In the midst of a party leadership race, Finance Minister Colin Hansen did the right thing last month by delivering a status-quo budget, one that was void of major new policy initiatives. But now that the BC Liberals have elected their new leader, it’s up to premier-designate Christy Clark to determine whether she’ll stick with the budget plan or alter priorities. Either way, Ms. Clark faces some daunting challenges.

For starters, consider the $2.55 billion Mr. Hansen indicated is available for the new premier’s top priorities. While the 2011 budget contains $2.55 billion in “flexibility” funding over the next three years ($950 million in 2011-12 and $800 million in each of the following two years), it also plans for deficits totalling $1.19 billion over the same period. Because deficits are money the government doesn’t have, this so-called “flexibility” should not be used for new spending.

The real “flexibility” built into the budget is $1.36 billion: $2.55 billion minus the cumulative deficits over the next three years ($1.19 billion); $1.36 billion sounds like a lot, but it’s just one per cent of the $128 billion the government plans to spend during the next three years. And the one per cent is only available if premier-designate Clark can stick to the budgeted spending plan.

Herein lays a major problem. The 2011 budget assumes average growth in program spending of 1.5 per cent over the next three years. However, nothing in the Liberal government’s track record suggests that it will be able to stick to this plan.

“Overruns” have been historically common with actual spending coming in significantly above budget projections. For example, the Liberals’ 2010 budget proposed spending $38.2 billion in 2010-11, but actual spending is set to come in $500 million higher at $38.7 billion.

Over the past three years, spending has been $1.2 billion higher than what the Liberals initially budgeted for. If the same trend holds for the next three years, the $1.36 billion in “flexibility” will essentially be wiped out.

Also troubling is the looming referendum on the HST. If British Columbians vote down the HST, the province could be forced to repay the $1.6 billion in transitional funding provided by the federal government. Because the budget does not explicitly account for the possibility of repaying the $1.6 billion, the budget’s bottom line could suffer a serious hit.

If that’s not worrying enough, the single largest budgetary threat is health care. B.C.’s aging population presents a looming budget challenge as health-care spending continues to consume a larger portion of government resources. By 2013-14, health care will account for nearly 46 per cent of the government’s program spending, up from 37 per cent when the Liberals were first elected in 2001.

If health-care spending is not brought under control, premier-designate Clark will be unable to finance other priorities, including needed tax relief.

The solution to the health-care challenge is to get more for the money the province already spends. To do so, Ms. Clark and her colleagues should look to countries with universal access health care that are able to buy more and higher quality care for less money. Experience in these nations suggests that B.C. should adopt two key health policies: cost sharing and competition in the delivery of publicly funded care.

International evidence shows that competition produces higher-quality care than monopolistic public provision of services. In addition, research shows that when patients are responsible for some of the cost of their care, they use fewer resources and end up no worse off in terms of health outcomes. By introducing just these two sensible health policies, B.C. would reduce public health spending and improve service quality.

Fixing B.C.’s health-care system to free up money for other key priorities might not be easy, but it’s achievable. Let’s hope premier-designate Clark is up for the challenge.