VICTORIA, B.C. - The B.C. Liberals warned of cuts to government grants, possible layoffs and public-sector wage freezes in a throne speech Tuesday, its first since the party won re-election on a far less dire platform.

Discretionary spending of all kinds and the operations of the boards and authorities that deliver many of B.C.'s services will be carefully examined for cuts as the cash-strapped provincial government tries to take some air out of its ballooning deficit.

"The fiscal cupboard is bare and hangs on a wall of deficit spending," said the speech, read by Lieut.-Gov. Steven Point.

"It will not happen overnight and it will not be easy, but government will work tirelessly so B.C. comes out of this economic maelstrom stronger."

Premier Gordon Campbell said the unpredictable economy has nailed the province's finances and difficult times are ahead as the government makes choices to protect health and education services.

"In the last few months alone, we've lost $500 million in terms of natural gas revenues," he said.

"We've lost $500 million in terms of natural resource revenues. We've lost $200 million in terms of provincial service taxes. We've watched as our forest fire budget has gone from $60 million to over $400 million."

Campbell said the government is not looking at "substantial layoffs," as it considers its strategy to get out of the economic problems.

But health authorities, boards of education and Crown corporations will be reviewed in an effort to find cost savings, he said. The operations of BC Ferries and TransLink, which operates Vancouver-area transit, are already being examined.

Tourism B.C., the Crown corporation responsible for marketing British Columbia to tourists around the world, was killed last week.

"Where service-delivery mechanisms can be improved at a lower administrative cost, they should be," said Point in the throne speech.

"Where Crown agencies or functions delivered by them can be more cost-effectively administered directly by line ministries, they will be."

But even with these moves, there won't be enough savings to balance the budget. Either massive tax hikes or bone-deep cuts would be needed.

"This year's deficit will be far higher than originally forecasted," Point said in the speech.

So the government will instead have to ask for an amendment to its balanced budget legislation to allow it to run a deficit budget for four years.

The Liberals have already amended that legislation once this year. Prior to the February budget, the government passed a change that would allow it to run a deficit for two years.

The budget then forecast a deficit this year of $495 million, and the Liberals entered an election campaign with that blueprint.

But in the last few weeks, Finance Minister Colin Hansen has indicated things will be much worse.

The Canadian Union of Public Employees issued a news release saying the speech "provided some ominous clues" of what's ahead.

"The government says there's no money available for public sector wage increases, but it also promises that it 'will not contemplate wage rollbacks,"' said CUPE B.C. president Barry O'Neill.

"But at the same time, it will subject health authorities, boards of education and Crown corporations to a funding review. How are they planning to balance budgets in those areas?"

The B.C. Nurses Union said it's concerned the government's commitment to protecting jobs and services contradicts the service cuts health authorities are making.

"On the one hand the government is giving itself the authority to run large deficits for four years; on the other hand, the government demands its health authorities get into the black now," said BCNU president Debra McPherson.

"The impact on patients seeking care, on seniors needing assistance to stay well, on the mentally ill and disabled will be devastating."

The Opposition NDP has already been travelling around the province, capitalizing on public anger over the B.C. government's decision to harmonize the provincial sales tax with the federal Goods and Services Tax.

The new 12-per-cent HST will save businesses millions of dollars, but consumers will now have to pay taxes on things they didn't have to in the past, like haircuts and restaurant meals.

The NDP has portrayed the tax as a betrayal because the Liberals made no mention of it during the election campaign.

But the Liberals said in the throne speech the new tax will help fight the worst recession in 27 years.

"The government committed to work to make British Columbia more competitive, reduce barriers to the economy and protect core public services," Point said in the speech.

"A harmonized sales tax fits all three of those broad objectives."

Point said the government plans to use $1.6 billion in federal HST transition funding to protect health and education services.

Campbell denied NDP accusations that he lied during the May election about the province's poor finances and the plans to introduce the HST. He said he was not considering the HST during the election, and the unpredictable nature of the economy fooled everybody, including economists.

Opposition NDP Leader Carole James said she wasn't about to let Campbell off the hook on the HST and the budget deficit.

You don't build confidence in the public by lying to them," she said.

While the speech was panned by some organizations, the Independent Power Producers Association of British Columbia welcomed what it called the government's "commitment to make clean energy a cornerstone of the province's climate action plan and to support the development of clean power as a competitive economic advantage."

"We can create new jobs as a global leader in clean energy and energy conservation, in green building technologies and affordable housing in our cities and towns," Point said in the speech.

Last month, the B.C. Utilities Commission surprised many in the energy sector when it slammed long-term hydro plans as not being in the public interest and ordered the province to continue using the aging and natural-gas powered Burrard Thermal Generating Station.

That decision was addressed in the speech.

"Electricity self-sufficiency and clean, renewable power generation will be integral to our effort to fight global warming," Point said in the speech.

"The BC Utilities Commission will receive specific direction. Phasing out Burrard Thermal is a critical component of B.C.'s greenhouse gas reduction strategy."

Campbell said the government has no money to fund wage increases for public-sector workers, but plans no wage rollbacks.

"Rising public-sector wage and benefit costs only put more pressure on government to find savings through layoffs and other workforce reductions," he said.

"As long as we are mired in deficits, there is simply no money available for public-sector wage increases."

The throne speech also said the government will introduce a one-time Olympic legislative amendment to adjourn the legislature for the February period during the Games and delay the new B.C. budget to March 2, 2010.

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