The B.C. government expects a deficit of $2.8 billion this year, with the red ink dropping below $2 billion next year and below $1 billion the year after.

The deficit for the current fiscal year is about five times the size promised by Premier Gordon Campbell and Finance Minister Colin Hansen before the May election, due mainly to a sharp drop-off in natural resource at income tax revenues.

Still, the Liberal government’s forecast was more prudent than the one supplied to it by 12 economists, said North Vancouver-Lonsdale MLA Naomi Yamamoto.

“We added a point-nine per cent reduction in the decrease in the gross domestic products, she said. “But it was only in the last three months that we saw this dramatic decline in our revenues, basically our corporate and personal income tax revenue.”

Add to that a more than $400-million forest fire fighting bill for this summer, Yamamoto said.

The deficit would have been even higher, except for a cheque from Ottawa to ease the transition to a harmonized sales tax.

B.C. is taking $750 million of the $1.6 billion federal cash this year, with the rest easing deficits projected to continue at least until 2012.

Unlike Ontario, which shared its “transition payment” with its residents in the form of $1000 cheques, the Liberal government has elected to use that money to maintain needed services, such as health care, West Vancouver-Capilano MLA Ralph Sultan said.

To help keep up with soaring health care costs, Medical Services Plan premiums are to increase six per cent in each of the next three years. The first increase will take effect on New Year’s Day, costing up to $3 a month for a single person and $6 for a family.

The 18 per cent hike in premiums matches the projected increase in spending on health care, but finance ministry documents say the annual MSP increase will match the growth of health spending, so it could be more than six per cent in future years.

New Democrat leader Carole James said the hikes won’t off-set increased costs in health care and will result in the cancellation of thousands of surgeries.

“They lied about the severity of the crisis, and now just as families are struggling to emerge from the downturn the Liberals’ only answer is a new tax and hikes to MSP premiums,” she stated in a press release.

Hansen softened the blow of the harmonized sales tax with a personal income tax cut and a full rebate of HST costs on residential heating.

Homeowners will not pay the provincial portion of the 12 per cent HST on natural gas, heating oil, electricity or other energy costs for heating, extending the current exemption under the seven per cent provincial sales tax. This will aid North Shore residents, many whom are on fixed incomes, Sultan said.

The federal GST of five per cent will continue to be charged on home heating energy, as well as vehicle fuels, which are also subject to B.C.’s rising carbon tax.

Effective Jan. 1, 2010, the basic personal credit for provincial income tax rises to $11,000, up 17 per cent. Combining the measures in Tuesday’s update, Hansen says B.C. residents earning up to $118,000 will have the lowest personal income tax in Canada.

Despite the red ink, the government is following through on its promise to increase kindergarten from half days to full days, starting next fall. The budget promises space for up to half of kindergarten-aged children in September 2010, and expanding to accommodate all children whose parents want them enrolled.

MLAs are not looking at a wage freeze, as the province’s civil servants are being asked to do.

“I would certainly consider that, but I don’t think it is in the cards,” Sultan said.

-with files from Rebecca Aldous