Quote:
Originally Posted by Nathan
It does indeed raise interesting points. One thing that could be beneficial if treating resource revenues as permanent income is if what BC does were followed elsewhere. IIRC, they don't recognize all revenue within the year it is made, but spread it over a number of future years (7 I think?), this would almost act like a short term "heritage fund" that would smooth the highs and lows and provide some stability in case of a downturn. I never really thought much of this aspect to their system before, but the article is making me pause a bit on the whole topic.
(Please correct me if I'm not remembering BC's system quite right).
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Perhaps I can clarify a bit... since I am from BC.
Circa 2002, BC went to GAAP (Generally Accepted Accounting Principles) in terms of fiscal budgeting... which is considered the most transparent form of budgeting. Ya can't politically "manipulate or massage" the numbers under GAAP.
BTW, as far as I am aware, BC is the only province in Canada that utilizes GAAP accounting for budget purposes. Don't believe the feds utilize GAAP either.
Now back to topic. As BC (along with AB and SK) has considerable nat gas and oil (in the case of AB and SK), all of these 3 jurisdictions receive drilling rights/bonus bids for these resources. And in BC, for example, the terms of same are typically either 5 or 10 years.
Under GAAP rules, the upfront cash that BC receives for same is banked right away. OTOH, a BC budget can only "incur as revenue" either 1/5 or 1/10 (averaged at 7 years) in each fiscal year moving forward. The remaining cash in the bank is referred to as "Deferred Revenue" in BC budgeting moving forward, over the years, until same has been depleted. BTW, a few years back, BC had "Deferred Revenue" of ~$10 billion.
Since both AB and SK, for example, don't utilize GAAP, both provinces incorporated that same revenue stream, for budget purposes, in the fiscal year that they banked the cash... which would result in obviously larger budget surpluses.
However, don't confuse the foregoing with "royalty revenue", which is treated differently. All 3 provinces treat royalty revenue similarly in the fiscal year that it is received as no defined term exists (unlike bonus bids/drilling rights).
As a further aside, had SK utilized GAAP accounting practices akin to BC, 9/10 previous SK budgets would not have been balanced according to the SK Auditor-General:
http://www.cbc.ca/news/canada/saskat...says-1.1323251
Strangely enough, SK has 2 sets of books and apparently has for years. Don't understand that either.