dollar helped British Columbia
merchants as cross-border shopping trips dropped 15 to 20 per
cent last year. Real consumer spending (i.e. adjusted for
inflation), which accounts for about two-thirds of total GDP,
rose an estimated 2.9 per cent in 1993, following growth of 
2.3 per cent in 1992. Real consumer spending is expected to 
grow 3.7 per cent in 1994 and 3.4 per cent in 1995. The pickup 
in 1994 is the result of faster growth in spending on consumer 
services.

Capital investment increased 8.4 per cent in nominal terms in
1993, according to Statistics Canada. This represents an
inflation-adjusted increase of approximately 5.5 per cent. In
1994, the focus of investment growth is expected to shift away
from residential construction. Total capital investment is
forecast to rise 1.5 per cent in real terms in 1994 and 3.9 per
cent in 1995.

Residential construction investment rose 3.7 per cent in real
terms in 1993, reflecting the increase in housing starts to a
record 42,807 units. Housing starts are forecast to fall to
39,500 units in 1994, as in-migration slows and the market pauses
to absorb large numbers of multiple-unit projects started
recently. (Chart A4 shows growth in housing starts in the
province's major cities.)

The introduction of a first-time home buyers' exemption from the
provincial property transfer tax will add support to the market
for new and existing homes. Housing supply has not kept pace with
demand in recent years and prices in many areas of British
Columbia have risen well above levels in other parts of Canada.
Based on Multiple Listing Service data, recent sales prices for
existing homes in Victoria and Vancouver are the highest in
Canada. Not surprisingly, British Columbia housing is the least
affordable in Canada; according to the Royal Bank, a typical
starter home will absorb 50 per cent of the purchaser's monthly
pre-tax income in mortgage, tax and utility payments, compared to
under 35 per cent in the rest of the country.

Non-residential construction investment rose 1.5 per cent in real
terms last year and is expected to increase 6.9 per cent in 1994
and 4.5 per cent in 1995. The slowdown in new office construction
helped reduce the Greater Vancouver vacancy rate by 0.9
percentage points in 1993 to 12.2 per cent. Meanwhile, Victoria
continued to have one of the lowest office vacancy rates in North
America at 2.9 per cent. The provincial government is hoping to
reach agreement with the city on its proposal to develop new
office, residential and commercial space on provincially-owned
land in and around the Legislative precinct. This would help
improve the quality of service to the public and bring greater
efficiency to government ministries' operations, many of which
are scattered around the Capital.


[See Chart A4 in printed material]


Significant new investments in the province are underway or were
announced recently:

-- MacMillan Bloedel will spend $200 million at Port Alberni to
   build a facility that will produce light-weight coated
   magazine paper.

-- Cominco will spend $145 million to upgrade its lead smelter at
   Trail.

-- Vancouver appears close to winning a National Basketball
   Association (NBA) franchise. A new $145-million arena to house
   both the Vancouver Canucks of the National Hockey League and
   the NBA team is under construction and will be completed next
   year.

-- At Prince Rupert, the Port Corporation is expanding its
   facilities to handle recent large increases in pulp shipments.
   North Coast Timber is spending $24 million to re-construct a
   sawmill that has been inactive since 1990.

-- Doman Industries is building an $11-million wood re-
   manufacturing plant at Chemainus on Vancouver Island.

Government spending -- federal, provincial, local and hospital --
in British Columbia rose an estimated 1.9 per cent in real terms
in 1993. Most of the increase was at the local government level,
where employment was up from 27,000 in 1992 to 34,000 in 1993,
according to Statistics Canada. In contrast, federal employment
in British Columbia was up 1,000 while provincial government
employment was unchanged. Ongoing federal and provincial spending
restraint is expected to hold growth in total government spending
to 0.8 per cent in 1994 and result in a decline in 1995.



External Trade


-- Overview

The pickup in the U.S. economy and the depreciation of the
Canadian dollar helped generate a large increase in British
Columbia exports in 1993. The value of foreign exports rose 16.2
per cent while exports to the rest of Canada grew slowly. Foreign
exports benefited from the rise in lumber prices during 1993.
Judging by the experience of Canada as a whole, where exports and
imports grew over 10 per cent in real terms, strong import growth
likely offset the province's export gains. The volume of exports
is estimated to have grown 5.5 per cent in 1993 while imports
grew an estimated 6.8 per cent. An anticipated acceleration of
export volumes and slower import growth in 1994 will result in an
improvement in the province's trade position in 1994. Both
imports and exports are forecast to rise 3.5 per cent in 1995.

Excess capacity and inventories held down prices for many of
British Columbia's exports in 1993. Prices for pulp and paper and
metals such as copper, zinc and lead probably hit bottom late in
1993 and should rise during 1994. Recent upturns in various
commodity price indexes suggest that demand for industrial
commodities will rise through 1994.



-- Forest Products

Wood products remain the star performer on the commodity front.
Prices were high on average but very volatile during 1993. Just-
in-time inventory management, summer floods in the U.S. Midwest,
unusually bad winter weather east of the Rocky Mountains and the
earthquake in Los Angeles whipsawed the lumber market. Lumber
prices started 1993 at $304 U.S. per thousand board feet, peaked
at $470 in March, fell to a low of $235 in May and finished the
year at $448. Timber supply shortages combined with rising
housing starts and lumber consumption in the United States are
supporting the high level of lumber prices. In early March,
lumber was selling for $438, compared to last year's average of
$337.

The prolonged slump in pulp and newsprint prices has taken a toll
on forest company earnings. In January 1993, pulp was selling for
$535 U.S. per tonne. By the end of the year, the price had fallen
to $400 per tonne. However, Canadian pulp producers succeeded in
raising prices by between $30 and $50 per tonne for northern
bleached softwood kraft in February. This puts the price at
around $440 per tonne in both North America and northern Europe.


-- Mining

Metal prices were weak during most of 1993 but picked up toward
year end and early in 1994. Demand for metals should increase in
North America this year, but will be offset by weakness in Europe
and Japan. Exports of zinc, aluminum and nickel from the former
Soviet republics are levelling off, but it will take some time to
absorb high inventories. Copper prices have been rising due to
stronger demand from the housing and automotive industries in
North America.

After a difficult 1992, coal mines in the southeast returned to
production and regained some financial stability. However,
contract prices for southeast coal were reduced late in 1993. The
longer-term outlook for coal prices is not much different than it
has been for the past few years. Prices will remain under
pressure due to more-than-ample supplies and the adoption of new
steel-making technologies that use less coal.

In recent years, the focus of mining exploration and development
activity has shifted from North to South America, due partly to
the presence of much richer ore bodies. The mining tax relief
initiatives announced in the budget will help British Columbia's
mining industries compete with lower-cost operations in other
parts of the world.


-- Energy

British Columbia's two largest energy exports, after coal, are
natural gas and electricity.

The posted minimum price for British Columbia natural gas price
rose from $1.19 per gigajoule in January 1993 to $1.50 at the end
of the year, while oil prices fell from $19 U.S. per barrel in
January to a low of $14.35 in December 1993. Growth in natural
gas exports and prices created considerable interest in
exploration in British Columbia as shown by the 233 per cent jump
in sales of Crown land drilling rights in 1993/94.

World energy demand continues to grow slowly while the potential
supply remains large. OPEC continues to have difficulty setting
and enforcing production quotas. Consequently, price increases
will be limited in 1994.

Electricity exports from the province fell by over 50 per cent in
1993 because low levels of precipitation reduced generating
capacity. Heavy snowfalls in late February 1994 boosted the
snowpack to over 90 per cent of normal levels in some areas of
the province. This will help to raise electricity production
capacity this year.


-- Fishing

British Columbia's fishing industry accounted for about $600
million or about 4 per cent of the province's merchandise exports
in 1993, an 8 per cent increase from 1992. The salmon harvest
rose significantly from 1992 as it approached the peak in its
natural cycle. However, prices were held down by the size of the
catch and a glut of farmed salmon on world markets. The herring
catch also increased from 1992 levels. Both the salmon and
herring harvest are expected to be large in 1994 as well.
However, a dispute over a new West Coast salmon treaty is brewing
between Canada and the United States. The treaty would renew a
1985 agreement that set catch levels for Canadian and U.S. boats.


-- Secondary Manufacturing

Activities in this diverse group of industries include printing,
publishing, food and beverage processing, and manufacturing of
transportation, communications and other high-technology
equipment. The value of secondary manufacturing exports totalled
over $1 billion in the first 10 months of 1993, a 45 per cent
increase from 1992. Secondary manufacturing employed over 100,000
people in 1993, accounted for about half the province's total
manufacturing activity and represented nearly 7 per cent of the
province's GDP.


-- Tourism

Tourism generates "exports" of retail trade, food and
accommodation services. It accounts for an estimated 3.6 per cent
of British Columbia's GDP and is responsible for over 100,000
jobs in the province. The depreciation of the Canadian dollar
helped boost the number of international visitors to British
Columbia by 3.1 per cent in 1993. Hotel occupancy rates averaged
62.6 per cent in 1993, down slightly from 1992. Accommodation and
food service employment declined in 1993. Tourism activity and
employment should get a significant boost from the Commonwealth
Games in the summer of 1994 and the return of ferry service
between Victoria and Seattle.



The Labour Market

Labour market indicators reflect the province's relatively good
economic performance in 1993 and early 1994. British Columbia
employment grew 2.9 per cent in 1993 compared to a 0.9 per cent
increase in the rest of Canada. About four out of five of the new
jobs created in 1993 were full-time positions. In January and
February 1994, employment was 4.4 per cent higher than in the
same period last year.

Two notable job market developments in 1993 were the rapid growth
in self-employment and employment outside Vancouver and Victoria:

*  Self-employment grew 7.3 per cent compared to a 0.5 per cent
   rise in private-sector paid employment.

*  Employment fell 0.6 per cent in Vancouver (5,000 jobs), but
   rose 3.2 per cent in Victoria (4,000 jobs) and 7.9 per cent in
   the rest of the province (45,000 jobs -- see Chart A5).
   Unemployment rates are still higher outside the two largest
   cities, but the gap has narrowed (see Table G1).


[See Chart A5 in printed material]


The growth in self-employment may be a "push-pull" phenomenon.
Corporate downsizing during the recent recession and the trend
toward out-sourcing of legal, accounting and other services by
larger corporations has resulted in many professionals setting up
their own businesses to serve former employers. The "pull" factor
is the strength of the British Columbia economy and the appeal of
setting up a business to take advantage of the province's rapidly-
growing population and market for consumer and business services.

A 2.1 per cent rise in the province's labour force limited the
fall in the unemployment rate to 9.7 per cent in 1993, compared
to 10.4 per cent in 1992. In-migration increased significantly in
the second half of 1993, resulting in a net inflow of 80,435
people for the full year. As a result, the provincial labour
force grew rapidly in the last quarter of 1993 and early in 1994.
In January and February, the labour force was 4.7 per cent larger
than a year earlier. While in-migration is expected to decline to
67,600 people in 1994, rapid labour force growth will continue
through most of the year. As a result, a projected 3 per cent
rise in employment is expected to be offset by a 3 per cent
increase in the labour force, leaving the unemployment rate
unchanged. In 1995, both employment and the labour force are
forecast to rise 2.3 per cent, leaving the unemployment rate at
9.7 per cent.



Wages and Prices

Inflation rose from 2.7 per cent in 1992 to 3.5 per cent in 1993,
but the monthly year-over-year inflation rate fell from 4.0 per
cent at the beginning of 1993 to 3.0 per cent in December (see
Chart A6). In January 1994, the inflation rate fell to 2.5 per
cent. Low inflation held down wage settlements in 1993 as
increases averaged 2.3 per cent. Statistics Canada's fixed-
weighted hourly earnings index, which covers both union and non-
union workers, rose 2.4 per cent in 1993. Further declines in
inflation are likely in 1994 due to the recent decline in federal
tobacco taxes and smaller increases in government-regulated
prices this year. Inflation is forecast at 2 per cent in 1994 and
1.8 per cent in 1995. Wage settlements are expected to remain low
over the next two years and unit labour cost increases should
fall in line with inflation.


[See Chart A6 in printed material]


While the number of work-stoppages due to labour disputes rose
from 52 in 1992 to 73 in 1993, days not worked due to disputes
fell 55 per cent to 345,850. This represented only 0.1 per cent
of the total time worked by paid employees, down from 0.2 per
cent in 1992.

The collective bargaining calendar is heavier in 1994, with 536
major collective agreements expiring. The agreements cover
209,000 employees, representing about 40 per cent of the
province's unionized workforce. Agreements up for negotiation in
1994 include contracts covering provincial government employees,
forest workers and teachers.



Medium-Term Outlook

Chart A7 compares the Ministry of Finance and Corporate Relations
1994 economic growth forecast to projections by the major
financial institutions and economic forecasting firms.

Growth in the British Columbia economy is expected to slow over
the medium term with real GDP increasing at an annual average
rate of 2.7 per cent between 1994 and 1998. A recovery in the
central Canadian economy is expected to reduce net in-migration
to British Columbia from recent record levels, causing slightly
slower growth in consumer spending and housing investment.
However, steady growth in the United States economy, together
with an anticipated recovery in Japan and Europe in 1995, should
help boost provincial exports.


[See Chart A7 in printed material]


Risks to the Outlook

The forecast is based on several assumptions about future
Canadian and international economic developments. Errors in these
external assumptions could affect the economic outlook. For
example:

*  While net in-migration to British Columbia is projected to
   slow from recent high levels, a stronger-than-expected
   economic recovery in central Canada could cause a larger
   decline in net in-migration than is currently forecast. This
   would translate into slower growth in consumer spending and
   housing starts. In-migration could be higher than forecast if
   Alberta or central Canada grow slowly. This would boost the
   consumer sector but might also push the unemployment rate
   higher.

*  Growth in the United States economy could be much stronger
   than forecast. Similarly, Germany and Japan could pull out of
   their economic slumps sooner and with greater strength than
   expected. In either case, growth in provincial exports would
   be stronger than currently forecast.

*  Canadian interest rates may defy economic fundamentals of low
   inflation and slow growth and continue to rise, either as a
   result of larger-than-expected increases in U.S. interest
   rates, or in response to financial market perceptions about
   Canada's political and fiscal situation.

*  Labour disruptions in some industries that are negotiating new
   collective agreements in 1994 could have a negative impact on
   the economy.


[See Table A1 in printed material]




APPENDIX B


Fiscal Review and Outlook

Review of 1993/94

In 1993/94, the deficit was $251 million below budget, and down
$477 million from 1992/93. Revenue in 1993/94 was $221 million
higher than budget, due to stronger-than-expected growth in
natural resource revenue and corporate income taxes. Spending was
$30 million below budget as savings in income assistance and debt
interest costs more than offset pressures in other programs (see
Table B1).


[See Table B1 in printed material]


The provincial government's financial requirements totalled
$1,020 million in 1993/94. This included the Consolidated Revenue
Fund deficit less net receipts from financing and working capital
transactions which totalled $264 million (see Table B4).

Financial requirements were $559 million lower than the budget
estimate due to the lower deficit and to additional net receipts
because personal income tax cash instalments from the federal
government were $200 million higher than the estimated tax due to
the province.

Because of the lower financial requirements, the increase in
provincial government direct debt was $484 million lower than
budget and cash balances were $75 million higher.



Revenue

Revenue totalled $17,681 million in 1993/94, 1.3 per cent higher
than the 1993/94 budget estimate and up 9.4 per cent from the
comparable figure for 1992/93. Table B2 shows the major changes
from budget.

Petroleum and natural gas revenue was $169 million above budget
due to higher sales of Crown land drilling rights as a result of
a pickup in natural gas prices and the favourable outlook for
natural gas demand over the longer term.


[See Table B2 in printed material]


Corporation income tax revenue was $102 million or 16.8 per cent
above budget, mainly as a result of a higher federal forecast of
national corporate profits and a larger-than-expected positive
prior-year adjustment for the 1992 tax year.

Established Programs Financing revenue was $75 million or 5.6 per
cent below budget because of the reimbursement to the federal
government of an overpayment in 1992/93.

The $66-million increase in forests revenue was due to timber
sales under the Small Business Forest Enterprise Program being
$52 million above budget and logging tax revenue increasing $17
million. Strong lumber prices were the major contributor to the
increase from budget.

Personal income tax revenue was down $55 million or 1.2 per cent
from budget. While the estimate of 1993 national basic federal
tax (BFT) declined 2.8 per cent, this was partly offset by an
increase in British Columbia's share of BFT. The revised forecast
incorporates an accounting change to record personal income tax
on an accrual basis as recommended by the Auditor General. As a
result, current-year revenue is the estimated tax due to the
province for the fiscal year regardless of the timing of actual
cash receipts from the federal government.

The dividend from British Columbia Hydro and Power Authority was
down $50 million from budget as low water levels in 1993 caused a
reduction in net income due to lower electricity exports and
increased energy purchases.

Revenue from the B.C. Endowment Fund and investment earnings
increased $48 million from budget due to higher-than-expected
returns on investments.

Corporation capital tax revenue was 16.3 per cent above budget
due to a higher-than-expected number of companies paying the tax.
Currently, there are about 25,000 companies registered for the
tax.

Revenue from other sources was $31 million below budget.

*  Property tax revenue was $40 million lower than budget because
   of the government's decision to cancel the property tax surtax
   that was announced in the 1993 budget.

*  Liquor Distribution Branch net income was $25 million or 4.8
   per cent higher than budget mainly due to higher volumes sold.
   The lower Canadian dollar and the federal collection of
   provincial liquor markups at the border caused an increase in
   domestic liquor purchases.

*  Fuel tax revenue was $20 million or 3.3 per cent higher than
   budget due to higher consumption volumes, partly reflecting
   the decline in cross-border fuel purchases.

*  Tobacco tax revenue was down $20 million or 4 per cent from
   budget due to a larger-than-expected decline in consumption
   volumes. Consumption volumes declined about 7 per cent in
   1993/94, compared to the budget assumption of a 4 per cent
   decline.

*  Social service tax was slightly above budget. Higher-than-
   expected growth in retail sales and business investment
   spending offset the impact of the government's decision to
   only partially implement the 1993 budget measures.



Expenditure

Expenditure of $18,965 million in 1993/94 was down $30 million
from budget and 5.8 per cent higher than comparable spending in
the previous year. Table B3 shows that expenditure pressures in
some ministries were offset by savings in other programs.


[See Table B3 in printed material]


Expenditure by the Ministry of Social Services was $87 million
below budget because of a lower-than-expected income-assistance
caseload. The number of income-assistance cases increased an
estimated 10.9 per cent in 1993/94. In 1992/93, the caseload
increased 17.1 per cent.

Debt interest costs were $75 million below budget as borrowing
and interest rates were lower than forecast.

Ministry of Health expenditure was $63 million above budget
mainly because of higher spending on the Medical Services Plan
and Pharmacare.

Spending by the Ministry of Attorney General was $60 million
above budget, mainly due to increased expenditures for provincial
correctional services and higher criminal injury compensation
payments.

Ministry of Skills, Training and Labour expenditure was $38
million above budget mainly due to increased provisions for
doubtful student loans.

Expenditures by the Ministry of Environment, Lands and Parks were
$32 million above budget mainly because of increased land
purchases related to the Protected Areas Strategy.

Changes in other programs resulted in net savings of $61 million:

*  Ministry of Forests expenditure was $22 million below budget
   because of underspending in silviculture and other activities.
   Due to cool, wet weather last summer, forest fire suppression
   costs were down 42 per cent from 1992/93.

*  The Ministry of Energy, Mines and Petroleum Resources was $13
   million below budget because of lower expenditures for
   Vancouver Island natural gas pipeline assistance.

*  The Ministry of Transportation and Highways was $12 million
   above budget because of increased land acquisition costs.

*  Ministry of Women's Equality spending was $10 million higher
   than budget, mainly because of increased demand for day-care
   subsidies.

*  There was a negative adjustment of $25 million to reflect the
   amortization of the reduction in the unfunded pension
   liability of the Public Service Superannuation Fund. The
   latest actuarial valuation shows a liability of $140 million,
   down from $438 million.



1994/95 Fiscal Plan

Table B1 summarizes the budgetary transactions of the
Consolidated Revenue Fund.

Revenue for 1994/95 is estimated at $18.7 billion, an increase of
5.9 per cent from the 1993/94 revised forecast. This includes a
net reduction of $92 million due to revenue measures introduced
in the 1994 budget (see Appendix C).

Expenditure will total $19.6 billion in 1994/95, up 3.5 per cent
from the 1993/94 revised forecast and the lowest rate of spending
growth since 1985/86. The Consolidated Revenue Fund deficit is
estimated at $898 million in 1994/95. This is $386 million or 30
per cent lower than the revised forecast for 1993/94.

Program expenditure, which excludes spending on debt interest
costs (management of public funds and debt), is estimated at
$18.6 billion, an increase of 3.3 per cent from the 1993/94
revised forecast.

As a result, there will be a program surplus of $83 million in
1994/95, compared to a program deficit of $371 million for
1993/94. This is the first program surplus since 1989/90. A
program surplus means that revenue exceeds spending on government
programs and that debt interest accounts for the entire deficit
in 1994/95.

The government's financial requirements, consisting of the
deficit and net disbursements from financing and working capital
transactions, will total $1,098 million in 1994/95. Net
disbursements from financing and working capital transactions
include disbursements relating to an overpayment of personal
income tax in 1993/94.

The government is winding up the British Columbia Endowment Fund
and using the proceeds to pay down debt (see Appendix E).
Financial requirements in 1994/95 will be met by reducing cash
and short-term investments by $160 million, by using $300 million
obtained from the sale of endowment fund assets, and by
increasing government direct debt by $638 million (see Table B4).



1994/95 Revenue

Revenue of the Consolidated Revenue Fund for 1994/95 is estimated
at $18,732 million, an increase of 5.9 per cent from the revised
forecast for 1993/94. This includes the impact of revenue
measures introduced in the 1994 budget, which reduce revenue by
$92 million.


[See Table B4 in printed material]


Taxation revenue, the largest source of provincial government
revenue, is expected to total $11,720 million in 1994/95, up 7.2
per cent from the 1993/94 revised forecast (see Table B5).

Personal income tax revenue is expected to increase 8.3 per cent
to $4,767 million. This reflects growth in personal incomes, the
increase to the high income surtax rate in 1994 as announced in
the 1993 budget, and the impact of 1994 federal budget measures,
which broadened the tax base. Because personal income tax revenue
is now recorded on an accrual basis, current-year revenue is the
estimated tax due to the province for the fiscal year regardless
of the timing of actual cash receipts from the federal
government.

Corporation income tax revenue is estimated at $873 million, an
increase of 23.1 per cent, mainly due to growth in corporate
profits.

Social service tax revenue, estimated at $2,811 million, will
increase 7.5 per cent, due to growth in retail sales and
investment and the full-year impact of 1993 budget measures,
which extended the tax to certain labour services. The forecast
includes a revenue loss of $32 million from the 1994 budget
measures, which introduce a vehicle trade-in allowance and raise
the threshold for the tax on luxury vehicles.

Property tax revenue is expected to increase 3.1 per cent in
1994/95, due to increased assessments from new construction,
partly offset by the impact of increasing the threshold for the
phase out of the home owner grant. Property transfer tax revenues
will increase 1 per cent as the effect of continued strength in
real estate markets will be partly offset by the introduction of
a tax exemption for first-time home buyers.

Fuel tax revenue will rise 1.9 per cent in 1994/95 due to
increased consumption volumes, partly offset by the impact of
reducing the tax rate on jet fuel used on international flights.
Tobacco tax revenue will decline 6 per cent, reflecting lower
volumes subject to tax.

Corporation capital tax revenue will rise 8.7 per cent because of
growth in the tax base, partly offset by an $18 million revenue
loss from budget measures. Revenue from insurance premium tax is
expected to rise 6.3 per cent, due to higher motor vehicle
insurance rates and people buying more insurance.


[See Table B5 in printed material]


Natural resource revenue is expected to increase 6.3 per cent to
$1,819 million due to higher forests revenue.

Revenue from petroleum, natural gas and minerals will decline by
$42 million. An anticipated $50-million decline in sales of Crown
land drilling rights from the record levels in 1993/94, and the
$12 million in mineral tax relief measures announced in the
budget are partly offset by a $22 million increase in natural gas
royalties due to higher natural gas prices and production.

Water rental revenue is based on the previous year's water use.
In 1994/95, this will decline 9.5 per cent mainly due to reduced
electricity generation in 1993/94 and the effect of the budget
measure to reduce water rental charges for companies generating
power for their own use.

Other revenue is expected to rise 3.5 per cent to $1,792 million.
Medical Services Plan premium revenue will increase 2.5 per cent,
reflecting increased subscription levels due to continued in-
migration. Revenue from other fees and licences, including motor
vehicle licences and fees, will rise 7.3 per cent. Just over half
of the increase is due to volume increases, with the rest from
rate adjustments to be introduced during the year. British
Columbia Endowment Fund revenue will increase 12.3 per cent. The
fund is being wound up with the proceeds used to pay down debt.

Contributions from government enterprises will total $1,051
million, up 2.4 per cent from the 1993/94 revised forecast.
Liquor Distribution Branch profits are expected to increase 1.8
per cent, reflecting continued growth in sales volumes. Dividends
from British Columbia Hydro and Power Authority are forecast at
$235 million, down slightly from 1993/94.

Contributions from the federal government are estimated at $2,350
million, an increase of 3.0 per cent. Revenue from Established
Programs Financing (EPF) is expected to grow 1.6 per cent from
the 1993/94 level, which was artificially low due to the effect
of a repayment made in that year. EPF revenue declines 2.3 per
cent, excluding this payment. Recoveries under the Canada
Assistance Plan (CAP) will rise to $880 million, reflecting the
federal government's 5-per-cent growth limit on contributions.



1994/95 Expenditure

Expenditure of the Consolidated Revenue Fund is estimated at
$19,630 million in 1994/95, an increase of $665 million or 3.5
per cent from the revised forecast for 1993/94 (see Table B6).
This compares to expenditure growth of 5.8 per cent in 1992/93.

Ministry of Social Services expenditure is estimated at $2,736
million, an increase of $173 million or 6.7 per cent from the
1993/94 revised forecast. Income-assistance spending will
increase $113 million or 6.6 per cent, due to a slowing in the
growth of caseloads.

Ministry of Health spending is estimated to increase to $6,414
million, up $141 million or 2.3 per cent from the revised
forecast for 1993/94. Significant spending increases include $86
million for community support programs and $45 million for the
Medical Services Plan.

Ministry of Education expenditure shows an increase of 3.6 per
cent from the 1993/94 revised forecast. In 1994/95, operating
contributions to elementary and secondary schools will increase
$130 million or 4 per cent.

Spending by the Ministry of Skills, Training and Labour is
projected to total $1,557 million, an increase of $127 million or
8.9 per cent from the 1993/94 revised forecast. The increase
includes $84 million for new initiatives to strengthen skills
training. Spending for the educational institutions and
organizations program will increase $34 million in 1994/95.

Ministry of Forests expenditure is estimated to increase $76
million or 11.9 per cent to $712 million. Most of the increase
results from changes that will be required to implement the new
Forest Practices Code, and increased spending in the Small
Business Forest Enterprise Account.

Ministry of Aboriginal Affairs expenditure is estimated at $32
million, an increase of $13 million mainly because of increased
expenditures for treaty negotiations.

Ministry of Government Services expenditure is estimated at $86
million, a decrease of $26 million or 23.4 per cent mainly
because of decreased requirements for GO BC community grants and
lower payments to the Victoria Commonwealth Games. The Build BC
Special Account in the Ministry of Employment and Investment will
fund the community grants program.

Ministry of Women's Equality expenditure of $204 million is
expected to increase $34 million or 19.7 per cent from the
1993/94 revised forecast mainly because of increased demand
forday-care subsidies.

Ministry of Transportation and Highways spending, estimated at
$684 million, will decrease $104 million due to reduced capital
spending. The BC Transportation Financing Authority is now
responsible for highway capital construction in British Columbia.

Expenditure on Management of Public Funds and Debt is estimated
to rise to $981 million, up 7.4 per cent from the 1993/94 revised
forecast due to higher debt outstanding.



1994/95 Financing Plan

Gross borrowing for government purposes is estimated at $1,659
million in 1994/95. Gross borrowing will be partly offset by debt
maturities and sinking fund contributions and earnings totalling
$1,021 million. As a result, net government direct debt is
expected to increase $638 million to $10.7 billion at March 31,
1995 (see Tables B4 and D1).

Gross borrowing requirements for Crown corporations and agencies
are estimated at $2,451 million. This increase will be partially
offset by repayment provisions of $1,021 million, resulting in
net borrowing of $1,430 million in 1994/95. Other guarantees are
expected to decrease $44 million. See Appendix D for details.



Accumulated Deficit

At March 31, 1995, the accumulated deficit of the Consolidated
Revenue Fund is expected to total $10,573 million, up $898
million from March 31, 1994.




APPENDIX C

Revenue Measures

C1:Summary of Revenue Measures
-----------------------------------------------------------------
                                                       Revenue
                                                       Effects
                                                    -------------
                                         Effective           Full
                                           Date     1994/95  Year
-----------------------------------------------------------------
                                                    ($ millions)
Corporation Capital Tax Act

* Exemption threshold increased to
  $1.5 million from $1.25 million
  of paid-up capital, and incorporated
  family farms and cooperatives
  exempted from the tax ............... April 1, 1994  (10) (10)

* Threshold at which large financial
  institutions start to pay the 3 per
  cent rate raised to $750 million
  from $500 million of worldwide
  paid-up capital ..................... April 1, 1994   (8)  (8)


Property Transfer Tax Act

* Targeted first-time home buyers'
  exemption introduced and existing
  high-ratio tax relief program
  phased out........................... March 23, 1994 (20) (20)


Social Service Tax Act

* Luxury tax threshold for passenger
  vehicles increased to $32,000 from
  $30,000.............................. March 23, 1994  (2)  (2)

* Trade-in allowance restored on
  purchase of passenger vehicles....... March 23, 1994 (30) (30)

* Exemption introduced for certain
  solar, wind and micro-hydro power
  generating equipment................. March 23, 1994  --   --


Motor Fuel Tax Act

* Tax rate on jet fuel used on
  international flights reduced to
  4 cents per litre from 5 cents
  per litre and exemption for
  international cargo flights
  expanded............................. July 1, 1994    (8) (11)

* Fuel tax rebate limit increased
  to $400 from $300 annually for
  eligible persons with
  disabilities......................... August 1, 1993   --  --


Home Owner Grant Act

* Home owner grant phase-out
  threshold increased to $450,000
  from $400,000........................ 1994 tax year  (10) (10)


School Act

* School property tax rates for
  residential and some
  non-residential properties
  reduced in response to increases
  in assessed values. Rate
  reductions will result in average
  gross school taxes equal to 1993
  levels............................... 1994 tax year    --  --


Taxation (Rural Area) Act

* General-purpose rural area tax
  rates reduced in response to
  increases in assessed values.
  Rate reductions will result in
  average general-purpose rural
  area taxes equal to 1993 levels...... 1994 tax year    --  --


Water Act

* Companies generating power for
  their own industrial use moved
  to commercial category............... March 23, 1994  (9)  (9)


Other Revenue

* Various fees and licences
  adjusted............................. various         20   25


Fairness Package

* Measures introduced to assist
  small business, improve
  enforcement and improve
  fairness............................. March 23, 1994  (2)  (2)


Assistance for the Mining Industry

Income Tax Act

* Mineral tax made deductible
  against provincial corporate
  income tax........................... January 1, 1995 (1)  (2)


Mineral Tax Act

* Mineral tax rates reduced for
  coal mines and pooling of
  exploration costs allowed............ March 23, 1994 (12) (12)

* A premium allowance is introduced
  for new eligible capital
  expenditures......................... January 1, 1995 --   --

                                                       ---- ----
               Total...................                (92) (91)
                                                       ==== ====
-----------------------------------------------------------------


Revenue Measures: Supplementary Information

CORPORATION CAPITAL TAX ACT

EXEMPTION THRESHOLD INCREASED AND FAMILY FARMS
AND COOPERATIVES EXEMPTED

Effective April 1, 1994, the exemption threshold is increased to
$1.5 million from $1.25 million of paid-up capital, and the tax
will now be phased in between $1.5 million and $1.75 million of
paid-up capital. This change eliminates the corporation capital
tax liability for approximately 1,000 corporations and reduces
the tax liabilities for a further 1,000 corporations.

Cooperatives and incorporated family farms are exempt from
corporation capital tax effective April 1, 1994. This change
eliminates the tax for about 500 corporations.



THRESHOLD FOR 3 PER CENT TAX RATE APPLICABLE TO 
FINANCIAL INSTITUTIONS INCREASED

The threshold at which large financial institutions start to pay
the 3 per cent rate is raised to $750 million from $500 million
of worldwide paid-up capital, effective April 1, 1994.


PROPERTY TRANSFER TAX ACT

TARGETED FIRST-TIME HOME BUYERS' EXEMPTION INTRODUCED

Eligible first-time home buyers are exempted from property
transfer tax effective March 23, 1994 on the purchase of eligible
residential property.

Application to register the purchase of the eligible residential
property in the land title system must be made on or after March
23, 1994 to qualify for the exemption. Refunds will be provided
where first-time buyers pay tax in error on transfers registered
on or after March 23, 1994.

Eligible first-time home buyers are individuals who:

*  have not previously held a registered interest in a residence
   in which they lived;

*  have resided in British Columbia for at least one year prior
   to applying for the exemption;

*  are Canadian citizens or lawfully admitted to Canada for
   permanent residence; and

*  have registered financing for an amount equal to 70 per cent
   or more of the fair market value of the property.


Eligible residential properties are:

*  properties acquired for and used as the purchaser's principal
   residence for at least one year following the application for
   exemption;

*  properties with a fair market value not exceeding $250,000 in
   the Greater Vancouver Regional District, the Central Fraser
   Valley Regional District, the Dewdney-Alouette Regional
   District, the Fraser-Cheam Regional District and the Capital
   Regional District; and

*  properties with a fair market value not exceeding $200,000 in
   the rest of the province.


Applicants will be required to sign a declaration that they meet
all eligibility requirements and provide access to certain
personal information for verification purposes.

The current high-ratio financing tax relief program will be
phased out. Applications for tax relief under this program will
be accepted for registrations made before July 1, 1994.



SOCIAL SERVICE TAX ACT

LUXURY SALES TAX THRESHOLD INCREASED

The threshold for the luxury tax on the purchase, lease or rental
of expensive passenger vehicles is increased to $32,000 from
$30,000, effective March 23, 1994. As of that date, the tax rates
applicable to passenger vehicles are as follows:

*  7 per cent on passenger vehicles valued at less than $32,000;

*  8 per cent on passenger vehicles valued at $32,000 or more but
   less than $33,000;

*  9 per cent on passenger vehicles valued at $33,000 or more but
   less than $34,000; and

*  10 per cent on passenger vehicles valued at $34,000 or more.

"Passenger vehicles" are motor vehicles designed primarily for
the transportation of individuals and include trucks and vans up
to and including three-quarter ton. Excluded from the definition
are trucks and vans larger than three-quarter ton, motorhomes,
trailers, buses, ambulances and camperized vans designed
primarily for accommodation during travel or recreation.

The tax rate on vehicles for which lease agreements were entered
into prior to March 31, 1993, is based on the value of the
vehicle on March 31, 1993. For all other leased and rented
vehicles, the tax rate is based on the value of the vehicle on
the date the lessor first leases the vehicle to a lessee.

The new luxury tax threshold applies to all passenger vehicles
purchased on or after March 23, 1994. For leased vehicles, the
new luxury tax threshold applies to payments for lease periods
that begin on or after March 23, 1994.



TRADE-IN ALLOWANCE RESTORED ON PURCHASES OF
PASSENGER VEHICLES

Effective March 23, 1994, the trade-in allowance on the purchase
of a passenger vehicle is restored. Social service tax is only
payable on the purchase price of a passenger vehicle less the
value of tangible personal property taken in trade as partial
payment for the vehicle.

Purchasers of passenger vehicles that are subject to the luxury
tax are required to pay the applicable luxury tax rate on the
difference between the purchase price of the luxury vehicle and
the value of tangible personal property accepted in trade by the
seller as partial payment for the vehicle.

The trade-in allowance applies to all passenger vehicles
purchased on or after March 23, 1994, regardless of when an
agreement to purchase was entered into.

As a partial offset to these changes, the motor vehicle transfer
fee will be increased to $28 from $18 on July 1, 1994. This fee
increase is expected to raise $6 million in 1994/95 and 
$8 million in a full year.



EXEMPTION INTRODUCED FOR SOLAR, WIND, AND
MICRO-HYDRO POWER GENERATING EQUIPMENT

Effective March 23, 1994, purchases and leases of eligible wind,
solar, and micro-hydro power generating equipment are exempt from
social service tax.

Purchases of services to install, assemble, dismantle, repair,
adjust, restore, recondition, refinish, or maintain such
equipment are also exempt.



MOTOR FUEL TAX ACT

TAX RATE ON JET FUEL USED ON INTERNATIONAL FLIGHTS REDUCED

Effective July 1, 1994, the tax rate on jet fuel used on
international flights is reduced to 4 cents per litre from 5
cents per litre. The reduction is designed to help advance the
Vancouver International Airport as a major North American gateway
to the Pacific.

Also effective July 1, 1994, the jet fuel tax exemption for
dedicated international freighters is expanded to include all
eligible international flights carrying cargo on a pro-rated
basis. As a result, for passenger flights carrying cargo, the
fuel tax rebate will be based on the ratio of cargo weight to the
total payload weight of the aircraft.



FUEL TAX REBATE LIMIT INCREASED FOR
ELIGIBLE PERSONS WITH DISABILITIES

The annual maximum fuel tax rebate available to eligible persons
with disabilities who own or lease vehicles is raised to $400
from $300. The new maximum is effective for the current benefit
year which began August 1, 1993 and in subsequent years.



HOME OWNER GRANT ACT

Effective for the 1994 taxation year, the home owner grant phase-
out threshold is increased to $450,000 from $400,000. This change
is in response to increases in assessed values of residential
properties. The grant is phased out at the rate of $10 of grant
for each $1,000 of assessed value in excess of $450,000. As a
result, the grant is eliminated for most homeowners having a home
assessed at more than $497,000. For homeowners who are seniors,
handicapped or recipients of war veterans allowances, the grant
is eliminated for homes assessed in excess of $524,500. Setting
the threshold at $450,000 means that, as was the case in 1993,
roughly 95 per cent of homeowners are unaffected by the phase-out
of the home owner grant.



SCHOOL ACT

School property tax rates for residential and some non-
residential property classes will be reduced in response to
increased assessed values. The rates for the 1994 tax year will
be adjusted such that average gross school property taxes for
residential and non-residential properties will be the same as
1993 levels.

Even with the freeze on average tax levels, there will be some
changes to individual tax bills. For example, homeowners who had
a below-average increase in assessed value can expect a reduction
in school property tax. Correspondingly, the school levy will
likely rise for homeowners whose property has increased in value
by more than the average. Similar shifts will occur within the
non-residential property classes.



TAXATION (RURAL AREA) ACT

The general-purpose rural area property tax rates will be
adjusted to compensate for higher assessed values in 1994. The
rate for residential properties will be reduced by almost 14 per
cent from the 1993 level of $1.45 per $1,000 of assessed value.
The rates for other classes of property will be adjusted
appropriately. Rates will be set in April 1994. The rate changes
ensure that average rural area taxes levied by the province will
be the same as in 1993. Nevertheless, due to relative assessment
changes, some property owners will experience an increase in
their rural area levy, while others will face a corresponding
reduction in their levy.



WATER ACT

Companies currently in the general water rental category will
move to the commercial category for that portion of power which
is generated for their own industrial use. Water rental payments
made in September 1994 and subsequent payments are affected.



OTHER REVENUE

A number of changes to fees and licences will be introduced
during the fiscal year. These changes help cover the government's
additional cost of providing existing or new services. Changes to
fees and licences include:

*  increasing licence fees for companies and their employees
   providing security services;

*  raising hunting and angling licence fees (angling fee
   increases will be dedicated to the Habitat Conservation Fund);

*  reducing lease fees for specified commercial and recreational
   docks on Crown land;

*  increasing vital statistics fees;

*  amending fees of the British Columbia Securities Commission;

*  increasing safety inspection fees for electrical and gas
   installations, elevators and boilers;

*  introducing direct sellers licences, manufactured homes and
   residential tenancy mediation and review fees, and changing
   other fees of the Ministry of Housing, Recreation and Consumer
   Services;

*  increasing Motor Carrier Commission fees; and

*  as noted earlier, raising the motor vehicle transfer fee.



FAIRNESS PACKAGE

The following measures are introduced to assist small business,
enhance the fairness of the tax system, and improve enforcement.



Assistance to Small Business

*  Tax Remittance Frequencies

Businesses collecting an average of $50 or more in provincial
sales tax or hotel room tax each month are currently required to
file monthly tax returns. Effective April 1, 1994, businesses
collecting between $50 and $200 of tax each month will have the
option of filing tax returns quarterly, semi-annually, or on some
other basis that is more compatible with the nature of their
business.

The change in filing frequency will reduce compliance costs for
about 8,500 small businesses. All businesses affected by the
change will be contacted to determine the filing frequency most
compatible with their business.


*  Commissions

Businesses that collect provincial sales tax and hotel room tax
receive a commission to help offset collection costs. The maximum
commission is currently $90 per reporting period, or $1,080
annually.

Effective with tax returns filed for sales made in April 1994,
the commission rate is increased by 10 per cent to a maximum of
$99 per reporting period or $1,188 annually.

Approximately 90,000 businesses will benefit from the increased
commission.


*  Boats Purchased by Aquaculturists

Bona fide aquaculturists are currently eligible for a refund of
tax paid on purchases of boats up to 11 metres in length, motors,
and related parts acquired for use in their aquaculture business.
Effective March 23, 1994, bona fide aquaculturists may purchase
qualifying boats, motors and component parts exempt from the tax
at the point of sale.



Improved Enforcement

*  Amnesty Program

Effective March 23, 1994 to June 30, 1994, businesses that
voluntarily disclose tax liabilities and pay, or make
arrangements to pay, these tax liabilities plus interest will not
be subject to penalties or prosecution. Penalties range from 10
per cent to 100 per cent of tax due.


*  Enforcement of Current Penalties

After the expiration of the amnesty program, a 10 per cent
penalty will be applied to all second and subsequent errors in
tax payments and remittances.

Currently, the 10 per cent penalty is only applied where tax is
collected and not remitted or is remitted late. Effective July 1,
1994, the penalty will also be applied to all second-time errors,
including tax due on purchases and the calculation of tax
collected.

Penalties of 25 per cent and 100 per cent of the tax due will
continue to apply where there is evidence of willful failure to
pay the tax due or willful non-remittance of tax collected.


*  Expanded Audit Coverage

Additional auditors will be hired to increase the number of
businesses that can be audited each year. The expanded audit
coverage will reduce inequities that occur when some businesses
do not comply with tax legislation.


*  Sellers of Motor Vehicles -- Licensing Requirement

Effective March 23, 1994, persons who intend to regularly sell
motor vehicles at retail must be registered as dealers under the
Motor Dealer Act before registration under the Social Service Tax
Act. This requirement will prevent persons who are not licensed
motor dealers from purchasing vehicles for resale exempt from the
provincial sales tax.



Improved Fairness

*  Appeal Period Extended

Effective for assessments issued on or after March 23, 1994, the
appeal periods under the Social Service Tax Act, Hotel Room Tax
Act, Motor Fuel Tax Act, and Tobacco Tax Act are extended from 60
to 90 days.


*  Proportional Refund for Bad Debts

Effective March 23, 1994, sellers are eligible for a proportional
refund of tax remitted on all bad debt accounts. For example,
where $14 of social service tax is remitted on a $200 credit sale
and the seller subsequently receives only $20 before writing it
off as a bad debt, the province will retain only $1.31 -- 7/107
of the $20 payment received by the seller -- and the seller will
receive a refund of $12.69.

This change in bad debt refunds applies to the Social Service Tax
Act, Hotel Room Tax Act, Motor Fuel Tax Act, and Tobacco Tax Act.
It is fairer to businesses and is consistent with bad debt
provisions of most other provinces and the federal government.


*  Deemed Purchase Provision Repealed

Currently, where a lease agreement contains an option-to-purchase
for an amount less than 10 per cent of the item's fair market
value, the lease is deemed to be a purchase.

Effective March 23, 1994, this provision is repealed and tax
applies to such leases in the same manner as to other leases.



ASSISTANCE FOR THE MINING INDUSTRY

INCOME TAX ACT

*  Effective January 1, 1995, mineral tax payments will be
   deductible in calculating a mining company's provincial
   corporate income tax.



MINERAL TAX ACT

MINERAL TAX RATES REDUCED FOR COAL MINES AND
POOLING OF EXPLORATION COSTS ALLOWED

*  Effective March 23, 1994, mineral tax rates for coal mines are
   reduced from the current 7.5 per cent (net current proceeds
   tax) and 17.5 per cent (net revenue tax) to 2 per cent and 13
   per cent to match the rates paid by other mines. All coal
   mines in the province will benefit from this change.

*  Effective March 23, 1994, mining companies are allowed to pool
   exploration costs rather than having to assign these costs to
   an existing mine.



PREMIUM ALLOWANCE IS INTRODUCED FOR ELIGIBLE NEW CAPITAL
EXPENDITURES

*  Capital expenditure on new, reopened or expanded mines after
   December 31, 1994, and before January 1, 2000, will be grossed
   up by one-third for purposes of calculating mineral tax. This
   will provide a significant benefit for new mines developed
   during the next five years.


C2: Summary of Administrative Measures
-----------------------------------------------------------------
                                                 Effective Date
-----------------------------------------------------------------

Social Service Tax Act

* Exemption provided for certain items
  purchased by interprovincial and
  international airlines.....................    March 23, 1994

* Refund provisions for goods purchased
  and stored, but not used, in British
  Columbia clarified.........................    March 23, 1994

* Definition of "purchase price" clarified...    March 23, 1994

* Definition of "use" clarified..............    March 23, 1994

* Refund provided for tax paid on materials
  to construct portable buildings for
  export.....................................    March 23, 1994

* List of items that can be purchased tax
  exempt by bona fide farmers expanded.......    March 23, 1994


Tobacco Tax Act

* Tobacco tax commission increased........... 1994 tax collection
                                                     year


Hotel Room Tax Act

* Exemption provided for purchase of
  accommodation by Indians and Indian
  Bands on reserve...........................   March 23, 1994


Corporation Capital Tax

* Various technical changes made to
  clarify the application of the tax.........   April 1, 1992,
                                                1993 and 1994


Property Transfer Tax

* Tax imposed on consecutive leases to
  prevent tax avoidance......................  January 31, 1994

-----------------------------------------------------------------


Administrative Measures: Supplementary Information

SOCIAL SERVICE TAX ACT

EXEMPTION PROVIDED FOR CERTAIN ITEMS PURCHASED BY
INTERPROVINCIAL AND INTERNATIONAL AIRLINES

Effective March 23, 1994, liquor and certain other tangible
personal property purchased or leased by commercial airlines for
use or consumption in serving their passengers on international
or interprovincial flights are exempt from tax. Examples include
cutlery, dishes, trays, towels and headphones.



REFUND FOR GOODS PURCHASED AND STORED, BUT NOT USED,
IN BRITISH COLUMBIA

Effective March 23, 1994, the legislation is clarified to ensure
that businesses operating both inside and outside of British
Columbia are eligible for a refund of tax paid on goods purchased
and stored in the province, but not otherwise used in the
province before being sent out of the province.



DEFINITION OF PURCHASE PRICE CLARIFIED

Effective March 23, 1994, the definition of "purchase price" on
which tax is payable is amended. The amendment clarifies that,
for purchases in the province, charges for installation,
transportation, interest, finance, service, customs and excise
are only subject to tax if such charges are incurred before title
to the goods passes to the purchaser.



DEFINITION OF USE CLARIFIED

Effective March 23, 1994, the definition of "use" is amended to
clarify that the purchase of goods for resale by both retailers
and wholesalers is exempt from the social service tax.



REFUND OF TAX PAID ON MATERIALS USED TO CONSTRUCT
PORTABLE BUILDINGS FOR EXPORT

Effective March 23, 1994, a refund is provided for the sales tax
paid on materials used to construct portable buildings that are
subsequently exported.

Portable buildings are buildings designed to be moved from
location to location (e.g., portable classrooms, portable
bunkhouses) but do not include manufactured homes used for
residential purposes or buildings designed for use on residential
property.



ADDITIONAL EXEMPTIONS FOR FARMERS

Effective March 23, 1994, the following are added to the list of
items that bona fide farmers may purchase exempt from provincial
sales tax provided that they are used for a farm purpose.

*  Soil anchors;

*  Sanitizing products and chemicals; and

*  Automatic gate openers.



TOBACCO TAX ACT

TOBACCO TAX COMMISSION INCREASED

Tobacco wholesalers collect the provincial tobacco tax and remit
the tax to the government. Effective for the 1994 tax collection
year, the maximum commission payable is increased to $10,000 from
$5,000 per year.



HOTEL ROOM TAX ACT

TAX EXEMPTION FOR STATUS INDIANS

Effective March 23, 1994, Indians and Indian Bands buying hotel
accommodation on reserve land are exempt from paying the hotel
room tax.



CORPORATION CAPITAL TAX ACT

TECHNICAL CHANGES

Various technical changes will clarify the application of the
tax. Some of these changes are retroactive to April 1, 1992 or
April 1, 1993. The remainder are effective April 1, 1994.



PROPERTY TRANSFER TAX ACT

TAX IMPOSED ON CONSECUTIVE LEASES TO PREVENT TAX AVOIDANCE

As announced on January 28, 1994, amendments are introduced
retroactive to January 31, 1994 to prevent tax avoidance through
the inappropriate use of the exemption for leases of 30 years or
less.

The Act is amended to aggregate the terms of all leases
registered against a property within a six-month period for
purposes of calculating the tax payable.




APPENDIX D

Provincial Government and Crown Corporation
Financing Plan

Overview

The provincial government and its Crown corporations and agencies
incur debt to finance operations and capital projects. The
provincial government also provides some financing to other
organizations, including local government agencies. Total
borrowing requirements in 1994/95 for the government and its
Crown corporations and agencies are estimated at $4.1 billion.
This compares to total borrowing of $4.8 billion in 1993/94.

In the early 1990s, large deficits and borrowing to fund schools,
hospitals and other social capital investment caused both tax-
supported debt and total debt to rise relative to GDP. The
government's efforts to reduce the deficit have moderated this
increase (see Chart D1). The government's debt management
strategy will slow the growth in debt relative to GDP (see
Appendix E).

At March 31, 1995, total provincial direct and guaranteed net
debt is expected to total $27.4 billion, equal to 28.1 per cent
of gross domestic product (GDP). Tax-supported debt, which
excludes the self-supporting debt of the British Columbia Hydro
and Power Authority and British Columbia Railway Company, is
expected to total $19.5 billion or 20 per cent of GDP.


[See Chart D1 in printed material]


Financing Process

The provincial government and its Crown corporations and agencies
incur debt by one of three financing methods:

*  debt issued by the government for its own purposes;

*  fiscal agency debt borrowed directly by the government with
   proceeds re-lent to Crown corporations and agencies; and

*  debt incurred by Crown corporations and others with a
   provincial government guarantee as to the payment of principal
   and interest.

Under its fiscal agency program, the provincial government acts
as a fiscal agent by borrowing directly in the financial markets
and relending the funds to Crown corporations and agencies. This
program provides lower cost financing to Crown corporations due
to the province's strong credit rating and its ability to borrow
at lower interest rates. All Crown corporation and agency
borrowing is now done through the fiscal agency program.
Borrowing and financing costs remain the responsibility of the
Crown corporation or agency, except in certain cases where the
provincial government provides a contribution to pay for all or
part of the debt service costs.


[See Table D1 in printed material]


In order to provide for the orderly repayment of debt, the
provincial government and Crown corporations establish sinking
funds for virtually all debt with a term of five or more years.
At March 31, 1994, sinking fund investments are expected to total
$4.3 billion. Debt with a term of one year or longer will be 
60 per cent covered by sinking funds at maturity.



1994/95 Financing Plan

Table D1 outlines the 1994/95 financing plan for the government
and its Crown corporations and agencies. Further details on net
direct and guaranteed debt are provided in Table G7.

The government issues debt for the following purposes:

*  Provincial government direct debt to fund government
   operations and capital spending, including the refinancing of
   maturing debt and other financing transactions. The government
   expects that its own gross borrowing requirements will total
   $1.7 billion in 1994/95, of which $828 million will be used to
   refinance maturing debt.

*  Commercial Crown corporations, including British Columbia
   Hydro and Power Authority and British Columbia Railway
   Company. These corporations are self-supporting as they
   generate revenue from the sale of services at commercial rates
   and pay their own operating expenses, including debt service
   charges. Gross borrowing requirements for commercial Crown
   corporations are expected to total $711 million in 1994/95, of
   which $309 million will be used to refinance maturing debt.

*  Economic development Crown corporations and agencies,
   including the BC Transportation Financing Authority, British
   Columbia Ferry Corporation and British Columbia Transit. These
   corporations and agencies sell services directly to the
   public, but their revenues may not cover their operating
   expenses. Because these corporations provide economic benefits
   to the province, the government provides grants or other forms
   of assistance to them. Total borrowing requirements for the
   economic development Crown corporations and agencies are
   expected to be $493 million in 1994/95, including $290 million
   for the BC Transportation Financing Authority, $129 million
   for British Columbia Transit and $66 million for British
   Columbia Ferry Corporation.

*  Social and government service Crown corporations and agencies
   incur debt largely to finance construction of hospitals,
   schools and post-secondary educational institutions. Debt
   service requirements are met through provincial grants or
   rental payments and, for hospitals, partly through local
   property taxes. Gross borrowing requirements for these
   entities are expected to total $1.1 billion in 1994/95,
   including $469 million for the British Columbia School
   Districts Capital Financing Authority, $227 million for the
   British Columbia Regional Hospital Districts Financing
   Authority and $226 million for the British Columbia
   Educational Institutions Capital Financing Authority.

*  Other fiscal agency loans include loans made by the provincial
   government to other public bodies including universities,
   colleges and various local governments and improvement
   districts. Borrowing requirements for these entities are
   expected to total $164 million in 1994/95, including $117
   million for the Greater Vancouver Sewerage and Drainage
   District and Greater Vancouver Water District. Debt service
   requirements are met through local property taxes and, for
   universities and colleges, through revenue raised from
   residence and parking fees.

Direct and fiscal agency borrowing in 1994/95 will be partly
offset by debt maturities and other retirement provisions,
resulting in an increase of $2.1 billion in the net debt of the
government, Crown corporations and agencies. Table D1 provides a
breakdown of the increase in net debt by category.

The provincial government also provides loan guarantees to
private sector firms and individuals through various programs.
These include student financial assistance, loan guarantees to
agricultural producers and guarantees issued under economic
development assistance programs. These guarantees do not
represent direct obligations of the government except in the
event of default by the borrowers who received the guarantee. In
1994/95, guarantees are expected to decline by $44 million, as
potential new guarantees of $97 million are more than offset by
expiring ones.

Chart D2 gives a breakdown by category of estimated provincial
direct and guaranteed net debt at March 31, 1995.


[See Chart D2 in printed material]


Source of Funds

Funds borrowed by the British Columbia public sector have come
from a variety of sources, including public financial markets,
the Canada Pension Plan Investment Fund (CPP), private
institutional lenders and provincial trusteed funds. Chart D3
shows that since 1984, borrowing sources have shifted toward
public bond issues.


[See Chart D3 in printed material]


Most of the province's funds have been obtained through medium
and long-term debt issues in public markets in Canada, the United
States and Europe. To a lesser extent, private placements in
North America, Europe and Japan have also been a source of funds.
In all cases the debt is payable in either Canadian or U.S.
dollars.

The province actively diversifies its borrowing sources to
cultivate strong domestic and international investor demand for
British Columbia debt securities; strong demand helps minimize
financing costs for the province. A broad investor base is also
important when other governments are competing for domestic
funds.

Measures have also been taken to diversify the province's
borrowing sources within the domestic market. In 1992, the
province introduced a domestic medium-term note program and a
British Columbia Savings Bond Program:

*  The medium-term note program was the first for a Canadian
   province and raises funds primarily in one to ten-year terms.
   To date, about $600 million has been borrowed under this
   program.

*  The savings bond program is restricted to residents of British
   Columbia and ensures that they have an opportunity to
   participate in the provincial government's financing program.
   In total, the two savings bond campaigns in 1992 and 1993 have
   raised over $1 billion.



Ongoing Debt Management Initiatives

The government is taking measures to ensure the best possible
management of new and existing debt. These initiatives include:

*  refining debt management parameters and performance
   benchmarks;

*  working with major international investment firms to establish
   appropriate debt strategies for the province and the major
   Crown corporations to balance interest rate costs and risk;

*  increasing use of sophisticated financial products to improve
   management of debt and associated risks; and

*  continuing diversification of the borrowing program to markets
   in Canada, the United States, Europe and Asia to search out
   the lowest-cost sources of financing.

The province continues to focus on the global capital market,
including North America, Europe and the Far East, to take
advantage of favourable market conditions:

*  in June 1993, the province launched a successful $1.25 billion
   (Canadian) global bond issue; and

*  in 1994/95, the province will launch a special Euro-debt
   issuance program, similar to the domestic medium-term note
   program, to gain more efficient and cost-effective access to
   European financial markets.

The Ministry of Finance and Corporate Relations has been working
with a major international investment bank to implement a state-
of-the-art, debt-management performance measurement system.
Results indicate that active management of the province's direct
debt portfolio generated savings (in present-value terms) of 
$63 million through the first 11 months of 1993/94.

Examples of initiatives that produced savings for the province's
total debt portfolio include:

*  Pro-active use of sophisticated financial instruments as part
   of regular financing activity. Use of derivative products,
   such as interest rate swaps, allowed the province to take
   advantage of declining interest rates in 1993/94, thereby
   reducing its long-term debt costs.

*  The province's first global bond issue in June 1993, which
   saved $9 million compared to the domestic market.

*  The provincial medium-term note program, which has saved $2.5
   million to date.

As shown above, the government is using sophisticated techniques
to minimize the costs of provincial borrowing. These actions will
help the government achieve its debt management objectives (see
Appendix E).




APPENDIX E

Fiscal Strategy and Debt Management Plan

Summary and Highlights

*  Taxes frozen. No new taxes.

*  Budget balanced in 1996/97.

*  Debt management plan introduced.

*  Spending continues to decelerate.

*  British Columbia Endowment Fund used to reduce debt.

This paper describes the progress made to date in achieving the
British Columbia government's objective of a balanced budget. It
outlines a fiscal strategy that balances the budget, including a
timetable and guidelines for achieving this objective. Finally,
it discusses the role of public debt in financing public
investment in British Columbia and outlines the impact of the
debt management plan on provincial tax-supported debt.



A Balanced Budget for British Columbia: A Progress Report

When the government took office, it pledged to eliminate the
deficit and ensure that British Columbia remains on a sound
financial footing.

Since taking office, the government has made considerable
progress in reducing the large $2.4 billion deficit it inherited
for the 1991/92 fiscal year.

In 1992/93, the deficit was reduced by $594 million.

In 1993/94, it was reduced by $477 million.

Today's budget chops off another $386 million,

In three budgets, the deficit has been reduced by nearly
$1.5 billion to under $900 million.

Much of this progress has been made by cutting spending growth;
program spending per person, after adjusting for inflation, rose
by a cumulative 16.2 per cent in the last three budgets of the
previous government. In contrast, it has declined a cumulative
2.9 per cent in the three most recent budgets.

The 1994 budget achieves a program surplus for the first time in
five years. This means that revenue exceeds program expenditure.
As a result, the budget deficit is entirely the result of
interest payments on the debt that was largely accumulated by
previous administrations.

British Columbia is in the best fiscal position of any of the
provinces. It has the highest credit rating (see Chart E1) and
the lowest level of tax-supported debt relative to provincial
gross domestic product or GDP (see Chart E2). GDP measures the
size of the economy and is a generally-accepted benchmark for
assessing governments' ability to meet their debt obligations.
British Columbia's comparatively low debt-to-GDP ratio means its
debt service costs are also proportionately the lowest of any
province.


[See Chart E1 and E2 in printed material]


Consequences of Deficits and Debt

The deterioration of government finances caused by the recent
recession in Canada has sparked growing concern among the public
and financial experts. A number of potential implications of
rising public sector indebtedness have been noted:

*  Higher debt may require higher taxes in Canada in the future.

*  The cost of debt-financed government spending is being passed
   on to future generations.

*  Canada's foreign indebtedness is rising because the public
   sector is consuming a larger share of national savings. The
   diversion of national income to pay interest to foreign
   lenders implies a lower standard of living in the future than
   would otherwise be the case.

*  High levels of debt result in foreign investors demanding a
   risk premium when lending to Canadian companies and
   governments.

On the other hand, public capital investment is essential for
continued economic growth, private-sector job creation and rising
living standards. Most academic and private-sector economists
would agree that capital spending in the public sector should be
debt-financed rather than paid for out of current operating
budgets.

Nevertheless, the potentially negative consequences of rising
debt levels makes it important for governments to plan for the
orderly reduction of deficits and repayment of debt. While
deficit elimination is within reach for British Columbia and some
other provinces, debt repayment is a much longer-term proposition
-- for all provinces and the federal government (1).

     (1) For a review of these issues, see Richard G. Harris,
         ed., Deficits and Debt in the Canadian Economy,
         Proceedings of a Policy Forum (Kingston, Ontario:
         John Deutsch Institute for the Study of Economic Policy,
         Queen's University, 1993).


Fiscal Strategy and Debt Management Plan

In order to control the growth of debt and protect taxpayers, the
government is adopting a three-pronged fiscal strategy:

*  Tax rates are frozen for the next three years and no new taxes
   will be introduced.

*  The government will balance the budget in 1996/97 and
   introduce a debt management plan.

*  In addition to eliminating the deficit, the government will
   wind up the British Columbia Endowment Fund and use the
   proceeds to pay down debt.



Tax Freeze

*  Tax rates will be frozen at current levels for three years.
   There will be no new taxes.

A tax freeze was announced by Premier Mike Harcourt on March 8.
The three-year freeze will apply to all the taxes listed in the
table on the next page. Medical Services Plan premiums will also
be frozen.

The tax freeze means that the government will generate additional
revenue mainly through growth in employment, wages and profits.
For example, individuals and companies will pay more taxes as
business expands, and profits and employees' wages rise.

Tax Rate Freeze Applies To:

*  Provincial personal and corporate income tax

*  Sales tax

*  Average school and rural area property tax levels

*  Property transfer tax

*  Corporation capital tax

*  Medical Services Plan (health care) premiums

*  Mineral land tax

*  Mineral tax

*  Mining tax

*  Logging tax

*  Fuel taxes

*  Insurance premium tax

*  Tobacco tax

*  Hotel room tax

*  Horse racing tax

Fees, licences and other charges for government or Crown
corporation services or products are not frozen. Such charges are
intended to reflect the costs of goods or services provided and
to ensure that the government does not compete unfairly with the
private sector.



Balancing the Provincial Budget: A Debt Management Plan

Under the government's debt management plan, the deficit is
reduced to $898 million in 1994/95, to $450 million in 1995/96
and the budget is balanced in 1996/97. "The Debt Management Plan"
is outlined in the box and illustrated in Charts E3 and E4.


[See Table E1 in printed material]


KEY ELEMENTS:

*  The debt management plan incorporates the tax freeze.

*  Growth in expenditure will be reduced to 2 per cent in 1995/96
   and 1996/97, considerably less than the growth in population
   and inflation.

*  Meeting these targets means that inflation and population
   growth will not be fully funded in ministry budgets. There
   will be no money for public sector wage increases.

It is important to note that Table E1 is a plan, not a forecast.
Plans can be knocked off track by unexpected events. In
particular, revenue growth depends on how the economy
performs.(2) In the event that revenue is lower than in the plan,
the government will reduce spending from the planned levels shown
in order to achieve the deficit/balanced budget target.

     (2) There are also uncertainties about the level of federal
         transfer payments. In the recent federal budget, the
         federal Minister of Finance stated that social security
         reform "will enable the federal government to secure a
         minimum of $1.5 billion in savings in 1996/97"(*),
         relative to current projections of federal transfers to
         the provinces for social assistance and post-secondary
         education.

     (*) See Department of Finance Canada, The Budget Plan
         (Ottawa, February 1994) p. 38.


[See Chart E3 and E4 in printed material]



The Provincial Debt

Many people are concerned about the growth in government debt in
Canada in recent years. However, British Columbia is in a
stronger fiscal position than other jurisdictions, due to
proportionately lower levels of debt and debt service costs.

As a general rule, most governments and jurisdictions are better
off the less debt they have. Debt service costs are lower and
government has greater fiscal flexibility as a result.

However, the public debate on deficits and debt has tended to
blur important distinctions between various kinds of public debt
incurred for different purposes. Two distinctions can be made:

*  Debt that is tax-supported and debt that is self-supporting.

*  Within the tax-supported category, debt that funds operating
   expenditures and debt that finances capital spending.

Tax-supported vs. Self-supporting Debt: Credit-rating agencies
and other analysts of government finances make a distinction
between debt that is "tax-supported" and debt that is incurred by
provincial Crown corporations and agencies that are self-
supporting. Tax-supported debt includes "direct" debt incurred
for government operations and debt of government agencies that
require an operating or debt service subsidy from the provincial
government. As the term implies, tax-supported debt is a direct
burden on taxpayers. In contrast, self-supporting Crown
corporations and agencies such as BC Hydro and BC Rail generate
sufficient revenues to at least cover interest costs and re-pay
principal. They may also pay dividends to the provincial
government.

Tax-supported Direct/Operating Debt vs. Tax-supported Capital
Debt: It is also important to distinguish between tax-supported
debt incurred to fund operations and capital expenditures. In
general, capital debt creates an offsetting physical asset,
unlike operating or "direct" debt. Most of the non-direct debt
incurred by Crown corporations and other government agencies
funds capital expenditures.

An analogy to the household is the distinction between people's
mortgage debt and their credit-card debt. A house is an
investment that provides ongoing benefits, while credit-card debt
is often used to pay for day-to-day consumption expenditures.

With the budget balanced in 1996/97, the need to borrow to fund
government program spending will disappear. However, the
provincial government and its agencies will need to continue to
finance construction of schools, hospitals, roads and other long-
lived assets. In much of the public sector, as in the private
sector, debt financing is the standard practice for investments
that provide benefits over a long period of time.

Public Investment May Raise Private-Sector Productivity: Another
reason for distinguishing between different types of public debt
is that public projects deliver varying types and levels of
service. Recent research suggests that there is a link between
some types of public-sector capital and growth in productivity
and the economy as a whole(3). For example, public investment in
roads, airports and harbours may raise the productivity of
private investment. If so, under-investment in public capital
could result in an under-performing economy.

     (3) For a survey, see Alicia H. Munnell, "Infrastructure
         Investment and Productivity Growth", Journal of Economic
         Perspectives (Fall 1992).

Public Debt vs. Public Assets: A final issue in considering
whether public debt levels are too high is to consider the other
side of the public-sector balance sheet: the value of assets
owned by the Crown. Table E2 provides estimates of the assets
owned by the provincial government and its agencies. The net-book-
value figures are based on the historical cost at which the
assets were acquired and therefore understate their true economic
value or replacement cost. For example, it is estimated that the
provincial road network, with a net book value of $4.6 billion in
the Public Accounts, would cost upwards of $12 billion to
replace. Similarly, the replacement cost of schools,
universities, colleges and hospitals is estimated to exceed $20
billion. However, both the net book value and replacement costs
of provincial assets exceeded the $23 billion in total net debt
of the province in 1993.


[See Table E2 in printed material]


To sum up:

*  Debt incurred because the government budget was not balanced
   is similar to a household running up credit-card debt. In
   contrast, government debt used to finance long-lived capital
   assets is like taking out a mortgage to build a house.

*  Debt-financed public investment may raise private-sector
   productivity and overall economic growth.

*  The value of provincial public assets exceeds total provincial
   debt by a considerable margin.



British Columbia Endowment Fund Dedicated to Debt Reduction

The third element in the government's debt management plan is the
use of the British Columbia Endowment Fund (BCEF) to pay down
debt.

In the 1992 budget, the government set up the BCEF to invest in a
range of diversified financial assets. Over the last two years,
the fund has generated significant earnings. The fund produced
$65 million in earnings for the government's Consolidated Revenue
Fund in 1993/94. In addition, the market value of BCEF
investments has risen significantly; at March 31, 1994, it is
estimated that the BCEF's assets will be worth over $700 million,
up from $550 million on March 31, 1992.

The government has decided to wind up the BCEF. With the
exception of the "BC Focus" component that is creating jobs by
making equity investments in British Columbia businesses, BCEF
assets will be sold and used to reduce provincial tax-supported
debt. For planning purposes, it is assumed that debt will be
reduced by $300 million in each of 1994/95 and 1995/96. The
cumulative reduction in debt of $600 million will reduce
provincial borrowing requirements and debt service costs.


Effect of Debt Management Plan on Provincial Debt

The next chart shows the annual change in tax-supported debt
under the debt management plan outlined above. The chart splits
the tax-supported debt into two components: "direct debt for
government purposes" resulting from budget deficits and "other
tax-supported debt", much of which is used to finance capital
investment in schools, hospitals and roads. As discussed earlier,
the two self-supporting Crown corporations, BC Hydro and BC Rail,
are not included in these figures.


[See Chart E5 in printed material]


As the chart indicates, achieving a balanced budget in 1996/97
will halt growth in "direct debt for government purposes".
"Other tax-supported debt" will increase to fund public capital
construction to meet the demands of a growing population. Total
tax-supported debt growth will slow to less than half the rate
seen in recent years. Meanwhile, the capital assets financed by
debt will deliver health, education and transportation services
to current and future generations.


Conclusion

The provincial budget will be balanced in 1996/97. This will be
accomplished without raising taxes. Tax rates will be frozen for
three years. The government will reduce the rate of spending
growth, but will not make drastic cuts to services; this would
harm those most in need and could de-rail the continued expansion
of the province's economy. In order to balance the budget in
1996/97, spending growth will be reduced to 2 per cent in 1995/96
and 1996/97. This is a much slower rate of growth than in recent
years, so public sector unions and agencies receiving provincial
funding should incorporate the government's fiscal strategy and
debt management plan in their planning.

The achievement of a balanced budget will stop direct debt
accumulation. Other tax-supported debt, used mainly to fund long-
lived capital assets, will be prudently managed in relation to
growth in the provincial economy.

This fiscal strategy will help ensure that British Columbians
continue to enjoy a high standard of living and an appropriate
balance between public services and taxation.





APPENDIX F

BC 21 -- Building B.C. for the 21st Century

In 1993, the government introduced BC 21, a comprehensive, multi-
year initiative to lay the foundation for British Columbia's
economy in the 21st century. The primary goal of BC 21, as
defined in the Build BC Act, is to facilitate the expansion and
diversification of the British Columbia economy. BC 21 is a
government-wide initiative with all ministries and Crown
corporations taking an active role to increase the effectiveness
of economic development, public investment and job creation
activities.

BC 21 has four key components:

Capital Investment -- Building for the future by meeting vital
community needs for health care, education, training and justice
facilities.

The BC 21 strategy provides the framework to coordinate the
government's capital expenditure program to provide a solid
foundation for future growth and development, and to ensure that
government spending delivers benefits today, through increased
economic activity, training and jobs throughout the province.

As the population grows, schools, health-care centres and other
public facilities must be built. By coordinating how, when, and
where these expenditures are made, BC 21 helps British Columbians
gain the maximum benefits in both the short and long term.

Projects are financed by long-term borrowing, with fixed
repayment schedules. Debt is borrowed through the provincial
government and is part of provincial tax-supported debt. Debt
servicing costs are covered by provincial grants and rental
payments and, for hospitals, partly through property taxes.

Economic Development -- BC 21 ensures that existing public
resources are coordinated and provides a dedicated special
account to promote sustainable economic growth, new jobs and
expanded training opportunities in British Columbia's regions.

Innovative programs with specific investment and job creation
benefits are funded from the $100-million Build BC Special
Account. Projects are managed and delivered through partnerships
with other ministries, Crown corporations and the private sector.

Transportation -- Planning and paying for new roads, highways and
other transportation links essential to the long-term growth of
B.C. communities and regions.

The BC Transportation Financing Authority will take a long-term
approach to planning and developing transportation initiatives to
support economic growth. Car rental taxes and gas levies provide
dedicated funding. Other financing options include innovative
partnerships with private capital and other investment sources.
This allows matching of benefits and costs over the life of the
assets.

The Ministry of Transportation and Highways undertakes
construction of highway projects and recovers the costs from the
financing authority.

Crown Corporations -- Ensuring the maximum benefit from public
sector investment -- jobs in the regions, opportunities for
private sector suppliers and training for workers.

BC Hydro, B.C. Ferries, B.C. Transit, B.C. Buildings Corporation
and other Crown corporations make substantial investments in the
British Columbia economy each year. Crown corporation capital
construction is being coordinated so that the substantial
resources of these publicly-owned entities are directed toward
the goals of the BC 21 strategy. These include greater use of
B.C. based businesses, products and services, more emphasis on
job training and skills development, and greater benefits for
local economies.



Public Investment

Public investment encompasses three categories outlined above --
capital investment, transportation and Crown corporations.


Progress in 1993/94

In 1993/94, the province invested $1 billion in schools,
hospitals, universities, colleges, courthouses and corrections
facilities.

During 1993/94, a consolidated approach to capital planning was
initiated within the Ministry of Employment and Investment. Its
purpose is to ensure that major public investments are made in a
cost-effective way, with maximum benefits for British Columbia's
regions.

The BC Transportation Financing Authority was established to
undertake longer-term transportation planning and financing.

Crown corporations have been directed to take into account the
full range of economic and social objectives in their planning.

Examples of the new capital projects initiated through BC 21 in
1993/94 include:

*  A three-year program to build 7,500 new child care spaces in
   schools, hospitals and other public workplaces across the
   province;

*  New research and development facilities at the University of
   British Columbia and the University of Victoria;

*  Expanded public transit in the Lower Mainland and southern
   Vancouver Island.


Plans For 1994/95

For 1994/95, the Ministry of Employment and Investment has
developed the first consolidated capital plan for government. The
plan takes account of the government's debt management plan,
while advancing its social and economic goals.

Social capital investment in schools, health-care facilities,
post-secondary institutions and justice facilities will total
$1 billion. This level of social capital expenditure is equal to
last year's spending and will keep social capital investment at a
level that maintains facilities and meets growth requirements. It
also recognizes that spending growth must be reduced and is
consistent with the government's overall fiscal targets.

The BC Transportation Financing Authority will invest 
$300 million in 1994/95. This will allow construction of the
Vancouver Island Highway to continue, and a start to be made
to other important transportation projects to be announced
during the coming months.

The province's BC 21 initiatives will be supplemented in 1994/95
by a new federal-provincial infrastructure agreement. The Canada-
British Columbia Infrastructure Program creates a new program to
cost-share infrastructure investment totalling $675 million over
two years.

The program is based on partnerships between municipalities, the
private sector and the federal and provincial governments. The
province's contribution to the program will be $225 million.
Funding will be targeted mainly to priorities set by local
governments and will emphasize water, sewer and local
transportation projects.


Economic Development

Progress in 1993/94

During the 1993 legislative session, the Build BC Special Account
was established under the Build BC Act. The special account
supports a range of initiatives that:

*  Promote sustainable growth and long-term job creation,
   particularly in regions;

*  Build partnerships among the public sector, private sector and
   community stakeholders; and

*  Emphasize employment opportunities and training for
   traditionally disadvantaged groups.

Using the $100-million Build BC Special Account, BC 21 undertook
a number of innovative regional initiatives in 1993/94 that
combined economic development, training and job creation.
Initiatives included:

*  Creation of 15 innovative regional job creation and investment
   programs across the province, including job training in forest
   communities, salmonid enhancement, student summer employment
   and heritage preservation;

*  Establishment of a regional export development program;

*  Establishment of the Community Projects Program to help
   develop new and expanded community-based facilities; and

*  Investment in a new ferry service between Victoria and
   Seattle.


Plans for 1994/95

For 1994/95, the Build BC Special Account received a further
injection of $100 million. Spending priorities include:

*  Community Enhancement Programs -- These programs will assist
   communities to respond to development challenges and
   opportunities and will provide direct employment opportunities
   for traditionally disadvantaged groups. As a major component of
   the Community Enhancement Programs, new housing initiatives
   will help communities respond to development and growth
   pressures. These initiatives will include a replacement for
   the Renter's Tax Reduction, which was eliminated in 1993.

*  BC 21 Community Grants -- This community-based initiative will
   provide funding to build or improve neighbourhood facilities
   around the province.

*  Environment and Resource Programs -- These programs will
   support environmental management and conservation, and
   resource enhancement throughout the province in support of
   government priorities.

*  Science and Technology Projects/Programs -- These science and
   technology related programs will assist with the development
   of new competitive advantages and opportunities for industry
   and help build new partnerships between publicly-funded
   educational and research facilities and private-sector high-
   technology industries.




APPENDIX G

Supplementary Tables


[See Table G1 through G7 in printed material]


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