(Vancouver) Provincial taxation and spending policies have worsened the gap between BC’s two economies — the diversified Lower Mainland and Victoria areas, and the more resource-dependent ‘hinterland’ regions. Soutwestern BC received a skewed share of income tax cuts, while subsequent tax increases and spending cuts have hit harder in the regions. For most communities, the value of income tax cuts has been largely offset, or eliminated altogether, by tax increases and lost income from government downsizing.
These are the central findings of BC’s Regional Divide: How Tax and Spending Policies Affect BC Communities, released today by the Canadian Centre for Policy Alternatives. “The current upswing in the economy is driven by commodity prices and masks a growing regional divide,” says economist Marc Lee, lead author of the study. “Commodity prices in the first two months of 2005 were 54% higher than in 2002, and higher than at any time in the past quarter-century. When the BC economic rollercoaster takes its next dip, communities in the ‘hinterland’ will find it harder to weather the storm due to public sector job cuts.”
The study calculates money flowing into communities from the provincial government’s income tax cuts, and finds that Greater Vancouver received a bigger share of the pie, with 51% of BC tax filers receiving 58% of tax cut dollars. It also examines money flowing out of communities through tax increases (such as MSP premiums, tobacco and fuel taxes) and spending cuts. It finds that tax increases took a bigger bite out of incomes in the ‘hinterland,’ eating up 44% of income tax cut dollars in the Southwest, compared to 51% for the rest of BC.
Spending cuts also hit hardest in the regions. The Lower Mainland and Victoria areas have seen a 15% decline in direct public sector employment, compared to regional job losses of 22%. (The study draws on employee data files for the civil service provided by the provincial government.)
“For a number of communities, the total income lost from public sector job cuts and tax increases is higher than the income gained from tax cuts,” says Lee. “In Nelson, for example, which lost half its public sector employees, the loss of income is more than double the value of tax cuts. Even in Prince George, which is a regional hub, the value of tax cuts is greatly reduced by tax increases and job losses.”
The ‘hinterland’ also experienced a higher rate of school closures and an unequal loss of teaching positions. And while health care spending is up around the province, acute and residential care beds have decreased, again with a disproportionate impact in the regions. The study also finds that new capital investment (public and private) is disproportionately concentrated in the southwest — 70% of major capital projects underway as of December 2004 were in the Lower Mainland/Southwest area.
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BC’s Regional Divide: How Tax and Spending Policies Affect BC Communities is available at www.policyalternatives.ca.
The study includes municipal and regional-level information on the value of tax cuts, income lost from tax increases, government office closures and job losses, school closures and teacher reductions, and acute care and residential care bed changes.
Call Shannon Daub at 604-801-5121 ext 226 to arrange an interview.