BC’s big-spending, tax-increasing budget

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Appeared in the Vancouver Sun, Business in Vancouver, and Kelowna Daily Courier

BC’s September Budget Update is unlikely to live up to its promise of “protecting vital services” and “building for the future.” Instead, the big-spending, tax-increasing, debt-loving budget is a step back from BC's recent progress and will burden, rather than build for, the future.

Start with the seemingly unavoidable $2.8 billion deficit. According to Finance Minister Colin Hansen, the government was “forced into deficit” largely as a result of a loss of “$2 billion in expected revenues.” The $2 billion figure certainly captured the attention of the media.

However, total revenue for this year (2009/10) is projected at $37.6 billion, down from $38.3 billion in 2008/09. Put differently, total government revenue is down approximately $700 million.

So why the $2.8 billion deficit?

The real culprit is massive increases in government spending. Total spending is up over $1.8 billion this year to a total $40.1 billion—a 4.9 per cent increase over last year’s total spending of $38.3 billion. Among the largest government programs, social services spending is up by 7.2 per cent, health spending by 5.2 per cent, and education spending by 4.0 per cent.

The unfortunate reality is that 75 per cent of the forecasted deficit for 2009/10 (before the $250 million forecast allowance) is the result of profligate spending increases, not plummeting revenues. In fact, had the government held spending at its 2008/09 level, the budget could be balanced next year rather than in 2013/14 as the government is forecasting.

The budget also reiterates the BC government’s steadfast refusal to acknowledge that increased spending will not improve “vital services.” Health care is perhaps the best example. As the Finance Minister pointed out in his speech, “provincial health spending has risen by 45 per cent” since 2002.

Despite the increased spending, wait times for medically necessary care still stand at 17 weeks, a delay that ranks among the worst in the developed world. In addition, British Columbian’s access to doctors and medical technology significantly lags that in most other developed nations.

The problems in health care, education, and many other government programs have little to do with how much the BC government spends but rather with how it spends those dollars.

Rather than reform the health care system, the budget pledges to continually increase taxes for British Columbians through annual increases in Medical Service Plan (MSP) premiums to match continuously increased health care spending. Of course, with health spending far exceeding MSP premium revenue, this measure only eases the budgetary pressure of health expenditures and ultimately does little to make health care ‘sustainable’.

The budget does contain some small tax reductions, including decreased personal income taxes (through a higher basic personal exemption) and lower small business taxes. In addition, British Columbians will benefit greatly from the previously announced implementation of a Harmonized Sales Tax (HST) through increased business investment and higher rates of economic growth.

However, the increased MSP premiums and slightly greater sales taxes that British Columbians will pay under the new HST will offset the other small tax reductions and result in a net tax increase for British Columbians. At a time when families are already struggling, the government is making things more difficult by increasing, rather than decreasing, taxes.

Finally, and perhaps the most worrying aspect of the budget, is the alarming increase in government debt. Yearly deficits coupled with a significant increase in capital spending will increase government debt by an alarming $14.7 billion, or 39 per cent, over the next three years.

As a per cent of the total output of the economy (GDP), the provincial debt will increase from a low of 18 per cent in 2007/08 to 26 per cent in 2011/12, approximately the same debt level the Liberals inherited from the previous NDP government back in 2001.

As a result of the dramatic increase in debt, a substantially larger portion of provincial revenues will be devoted to interest payments instead of funding government programs or improving the competitiveness of BC’s tax regime.

Apart from the implementation of the HST, British Columbia’s 2009 September Budget Update is unfortunately the wrong medicine for these difficult economic times. Sadly, the BC Liberals have bought into the idea that a spendthrift government will help the province out of the economic recession and “protect vital services.”

Massive spending increases, large deficits, expanding debt, and tax increases turn back the clock on the Liberals' record of sound fiscal management. Let’s hope future budgets return to the economic policies that made BC’s economy one of the most vibrant in Canada. Spending control, tax relief, and lower government debt are policies that would truly build for the future.

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