Today’s BC budget was simply titled Budget 2012. It broke with the tradition of ambitious-sounding titles we’ve seen in the last decade (such as 2010’s Building a Prosperous British Columbia budget), but that’s about all the change you’ll notice from the previous administration’s budgets. Despite the fact that this was hailed as the first budget released by Premier Clark, her opportunity to bring change and show what her family first agenda means in practice, there were no bold policy changes announced here.
The overarching theme of Budget 2012 was fiscal prudence. In choosing to aggressively pursue a balanced budget in 2013/14, the government decided not to tackle the serious social issues that BC families face: abject poverty and homelessness, growing income inequality and increasingly poor job quality. There is nothing in this budget to ensure that BC will be able to meet its climate commitments, let alone introducing new and bold initiatives to address climate change. Children, vulnerable seniors and British Columbians were asked to wait until the economy improves while the government chose to use its limited public resources to extend a tax break of up to $42,500 each to wealthy buyers of new homes and recreational properties valued between $525,000 and $850,000.
The government announced they may temporarily increase corporate income taxes from 10 to 11 per cent but not until 2014 and only if the economy turns south and the provincial finances end up worse that currently projected.
This is highly unlikely. The 2012 BC Budget builds in an extraordinary amount of fiscal prudence. The government’s GDP growth forecast of 1.8 is beyond conservative – it’s a full 0.4 percentage point lower than the private sector forecast of 2.2% growth. Minister Falcon himself acknowledged that this conservative estimate alone builds in a half-billion-dollar cushion in revenue estimates. Additionally, there’s another half a billion dollars cushion in contingencies and forecast allowance for 2012/13.
This is more than prudent budgeting or discipline – it’s deliberately underestimating the amount of money the government has to work with to pre-empt the public debate on priorities.
Much of the budget discussions would be focused on a single number: the 2011 budget deficit. Today’s budget projects a deficit of $2.5 billion in the current fiscal year, down substantially from last fall’s estimate of a $3 billion deficit (according to the Second Quarterly Report). But what most analysts and commentators don’t realize is that just over half of this budget deficit, or $1.3 billion is just an accounting artifact of the way the government’s chosen to account for the repayment of the HST federal transition funding. Earlier this spring, the BC government negotiated a deal with the Feds to repay the $1.6 billion HST transition funding over five years in five equal payments of about $320 million and with no interest. However, the entire $1.6 billion amount is recorded as an expense in 2011/12 even though the province only owes $320 million in the current year.
The Ministry of Finance says that this is a standard practice of the accounting system they use, GAAP (generally accepted accounting principles). This may well be the case – accounting practices are sometimes known not to make common sense — but the Minister must be straightforward with British Columbians and clearly explain that situation. The Minister needs to be very clear about the fact that while the current deficit appears to be $2.5 billion in reality, the real shortfall in government finances is $1.2 billion this year, of which $650 million is a cushion of contingencies and forecast allowance. Pretending that the budget shortfall is actually $2.5 billion is dishonest and deliberately misleading to BC families.
In fact, digging more deeply in the estimate for the 2011/12 deficit, one finds that the actual budgeted shortfall – the amount that budgeted expenditures exceed the projected revenues – is only $245 million. The government must repay $320 in HST transitional assistance to the federal government this year, leading to an actual budget shortfall of $565 million. Another $653 million provides a cushion of contingency and forecast allowance. The remainder $1.3 billion is simply a GAAP accounting artifact that makes the provincial finances look particularly bad than it actually is in this fiscal year and slightly better than it actually is over the next few years.
It’s also quite curious that the 2012 budget includes a $603 million contingency allowance for 2011/12 with only a few months left of the fiscal year. This contingency allowance is unlikely to be spent and will probably result in the government finances coming well ahead of forecast next year.
Politically, this will have the effect of the budget deficit falling dramatically just in time for the next election without the provincial government making any changes.
Making the current year budget look more stretched than it actually is also helps the government drive home the politically convenient message that we can’t afford salary increases in the public services, that we can’t afford to increase supports for the most vulnerable citizens: children and seniors living in poverty.
This can’t be any further from the truth – we are in a relatively good financial position when the current economic environment is considered. The government is simply making a choice to use accounting artifacts and conservative forecasts to further their ideological position of small government instead of taking a sober look at the serious problems BC faces and meaningfully addressing them.
There were a few new token spending announcements in this budget, but none of them amounted to meaningful change. The new provincial children fitness and arts credit is barely worth mentioning – at its maximum, it will provide up to $50 per child and only if the parents spent over $1,000 on eligible fees. Families struggling with poverty will likely get nothing as they cannot afford the upfront fees to begin with. It would have been a lot more prudent to spend these $9 million per year to enhance fitness and arts programs in BC’s public schools where all children could benefit.
Some new funding was announced for the Justice system ($237 million over 3 years), but only $6 million of this will go towards much needed legal aid, way less than what’s needed to ensure that the justice system works for low income families in BC.
There is no increase in our woefully inadequate income assistance rates, which were last increased five years ago in 2007 and have been substantially eroded by inflation since. Cost of food has risen considerably since then, so have rents. The Dietitians of Canada’s Cost of Eating reports have shown clearly that a family on welfare cannot afford the cost of a minimally nutritional diet after they pay rent & utilities. Yet, the entire amount of the new funding for income assistance $294 million (over 3 years) is going towards meeting existing caseloads. This is a lost opportunity to help the most needy.
The only real winners in this budget are the wealthy, who continue to enjoy some of the lowest income tax rates in the country and will benefit from a new dividend tax credit, costing the public purse $7 million per year (almost as much as the new children tax & fitness credit). The wealthy will also be the ones who will benefit from the new tax break of up to $42,500 per property when purchasing a new recreational tax property costing up to $850,000. The cost to the public purse of the HST rebate for new housing already added up to $476 million per year and will now grow by another $84 million as that the tax credit has been extended to recreational properties and the maximum cost threshold was increased from $525,000 to $850,000, and a new temporary first-time buyers bonus tax credit was introduces. But hurry and buy fast as this offer lasts only until 2013/14.
In his budget speech, Finance Minister Falcon asked to be evaluated on outcomes, not promises, touting our high life expectancy rate as an example. But he’s conveniently ignoring other important outcomes, like our embarrassingly high child poverty rate, which at 12% is the highest in the country, or the unacceptably poor conditions many of our grandparents face when aging and dying without dignity in substandard seniors care homes.
Over the last decade, government has reduced its support for a number of services and shifted the cost to individuals and families. When the public sector withdraws from services British Columbians rely on, whether it’s education for children, mental health services in the community, supports for people with disability or seniors living in residential care homes, the onus is on families to pay extra.
There is also false economy in failing to deal with the root causes of these problems. If we don’t invest in programs that prevent homelessness and poverty, that keep seniors as healthy as possible in their homes – we don’t save these money. We end up paying later through higher emergency room use, higher health care spending, more policing and justice system costs, and lost economic activity. This is the legacy of Budget 2012.
Timely Articles Regarding the (non) Necessity of the Liberal ‘Net Zero’ Policies and Why We’re Really ‘On Strike’ « AEPSA // Mar 5, 2012 at 8:10 pm
[...] The Centre for Policy Alternatives’ Iglika Ivanova (Public Interest Researcher at the CCPA’s BC Office) has written an article entitled “The false economy of BC Budget 2012: deficit exaggerated to avoid spending on real problems.” [...]
The Progressive Economics Forum » BC isn’t broke: putting teacher bargaining in perspective // Mar 4, 2012 at 8:32 am
[...] rally, where I had the opportunity to share some of my analysis of the BC Budget (which readers of the PolicyNote blog are familiar with) and debunk some myths around the economic and fiscal context in which the [...]
Gresham Smith // Feb 27, 2012 at 9:06 pm
Thank you, Iglika, for doing all the research and number crunching it takes to separate the facts from the fiction in this issue. I am a public school teacher in Surrey. After a lunchtime discussion with my colleagues of the “negotiations” between BC teachers and the provincial government, I felt a surge of resentment over the Liberals’ “net-zero mandate” that we hear about so often. That evening at home, I searched for BC provincial government revenues, and stumbled over your recent (and fantastic) report on BC’s Regressive Tax Shift. For me, there is something quite surreal about the government’s rhetoric about balancing the budget in the context of the large tax cut that disproportionately benefited the wealthy as you mentioned in your article. After hearing so often in the media -as the Liberals claim- that cuts to public services are simply part of our current economic reality, I was almost beginning to believe it.
I wish more people understood (as I believe you do) that the current job action from BC teachers stems more from a feeling of outrage over the dishonesty and manipulation that oozes from the government’s side of the negotiations -at the bargaining table and in the media. Although many non-teachers that I talk to seem to believe this conflict is solely about wages, I believe that teachers are primarily fighting for their right -and the right of others- to be treated with honesty and fairness.
Iglika Ivanova // Feb 27, 2012 at 10:39 pm
Thanks for your kind words, Gresham. You’re right — more people need to hear this type of analysis and we do our best to get media coverage. But word of mouth helps a lot, so I hope you will share my piece with your colleagues, family and friends. I brought some of this analysis to the Surrey Teachers’ Rally this afternoon, so many of them should be somewhat familiar with the ideas already.
There are some good commentaries on the budget out there, debunking the claim about this being the current economic reality (which, by the way, reminds me a lot of Margaret Thatcher’s “there is no alternative” phrase from the 1980s). For example, I enjoyed this piece by Craig McInnes: http://www.vancouversun.com/business/Falcon+shrinking+government+name+restraint/6203208/story.html as well as this article by Stephen Hume, http://www.vancouversun.com/news/budget+just+more+same/6203174/story.html Both in last week’s Vancouver Sun.
Ken Barry // Feb 26, 2012 at 5:37 pm
The final fire sale of BC has just begun. Will there be anything left after the scorched earth policy the Liebrels are now implimenting as they sell our assets off to thier pals.
Linda Abbott // Feb 26, 2012 at 1:01 pm
I really appreciate the author’s ability to explain her economic interpretations in simple language, which enables the readers to understand the essential facts without wading through a jungle of esoteric jargon. So thank you, Iglika Ivanova! I would like to see your message spread far and wide to reach as many Canadians as possible, particularly the B.C. voters. Too frequently, experts (including government spokespersons) use new catchwords and phrases to hide the plain truth.
I recall a time when our government use to say that “our children ARE our future, so we’re investing in them today”, etc.. So what–our children are no longer “our future”? This new B.C. budget is truly disgusting. The Clark government is acting in the interests of the fat-cats who already do well enough while, as Ms. Ivanova points out, doing nothing to help those amongst us in grave need: our elders, youth and families hovering around the poverty line, and post-secondary students!
Query: Residents of B.C., if your elected officials have your best interests at heart, and I’m including the interests of your neighbours, then why is this happening? People, it’s time to push back. Write those letters, make those phone calls and say, “No. This budget is not acceptable to me and my family!”
Seth Klein // Feb 25, 2012 at 6:21 pm
Just wanted to add to this commentary the post-budget news release from First Call: BC Child and Youth Coalition.
Here it is:
Children and Youth Get Slim Pickings in Budget 2012
First Call news release:
People looking for investments in BC’s children and youth were sorely
disappointed with BC’s new budget released on February 21st. First
Call: BC Child and Youth Advocacy Coalition was looking for the budget
to recognize the importance of supporting families raising children,
particularly those who are struggling to get by on a low income. The
Coalition was also hoping that the budget would address some of the
urgent issues affecting the lives of the most vulnerable child and
youth populations, and to tackle BC’s growing inequality. However,
these are clearly not the priorities reflected in the revenue
generation and spending choices of this year’s provincial budget.
Some highlights of First Call’s concerns about the budget include:
* The continued neglect of the need for additional funding for the
Ministry of Children and Family Development (MCFD) to reduce the
caseloads of child protection social workers and adequately support
children in the foster care system. A flat-lined budget and rising
costs means this ministry will have to make cuts.
* No progress on solving the child care crisis affecting families
with young children. No relief from high fees, insufficient spaces
and low wages for child care workers. No plans for increasing access
to quality early childhood care and learning for preschoolers.
Alarmingly, in the Ministry of Education service plan, government’s
target for the percentage of children who enter kindergarten
developmentally ready to learn has been lowered from the previous 85%
by 2015 to 75% by that date. Current data shows we are only at 70%,
meaning almost 1 in 3 BC children enter school developmentally
vulnerable.
* The increase in regressive taxes like MSP premiums will hit
modest income working families hardest, making it even less likely
they will have the cash to pay for fitness or arts programs for their
children in order to earn the new $25 tax credit. Research on the use
of this type of tax credit at the federal level reveals that it is
primarily used by more affluent families, and offers little benefit
for lower income families.
* Children in families facing hunger and housing insecurity due to
already inadequate income assistance rates will be hungrier and in
greater danger of becoming homeless as the cost of food and housing
continues to rise while rates are frozen.
* No relief for post-secondary students facing high tuition fees
and high interest rates on their student loans when they graduate,
despite the recommendations from the Select Standing Committee on
Finance and Government Services to lower interest rates and restore a
needs-based grant program.
* The cumulative funding deficit in public education continues to
grow with this budget, depriving students with extra challenges of the
supports they need while school boards struggle to decide what to cut
even to pay their share of the MSP premium increases.
“The Finance Minister talks of fiscal prudence, but this budget’s
failure to invest in the well-being of all children and youth will
cost us dearly as inequities grow bigger and more children lack the
supports they need to reach their full potential,” said Adrienne
Montani, First Call’s Provincial Coordinator. “It’s a false economy
to ignore the costs of undermining children’s healthy development
through maintaining a high poverty rate and withholding needed
support.”
Now that the provincial budget has been presented, budget estimates
will be debated in the Legislature. This is a good time to get your
budget questions asked and answered. Besides asking Cabinet Ministers
questions directly, you can send questions you would like answered to
the critic for the relevant ministry. See a list of the critic
responsibilities here and a list of Cabinet Ministers here.
Kate King // Feb 22, 2012 at 6:13 pm
Once a society is educated to care for itself responsibly, it will then demand wages that will ensure the well being of their children and elders. It will learn to take care of what is most important, to give to those area’s that are crippled and suffering and to hold it’s head up with dignity as it does not line it’s pockets with the sweat and tears of those who cannot help themselves.
Daniel // Mar 3, 2012 at 12:41 pm
Which is exactly why the government is working so hard to destroy the public schooling system…
David Wees // Feb 22, 2012 at 1:17 am
So let’s assume that someone who is homeless is much less likely to contribute to our economy. Let us also assume that there is some solution to homelessness we can invest in which will significantly reduce the homelessness in BC. How much money are we losing in the future because we aren’t dealing with the problem of homelessness now?
Peter // Feb 21, 2012 at 11:38 pm
Should we really be removing prudence and contingencies from the budget, as this article implies, when we’re emerging from the global financial crisis and the risks to the downside are so significant? I think it’s a fair point, but one that makes more sense down the road when the global economy doesn’t face such significant risks.
Iglika Ivanova // Feb 22, 2012 at 10:54 am
Being more realistic about your estimates is different from not being prudent or disciplined. Prudence is important, but what I cannot support is government padding its estimates unnecessarily in order to ensure that they will exceed their target before an upcoming election.
It’s also irresponsible to use prudence as an excuse not to deal with the serious problems we currently face.
It’s the slow economy, rather than out of control spending, that presents the major fiscal problem for Canadian provincial governments. Slow economy means that the government revenues are growing slowly while demand for many public services remains high or even increases. In the case of BC, this problem is compounded by the large tax cuts we’ve seen over the last decade, which have additionally drained the public purse of much needed revenues.
But a slow economy is also a time when more families find themselves struggling to make ends meet, to pay for their children’s education, to pay for their parents’ old age care. It’s a time when poverty rate increase and in BC, we already have the highest poverty rates in the country.
Whether the economy is fast or slow, we have a responsibility to address climate change, we need to reduce the growing income inequality and support the vulnerable among us.
Malcolm James // Feb 23, 2012 at 9:02 am
I’d like to also factor in that the sales of provincial resources is a one time increase in gov’t. funding with long term financial implications. This government has an abysmal record at privatizing provincial assets – and it is spread out over 3 years. How much will the raise fees and fares bring in? How much will Hydro lose to private run of the river projects? Why is there no mention of developing geo-thermal at Meagre Creek, Garibaldi or any of the other potential sources which abound near our major population centers? Just get rid of these guys.
Iglika Ivanova // Feb 23, 2012 at 9:33 am
That’s a very good point, Malcolm. Our past experience of privatization shows that asset sales tend not to be in the public interest, especially over the long run.
Sandra Currie // Feb 21, 2012 at 8:29 pm
Good article.
And Clayton, is that your best shot?
duncan cameron // Feb 21, 2012 at 7:14 pm
This is a fine analysis. The mainstream commentators have been totally taken in by the accounting sleight of hand. With a frame of austerity called prudence, not justified by its financial situation, the government hopes not to answer for the plight of the needy, and of the non-wealthy.
Sarah Leavitt // Feb 21, 2012 at 4:02 pm
Thanks Clayton and Carl. Iglika did indeed mean “billion” and the post has been corrected.
Carl // Feb 21, 2012 at 3:48 pm
i think you mean a 1/2 Billion cushion, no?
Clayton Therrien // Feb 21, 2012 at 3:33 pm
Withdraw this immediately. If you cannot tell a million from a billion, do not comment on the economy.
“Minister Falcon himself acknowledged that this conservative estimate alone builds in a half-million-dollar cushion in revenue estimates. Additionally, there’s another half a million dollars cushion in contingencies and forecast allowance for 2012/13.”
Harl Turlofsequin // Feb 21, 2012 at 7:14 pm
“Withdraw this immediately.” lol