Niels Veldhuis | A responsible budget that does little to move the economy forward
Against the backdrop of depressed commodity prices, a sluggish economy and fiscal mayhem in many other provinces (think Alberta and Ontario), there are parts of B.C.’s 2015 budget that are worthy of praise. Relatively speaking, there’s little doubt that the province has been much more fiscally prudent than others. While responsible, the budget will do little to propel B.C.’s economy forward.
Let’s start with the good news. B.C. now belongs to an exclusive “balanced-budget club” in Canada, which by the end of budget season may consist of only two governments (with Saskatchewan likely being the other).
This result is due in large part to program spending constraint shown over the past seven years. Program spending growth has been held to an average rate of 2.5% since 2008-09.
What’s more, the government is recommitting to constraining spending over the next three years, keeping average program spending growth well below increases in population growth and inflation.
Credit the government for also allowing the temporary increase to the top personal income tax rate to expire at the end of 2015. In 2013, the Liberals introduced a new top personal income tax rate to reduce the deficit.
Letting the higher rate expire shows, in part, a recommitment toward a more competitive personal income tax system.
Despite the balanced budget, provincial net debt continues to rise (by an expected $3.1 billion over the next three years). B.C. can balance its budget and still accumulate debt because the province separates annual spending (the operating budget) from long-term spending (the capital budget).
And while this growing debt could pose serious fiscal challenges in the future, it is a materially different problem than those of other provinces. Take Ontario, where the province’s debt has grown by $117 billion since the 2008-09 recession with 66% directly attributable to borrowing to fund day-to-day expenses – not investments in infrastructure.
Unfortunately, there are problematic aspects of the budget to recognize.
For starters, the government made no mention of undoing the “provisional” one-percentage-point increase to the general corporate income tax rate introduced in 2013 to help eliminate the deficit.
In addition, the budget contained no plan to offset the dramatic increase in business taxes associated with reintroducing the PST.
Almost all of B.C.’s competitors have moved to a value-added sales tax like the now-abolished HST, which exempts business inputs and lowers the cost of investment.
The government’s own expert panel recommended introducing a refundable investment tax credit equal to the PST paid on machinery and equipment to improve B.C.’s competitiveness and investment climate.
Failure to address this problem has negative long-term economic implications.
A recent University of Calgary study found that B.C. now has one of the highest overall tax rates on new business investment in the country (27.5%). Without more competitive tax policies, B.C. risks losing investment and jobs that may gravitate elsewhere.
Reforming government spending could create more fiscal room needed for tax changes. But the status quo prevailed here, too.
Consider health care, which consumes an ever larger portion of program spending (now 44%) and is slated to increase annually at 2.8% over the next three years.
While B.C. is getting accolades for containing increases in health-care spending, there is nary a mention of reforming how services are financed and delivered.
The goal should be to spend less and improve the quality of health care.
To do so, we should look at adopting policies commonly used in other universal health-care systems around the world.
Finally, while the increase in education spending is modest at 1.7% on average over the next three years, it ignores the fact that enrolment in B.C. public schools continues to decline.
While the Liberals should be commended for B.C.’s exclusive membership in the balanced-budget club, the government missed an opportunity to institute changes that would lead to a better economic future. •
Niels Veldhuis ([email protected]) is president of the Fraser Institute. This commentary was co-written by Charles Lammam, the institute’s associate director of fiscal policy.
Irene Lanzinger | Balanced, but also corrosive to critical services in the province
B.C.'s 2015 budget is stunning, but not in a good way. Despite Finance Minister Mike de Jong’s talk of prudence and balance, the document he tabled in the legislature will reinforce inequities, undermine critical services and do little to position B.C. for sustainable growth in the years ahead.
At a macro level, the finance minister gives only passing mention to the fact that the B.C. economy barely resembles the hype that his government claims as a hallmark of their prudent oversight.
Economic growth is forecast to average just a bit over 2% this year and next, a rate that looks more like treading water than moving forward. And despite several trade missions and all the talk in last year’s budget about a proposed royalty regime for liquefied natural gas (LNG) development in the province, this budget holds little prospect that LNG plants will be built any time soon or that the much anticipated prosperity fund will take shape sometime during their current mandate.
The same underwhelming picture is there on the jobs front.
Employment growth is projected to be weak.
Even more disturbing, total employment for the province is only now reaching the level it was in 2009, a reminder that despite the hype associated with the government’s Jobs Plan of 2012, progress in terms of employment growth still has a long way to go.
But budgets also detail government priorities, and on that score this budget holds some disconcerting news.
For the richest 2% of British Columbians, the budget documents reveal that they will enjoy a tax break, one estimated to be worth $227 million.
When the high-income surtax was introduced in 2013, the finance minister said it was done to ensure that affluent British Columbians pay their fair share into the provincial treasury.
Had the government opted to keep the surtax, it could have helped finance a broad range of public services, reduce health-care wait times, introduce a poverty reduction plan, make post-secondary education more accessible or ensure the government had the capacity to provide strong stewardship of our land and water resources.
Instead, the government has decided that “paying their fair share” was so two years ago, and, as a result, B.C. will reverse course on the only modest steps toward progressive tax reform in over a decade.
That theme of reversing course is also evident in the range of user fee increases that are part of this budget. Medical Services Plan premiums are slated to increase, a move that will hit middle-income earners.
BC Hydro rates are also slated to increase by as much as 25% over the next few years.
The budget documents did have some good news for lower-income families.
After much protest and pressure by community groups, the province has finally agreed to end the clawback on child support payments for single parents on welfare.
The change will cost the provincial treasury approximately $13 million, which amounts to about 5% of what was given to B.C.’s wealthiest households through the elimination of the high-income surtax.
However, cutting $4 million from the family maintenance program will make it more difficult for parents to get the money they’re owed.
The finance minister devoted a lot of time to celebrating the fact that the 2015 budget continued to show surpluses.
There’s no denying his math on that point.
In fact, if you add in his contingencies and forecast allowances, de Jong is sitting on close to $1 billion in fiscal capacity that his government has decided not to deploy.
Yet it’s the vast majority of British Columbians who could use some of that capacity to improve conditions in their communities, strengthen the important public services that make B.C. a better place to live and give opportunity to younger citizens to get the skills they need to succeed.
Mr. de Jong’s budget is not prepared to make any of those investments.
Prudence and balance may sound impressive in a budget speech, but they do little to build the kind of province we want.
B.C. deserves better. •
Irene Lanzinger ([email protected]) is president of the BC Federation of Labour.
Head to Head runs monthly.
