Was your tax cut worth it?

July 1, 2002

When the Liberals took power in BC, the first order of business was a massive tax cut. Promising to revitalize the economy by putting more money in consumers' pockets, the government slashed corporate and personal income taxes by over $2 billion. With the promise that they would pay for themselves--making spending cuts unnecessary--the tax cuts sounded like a good deal.

Just over a year later, the tune has changed. Faced with a large hole in revenues caused by the tax cuts, the Liberals have been busy searching for ways to cut spending and increase revenues. This combination of tax and spending cuts has set in motion a dynamic of "cost shifting"--the transfer of costs off the government's books and onto individuals, families, and in come cases employers. Fees are going up, and access to services is going down.

Most British Columbians didn't get a very big tax cut to begin with: about half (47%) of British Columbians receive an income tax cut of $425 or less, and about three quarters (77%) receive savings of $869 or less. Because women on average still earn less than men, women's income tax cuts are smaller: almost six in ten (57%) women receive a tax cut of $425 or less, and three quarters (76%) would receive less than $634. Of course, some people did receive sizeable tax cuts-- the three per cent of the population earning upwards of $100,000 receives a tax cut $2,644 or more.

For most people it doesn't take much to erode the value of the income tax cut. A course of physiotherapy, a child entering college, or a baby in daycare can mean the difference between breaking even and falling deeply into the red. For some people, the MSP increase alone wiped out their tax cut saving.

Last week, the Canadian Centre for Policy Alternatives released a study that profiles in detail the financial bottom line of different individuals and families with a variety of income and cost profiles. It finds that the gains of most British Columbians are either small or have already been wiped out.

For example, a single individual earning $30,000 loses more than she gains if she requires a course of physiotherapy and an eye exam (net loss $31). A family of four with a household income of $35,000 loses more than the value of their tax cut just with the MSP premium increase (net loss $359)--if they have daycare expenses and a course of physiotherapy they are deep in the hole (net loss $780). A family of four with a combined income of $60,000 remains ahead even after the addition of MSP, eye exams, and a course of chiropractic treatment, but not by very much (net gain $130). A single individual earning $150,000, however, remains well ahead after the MSP increase, an eye exam, and a course of physiotherapy (net gain $4,529).

But we've only just started paying for the tax cuts. We can expect more spending cuts over the next couple of years as the government strives to re-balance the provincial budget. And we can expect other tax increases, such as property tax hikes as municipalities struggle to deal with downloaded services and costs. These calculations also don't take into account the many other cost shifts--like cuts to legal aid funding, increases in user fees for camping and hospital services...

Of course, there's much more to the story than these kinds of narrow financial calculations. Overall, the income tax cuts make our taxation system less progressive (by giving upper income earners a larger benefit), and the cost shifts magnify this trend by piling disproportionate burdens on the shoulders of the poor and sick. Taken as a whole, the new tax and spending regime makes British Columbia a much more unequal place.

Many British Columbians, even those who still hold onto modest tax cuts, need to ask: were the tax cuts worth the price?

Sylvia Fuller is a researcher with the Canadian Centre for Policy Alternatives' BC Office.