British Columbia's economy is slowing down, but that doesn't mean the Liberal government can't afford to cut taxes or offer British Columbians some cold, hard cash ahead of next spring's provincial election.

Finance Minister Colin Hansen dangled the prospect of pre-election goodies even as he delivered a downgraded economic projection Friday in the government's first quarterly financial report.

He said the government is downgrading its economic growth forecast for this year, but its revenue coffers are full and the surplus is forecast to hit $1 billion, about $970 million higher than forecast in last February's budget.

"We are seeing a slight slowing of the economy this year,'' said Hansen. "We're going to start to see it rebound next year and we are forecasting strong revenues for government to support government programs and to potentially support revenue measures as well.''

Revenues are forecast to be $1.2 billion higher than budget predictions thanks to higher than anticipated corporate income tax returns, natural gas royalties and bid revenues for drilling rights, he said.

Hansen said the B.C. economy remains resilient despite problems outside the province.

The Finance Ministry now forecasts growth of 1.7 per cent in 2008 and 2.3 per cent in 2009. Last February, the ministry forecast growth at 2.4 per cent for this year.

"The operative word is one of caution and also one of volatility,'' Hansen said.

With an election set for next May, Hansen said that an increase in the surplus over budget predictions could mean tax cuts, spending on social programs and debt reduction in next year's budget.

And he said he will not rule out some form of rebate cheques for taxpayers.

Rebate payments have become a political tradition of sorts in British Columbia, beginning with the Social Credit in 1979. The New Democrats offered rebates from profits from Crown corporations and most recently the Liberals handed out $100 climate dividend cheques to encourage the fight against global warming.

Hansen said he is a believer in using tax cuts to stimulate the economy but would only drop broad hints that he is considering some form of tax relief in next February's budget.

"We're not going to spend money we don't have,'' he said. "We're not going to risk putting the province back into deficit .The good news is the government has those revenues.''

But the Opposition New Democrats accused the government of doing nothing while some sectors of the B.C. economy deteriorate.

New Democrat finance critic Bruce Ralston said the government touted its revenue supply but has offered little to communities and families suffering as the forest industry continues to struggle.

And he said Hansen is forecasting an extended forest industry slump beyond its original forecast of 2010.

"This industry is in a tailspin,'' he said. "His only response to the people of British Columbia is wait and see. Our forest-dependent communities are crying for some leadership.''

Earlier this month several influential economists said they would be downgrading their growth predictions for the B.C. economy.

Helmut Pastrick, the chief economist at Credit Union Central in Vancouver, said the collapse of the U.S. housing market and B.C.'s slumping forest industry was contributing to the economic slowdown.