Niels Veldhuis: What should the top three priorities be in the BC Liberals' 2013 provincial budget? Government debt and spending cuts, scrutiny of public sector pay neededThe first priority has to be reversing the recent and alarming increase in provincial debt
On February 19 the BC Liberals will unveil their pre-election budget. While pre-election budgets are always a difficult balancing act, the Liberals have a real opportunity to deliver an opportunities-focused budget that lays the foundation for B.C.'s economic future.
The first priority has to be reversing the recent and alarming increase in provincial debt. Consider the Liberals' debt record over the past decade. From 2003-04 to 2007-08, the Liberals acted prudently by using surpluses to pay down government debt. As a result, net debt (liabilities minus assets) declined from $28.9 billion in 2003-04 to $23.9 billion in 2007-08. However, since 2007-08, government debt has increased by more than 50%, rising to $36 billion (2011-12).
To gauge the debt's true burden, consider how it has increased relative to the province's economy measured by gross domestic product (GDP). In 2007-08, the provincial debt was 18% of GDP. Today, the debt stands at 24% and is set to increase to 28% of GDP by 2014-15 – approximately the same debt the Liberals inherited from the previous NDP government in 2001.
This marked increase in debt is a drag on B.C.'s economy and places an unfair burden on the next generation of B.C. families.
Increased debt also means a larger portion of provincial revenue is consumed paying interest payments (especially if interest rates on the debt increase) instead of funding important public programs or reducing taxes to improve the B.C.'s competitiveness.
Thankfully, indications are that the Liberal government will finally balance the budget this coming fiscal year (2013-14).
The historical experience, both in and outside of Canada with respect to balancing budgets, is that spending restraint is key as opposed to relying on tax increases. Unfortunately, last year's budget introduced a host of tax hikes and signalled a possible one-percentage point increase in the general corporate income tax rate in 2014-15.
The view that the B.C. government lacks revenue is simply detached from reality.
Consider that revenue grew from $29.2 billion in 2003-04 to $40.1 billion in 2007-08 (prior to the recession) before decreasing in 2008-09 and 2009-10.
This year (2012-13), revenue is expected to be $43.1 billion, some $3 billion higher than the pre-recession high. All told, revenue has grown 47.8% over the past decade.
In addition, when you add up all of the taxes that British Columbian families pay ranging from property, sales, health and social security taxes to alcohol, tobacco and fuel taxes, the total amounts to more than $38,427 annually for an average family.
Higher taxes, whether on businesses or upper-income British Columbians, will reduce B.C.'s investment climate and competitiveness in attracting and retaining highly skilled workers, investors and entrepreneurs. This is especially important given that our top income tax rate is nearly 50% higher than neighbouring Alberta, and workers south of the border in Washington state pay no state income tax at all.
Rather than resort to higher taxes to balance the budget, the Liberals should look for savings on the spending side.
There is no better place to start than the largest expenditure, health care, which consumes approximately 44% of the budget.
If the B.C. government implemented policies common in other nations with universal health care (i.e., cost sharing and competition in delivery of publicly funded care), we could reduce spending while achieving better quality care for patients.
In addition, the Liberals would also be wise to closely scrutinize public-sector compensation with the goal of bringing pay and benefits in the public sector in line with those in the private sector.
Currently, wages for public-sector workers in B.C. are 14% higher, on average, than their private-sector counterparts with more generous benefits.
If the Liberals are interested in delivering a budget built on solid economic foundations, they should rein in spending, get back to reducing debt and keep their eye firmly on ways to improve, rather than reduce B.C.'s competitiveness. •