BC's Balanced Budget Fails to Promote Economic Prosperity

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Appeared in Business in Vancouver, February 24-March 1/04 Edition

The BC Liberals’ third full budget, delivered this past Tuesday, offers a few positive measures to bring about fiscal responsibility; unfortunately, it was largely void of an overall vision for the future of the province on how to deliver prosperity.

On the positive side, the Liberals should be commended for balancing the province’s budget. In addition, BC became the first province in Canada to comply with generally accepted accounting principles (GAAP), making its books the most transparent in the country.

That said, the 2004 BC budget lacked the necessary policies needed to restore economic growth in British Columbia. Specifically, the Budget fails to address the critical problems of the ongoing burden of government and the ongoing tax disadvantages in British Columbia.

The size of government, the percentage of the economy consumed by government, remains one of the most significant problems facing British Columbia. Simply put, we continue to have too much government intervention. In 2003/04, total provincial government spending is set to consume 21.5 percent of our economy as measured by gross domestic product (GDP). In addition, BC’s government will be considerably larger than either Ontario’s or Alberta’s. Overall provincial government spending in 2004/05 will be $30.2 billion, up considerably from $28.4 billion in 2000/01, the NDP’s last year in office. BC’s reluctance to seriously cut spending is unfortunate given that research indicates that one of key reforms that achieve increased rates of economic growth is reducing government spending.

Specifically, the 2004 Liberal Budget, like its two predecessors, significantly increased both health and education spending. The billion dollar increase in healthcare spending will push the total amount spent to an all time high of $11.8 billion, up from $9.6 billion in 2000/01. The same applies to education, which received an addition $418 million pushing total spending to $8.8 billion, up from $7.9 billion in 2000/01. Unfortunately, these increases will do very little to improve the results of either program in British Columbia as their problems have little to do with how much the government spends but rather with how it spends those dollars. Previous to the announced increases, British Columbia already maintained the highest spending on health care per person among the provinces and sends more than the average on education per person.

Most worrying however, was the fact that the latest budget was again void of any tax relief measures. Since 2002, the BC Liberal government has made a dramatic U-turn on taxes. Instead of continuing on a path towards tax competitiveness and offering relief to British Columbians, it began a process of increasing taxes, including hikes in the sales tax, the MSP, property taxes, gas taxes, tobacco taxes, and liquor taxes. In 2003, average British Columbia families faced the highest tax burden in the country – their Tax Freedom Day fell on July 2nd the latest among the provinces.

Serious tax gaps remain between BC and Alberta and between BC and the U.S. border states. Our middle and top income tax rates are relatively high and we remain the only jurisdiction in the Pacific Northwest to impose capital taxes. In order to foster increased investment, hard work, and entrepreneurship, the Liberal government must address these tax disadvantages by further flattening the personal income tax system and reducing corporate income tax rates to match scheduled reductions in Alberta.

Interest groups ideologically opposed the BC Liberals call for host of anti-prosperity policies. For example, the Center for Policy Alternatives suggests significant increases in government spending coupled with yearly budget deficits out to 2010. In addition, they suggest an increase in income tax rates for each tax bracket and an increase in overall progressivity. On the business side, they recommend a roll back of corporate income tax rates to 2000 levels. It’s hard to see how these types of initiatives would increase the incentives for business investment, entrepreneurship, and hard work; the main drivers of economic growth.

While the BC Liberals should be commended for delivering a balanced budget and increasing the transparency of government accounting, the 2004 budget clearly lacked the vision needed to return economic prosperity to British Columbia. The way forward is to enact the necessary policies that with enhance economic growth: meaningful spending reductions coupled with significant tax relief.

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