On the road to election: What have the Liberals done for B.C. lately?

As economic uncertainty clouds B.C.'s political future, BIV sets the election's business agenda and poses 10 key economic questions

BC stands at a political and economic crossroads.

Not since 2001 has the province's politically polarized and oft-combative electorate played such an integral role in setting the future tone and direction of B.C.'s economy.

Much is at stake in this year's election.

Voters will be choosing a government that will preside over capitalizing on the billions of dollars in infrastructure spending that could transform B.C.'s economy.

Much will depend on the government's continued ability to promote trade with some of the biggest economies in the world, most of which face major financial challenges.

Victoria will also have to work with Ottawa to play a more significant role in devising and adequately funding a better combination of skills training for its citizens and skilled labour immigration to offset the economic drag created by the rising retirement tide of baby-boomers who will be entering their 70s in the next five years.

Will the province stay the course with Christy Clark's Liberal Party vision for B.C. that's betting the province's economic and debt-less future on liquefied natural gas? Or will the seemingly Liberal-weary electorate risk charting a new course with the B.C. New Democratic Party (NDP) under Adrian Dix?

Whichever party is voted into power May 14, the government will bear the heavy responsibility of setting B.C.'s economic agenda for the next four years and creating urgently needed, high-paying jobs in one of the best, but most expensive, places to live in the world.

"The next government, whoever it is, will be faced with the need to pay a lot of attention to the economic environment, to policy, the job market, to attracting business and investment to B.C. and pay close attention to our competitive position [globally]," said Jock Finlayson, executive vice-president at the Business Council of BC (BCBC). "There are no grounds for complacency."

Liberals preside over a decade of prosperity and volatility

The public's perceptions of which political party would be the best steward of the economy will be a key in this year's provincial election.

According to several key metrics, the province has prospered economically in the past decade.

A BCBC study noted that B.C. has posted top performances in:

•average per-person incomes (rising 1.61% in the 2000s compared with falling 0.18% in the 1990s);

•average per-capita GDP growth (rising 1.2% compared with 0.65% in the 1990s);

•employment growth (with an unemployment rate of 6.6% versus 8.9% in the 1990s);

•business investment (with an average annual increase of 5.3% versus 3% in the 1990s); and

•fiscal management (with a surplus of 0.23% of GDP versus a deficit of 0.65% of GDP in the 1990s).

Finlayson noted that this positive economic performance came despite the dot-com bust in 2000, the effects of the September 11, 2001, terrorist attacks in the United States and the global financial crisis of 2008.

"We've performed reasonably well in spite of those headwinds," said Finlayson. "That's quite impressive and worth pointing out."

According to Statistics Canada data, B.C.'s rise in average income has resulted from an employment increase in high-paying sectors. Over the past decade, the number of jobs in professional services, construction, high-tech, transportation and mining has grown significantly, with mining and construction posting some of the largest job increases since 2001.

For example, jobs in mining – which pay more than double the provincial average – have nearly tripled in the past decade.

A KPMG report last year noted that B.C.'s tech sector was the second-fastest creator of jobs in the past decade. Its revenue grew 56% between 2001 and 2009, and technology-related exports jumped 86% over the same period.

The number of jobs in the construction sector, which pays wages that are at least 25% above the B.C. average, rose 65% between 2001 and 2012.

Who can take credit for B.C.'s prosperity?

Many business leaders and advisers agree that much of B.C.'s economic outperformance has continued to result from federal and provincial government initiatives to reduce corporate and personal income taxes over the past decade.

Greg Noble, a tax partner at Ernst and Young, noted that B.C.'s corporate tax rate, which has fallen to 25% from a high of 42%, is now one of Canada's lowest. Under the provincial AdvantageBC program, the rate is as low as 15% for certain international finance, life sciences, film distribution, digital media and clean technology activities conducted in B.C.

"That's a quantum shift," said Noble. "When I came to Vancouver in 2000, the bias from multinational clients was that the Canadian tax rate was too expensive. The whole idea was to get [business] functions out of Canada because it was too expensive to have them there. Now the pendulum has swung with B.C. at 25% and the U.S. still at 43% with no ability to change it, so now the whole bias is to bring functions into Canada."

Charles Lammam, associate director for the Fraser Institute's centre for tax and budget policy, noted that the combination of corporate and personal tax cuts, improvement in the province's finances and a 40% reduction in red tape were among the key policy changes that improved B.C.'s attractiveness for private-sector investment during the past decade.

"In 2000, B.C. was ranked 10th out of 10 provinces as an attractive place to invest, based on a survey of leading money managers. By 2006, B.C. had improved to second overall [after Alberta]."

Referring to B.C. becoming a recipient of federal government equalization payments in the late 1990s, John Winter, CEO of the BC Chamber of Commerce, noted, "In the 1990s, we were really sliding downhill. Investors were not coming to B.C. at all. We were a have-not province. A province with our resources and prospects to be a have-not province is an unacceptable condition we don't ever want to return to."

The government's policy changes have also helped B.C. employers tap myriad global business opportunities. BC Stats data shows that the number of businesses in the province has increased 10% since 2003. Finlayson noted that boost in entrepreneurial activity has not only spurred business income growth but also jobs among small and medium-sized businesses.

B.C.'s fiscal status to worsen

While B.C. employers have continued to benefit from favourable government policies, the province's economy and fiscal situation remain fragile.

Economists have lauded the government's investment in new transmission lines, highways, school upgrades, hospital expansions and other infrastructure. But concerns have been growing over how the government has been financing its capital spending.

According to B.C. finance ministry reports, the government's debt-to-GDP ratio has risen 5.8% since 2007-08, close to the two-decade peak of 20% in the Liberal government's first budget in 2002-03. According to last year's budget, provincial debt is projected to rise another 15% by 2015 to $66.4 billion from $57.6 billion in fiscal 2012-13.

Lammam warned that the government faces rising fiscal danger as it continues to fund infrastructure spending almost exclusively with debt rather than using more of the government's annual revenue.

"Typically, we think of the debt as accumulated deficits, operating shortfalls. But in the case of B.C., a bigger portion in debt has been driven by capital spending, and the plan is to increase debt," said Lammam. "With more debt there's the concern that the future generation of taxpayers will be on the hook for the debt burden."

The government's tenuous fiscal situation has already caught the eye of credit-rating agency Moody's Investors Service, which in December reduced its outlook for B.C.'s debt to "negative" from "stable."

While the government announced in its pre-election throne speech a new Prosperity Fund generated from future liquefied natural gas revenue to help pay down the debt, significant revenue wouldn't flow into the fund for nearly a decade.

Trust deficit, uncertainty surplus cloud B.C.'s future

The recent splintering of the political right will remain one of the biggest challenges facing the BC Liberals.

While the government has been advertising its BC Jobs Plan as a key economic policy, it will remain difficult for the government to prove its effectiveness in the lead-up to the May election.

"Any plan works if it's creating something, but how high up is a key question," said Winter. "Who knows what constitutes success?" Lammam also warned that the plan's targeted approach to jobs is likely to be less effective than if the government had focused on a more broad-based approach to attracting and nurturing skilled labour.

"The major concern for me with the jobs plan is that it supports some industries over others, which we know is a failed strategy based on history."

Politically, the biggest challenge Christy Clark will face is the mountain of mudslinging opportunities the NDP has at their disposal, from the backlash against the harmonized sales tax to regurgitating the scandal around the sale of BC Rail.

"The Liberals have a lot more stick-handling to do this election than the NDP. The Conservatives did start to create some real divisiveness on the right, and the NDP have a fairly easy job of positioning the Liberals as the bad guys [who] have them dig themselves out of that hole," said SFU marketing professor Lindsay Meredith.

"Unless Christy [Clark] can come up with something magnificent when it comes to leadership style that gives people a reason to vote for her, the negative reaction vote [for the NDP] or failing to gain support and having people not vote at all could simply be disastrous for the Liberals."

For Lammam, the devil will be in the policy details – whoever wins on May 14.

"You never know. The reality is, we've had NDP governments in Canada that have been prudent fiscal managers. We've had conservative governments that have been spendthrifts," he said.

"If Adrian Dix and the NDP go a different route than what their 1990 counterparts did and follow the Saskatchewan NDP in the early 2000s, it won't be as bad. But it depends on what kind of government they want to be." •

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