Budget 2005 a Missed Opportunity

February 16, 2005

You do not have to scratch too far below the surface of BC Budget 2005 before it looks an awful lot like an election platform. The lofty promises of 2001’s New Era platform have been recast as The Golden Decade. Is this budget just cynical electioneering?

Like any pre-election budget, new spending is at the forefront, with a $1.5 billion increase over 2004/05. Most of this—about $1.1 billion—goes to health care and education. Unlike previous years, however, there are no cuts outside health care and education.

While the new spending sounds like a lot of money, it only averts a continued decline in the size of the public sector relative to the economy. In the context of a $162 billion economy, provincial expenditures in 2005/06 will be about 20%, the same as the previous year. But this is well below the 23% expenditures-to-GDP that the provincial government inherited in 2001. This government has presided over a major shrinkage of the public sector.

What’s missing from the 2005 budget is a meaningful commitment to un-do the damage done over the past few years. The budget is a well-crafted attempt to paper over a chasm. It makes gestures of new spending that tacitly acknowledge the difficulties many British Columbians are facing as a result of spending cuts — but does not fess up to the damage.

Instead, the government continues to hide behind the allegation that BC inherited a $4 billion “structural deficit” that necessitated those spending cuts. Yet, the massive surpluses the government is now sitting on demonstrate quite clearly that there was no structural deficit—that none of those cuts needed to happen.

In fact, the government goes to great lengths to hide how large the underlying surplus is. The budget projects a surplus of $220 million in 2005/06. But we have to add to this some generous cushions: a forecast allowance of $400 million and contingencies of $270 million. In addition, revenue projections are very conservative – at least $400 million lower than one would expect given projected levels of economic growth.

This is a case of budget prudence gone too far. Adding all of these contingencies together, the built-in surplus is well over $1 billion.

This makes the amounts of reinvestment outside health care and education all the more difficult to take. Announced increases are too small and spread too thin. Even with the increases, funding outside of health care and education remains $1.2 billion lower in 2005/06 than it was in 2001/02. Those public programs are the ones that speak to our capacity to care for one another and protect the environment.

Given the surplus, there is no reason why a stronger commitment could not have been made. New funding amounts look larger because they are announced as three-year totals. Even when it comes to new spending, there is more spin than substance.

The budget aims to distort the perception that the provincial government has been cruel to vulnerable people in BC. For example, new funding is announced for transition houses for women fleeing abusive relationships. But this sidesteps that fact that the government eliminated funding for women’s centres a few years ago. This seems like a cynical move by a government that knows it is unpopular with women.

The budget also brings in $484 million of targeted tax cuts. Most noteworthy is a $120 million tax cut for British Columbians earning less than $26,000 per year, plus an enhanced credit for MSP premiums. While these tax cuts benefit low income British Columbians, they cover up the fact that these same people have borne the brunt of the spending cuts, and that high-income earners were the big beneficiaries of the 2001 tax cuts.

Even the bright spots of the budget have some notable omissions. Lots of new money for health care, but no word on funding long-term care beds. Post-secondary institutions will feel a pinch later this year as new caps on tuition fees kick in (a positive development) but funding has not increased enough to support existing seats and planned new ones.

Before we can talk about a Golden Decade, there is a lot more work to be done. Instead of repairing the damage, we see some token gestures put forward before an election. Budget 2005 is a missed opportunity.


Marc Lee is an Economist in the BC Office of the Canadian Centre for Policy Alternatives.