Many British Columbians were hoping that Tuesday's provincial budget would bring a compassionate re-think of the government's fiscal plan. Unfortunately, the pain and upheaval of spending cuts that have left the province reeling are set to continue.
The Finance Minister is correct when he says his government is "on track" and "staying the course." But let's think about where we're headed. On its first day in office, the provincial government made a $2 billion-plus blunder. The personal and corporate income tax cuts blew a massive hole in the province's finances. Ever since, the government has desperately been trying to fill it with spending cuts and tax increases.
To date, the government has clawed back more than half the value of the income tax cuts. But unfortunately for most British Columbians, many of the tax increases and user fees are "regressive"-meaning they hit modest and middle-income people harder. The result is a shift in how we pay for public infrastructure and services. Instead of paying through a progressive income tax system (tied to a person's ability to pay), we are increasingly paying through regressive fees and taxes like the higher MSP premiums, higher sales and gas taxes, university and college tuition hikes, road tolls (soon), camping fee increases-the list goes on. Result: the government is shifting the overall tax burden from upper-income people to middle- and modest-income people.
British Columbians are also paying for the tax cuts with spending cuts-deep cuts that have caused pain and upheaval for communities and families across BC. Yet through it all, the core elements of the government's plan remain untouchable. The income tax cuts remain sacred. Likewise, the dramatic public sector cuts-most notably a cut of $600 million (30%) from the Ministry of Human Resources (welfare), $284 million (18%) from the Ministry of Children and Families, and $99 million (47%) from Water, Land and Air Protection-will continue.
The income tax cuts remain sacrosanct in spite of more evidence in Tuesday's budget that they are a failure as an economic strategy. According to the budget's own forecasts, the tax cuts are not "paying for themselves"-not even close. Once again, the government revised down its estimated revenues from personal and corporate income taxes-clear proof that these tax cuts are not delivering the hoped-for boost in either employment or incomes. Personal income tax revenues peaked at $5.97 billion in 2000/2001 (the year before the tax cuts). This budget forecasts personal income tax revenues for 2005/06 at $5.34 billion. Likewise, corporate tax revenues are not forecast to recoup their pre-tax cut levels any time during the budget's planning horizon.
The tax cuts are also not delivering any miracles when it comes to economic performance. The budget forecasts that economic growth in BC will continue to lag the rest of Canada this year and next. Investment growth continues to fall from its peak in 2000, and only starts to pick up again in 2004 (and even then, the forecasts remain modest). And this budget downgrades the forecast for unemployment--the provincial government now believes it can only reduce unemployment to 7.2% (a rate last attained in 2000) by the year 2007. The tax cuts also remain the principal source of what will be, this year, the biggest deficit in BC history.
The few bright spots in the provincial economy--housing, construction and big ticket sales--have much more to do with low interest rates than tax cuts, a stimulus which may now fade as interest rates creep up. And in an ironic twist, the biggest investments on the horizon-roads and infrastructure, and the Olympics-are publicly-driven initiatives. Clearly, if we want investment in BC, we cannot simply slash spending and taxes, then get out of the way in the hopes that the private sector will save the day.
The so-called "Heartland" strategy leaves much to be desired. The infrastructure investments, while welcome, will not make up for the office closures, lost jobs, and service cuts that are bleeding rural economies. The public sector is the number one or number two employer in many resource communities, and as such, public sector cuts have only compounded the harm caused by the softwood lumber dispute.
By its own measures, the provincial government's economic strategy is a failure. British Columbians need a full re-think of this painful and unnecessary plan.
Seth Klein is BC Director of the Canadian Centre for Policy Alternatives.