Feb 21, 2017

Highlights from BC Budget 2017

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The 2017 BC Budget was just released; here’s our analysis so far:

MSP goes down for families with income under $120,000

MSP premiums are going to be cut in half for families with incomes under $120,000 as of January 2018. Essentially, BC Budget 2017 reverses the MSP increases this government implemented over the last 15 years (a single person paid $432 in MSP in 2001).

MSP is BC’s most unfair tax, taking up a much higher share of income from a family earning $50,000 than a family earning $250,000. The changes to premium assistance and the new cut for families with income under $120,000 make the tax a little more progressive but does not eliminate its fundamental unfairness. The reduced MSP for a family with income of $52,000 will still take up 1.7% of their family income, a much bigger bite than the regular MSP fee would take out of the family budget of a couple earning $300,000 per year (0.6%).

This money could have been used to address areas of unmet need in our health care system, increased staffing in nursing homes for seniors, funded more hours of home support or boosted mental health supports.

The MSP cut is estimated to cost a total of $953 million in 2018/19. The BC government decided to give up these revenues entirely instead of replacing the funds with a combination of fairer personal and business taxes (to reflect the reality that a number of employers cover their staff’s MSP). This was a mistake.

This money could have been used to address areas of unmet need in our health care system, increased staffing in nursing homes for seniors, funded more hours of home support or boosted mental health supports. The health funding deal signed with the federal government on Friday left BC with less money than they had been hoping for (by the Minister of Health’s own admissions). Why not fill this gap with the revenues from replacing MSP with fairer taxes?

Another point of contention with the MSP cut is the increased administrative burden of doing so, as BC families will have to register with the government or their employer so that their income can be means tested. This inevitably means that some families who would qualify for the MSP reduction would not receive it because they don’t register.

New business tax cuts  

BC Budget 2017 includes tax cuts to the tune of $1.4 billion in 2018/19. The bulk of this is the cut to MSP ($953 million). The remainder is made up of a number of tax cuts for businesses.

The BC government is phasing out the PST on electricity, something the BC Business Tax Competitiveness Commission had recommended in the fall. This may well be a good idea but the Commission did not find evidence that the business sector as a whole is overtaxed. Changes in the mix of business taxes in efforts to improve their efficiency should not have to mean an overall tax cut for the sector. Yet, this is exactly what BC Budget 2017 offers.

Small businesses are going to see their corporate income tax cut go down from 2.5% to 2%. We question the need for a small business tax cut at this point – BC already had the 3rd lowest small business income tax in the country; moving to 2nd lowest would not have a significant impact on our competitive position but will cost the province around $70 million every year.

BC already had the 3rd lowest small business income tax in the country;  moving to 2nd lowest would not have a significant impact on our competitive position but will cost the province around $70 million every year.

Tax credits for scientific research and development, as well as credits for the tech sector make up the rest of the Budget’s tax cut package.

BC’s child protection sector is getting a long-overdue increase

Budget 2017 provides $287 million over the next three years in new investment for child welfare programs. This is good news for a sector in crisis, though more will be needed to undo the damage of 15 years of underfunding. We only wish so many children and youth in care didn’t have to die or suffer abuse and neglect to shame the government into action.

Infrastructure spending

BC Budget 2017 includes a significant amount for new infrastructure projects. The biggest chunks of funding are for transportation and BC Hydro infrastructure. Disappointingly, the funding dedicated to an expansion of public transit infrastructure is only about 10% of the total and pales in comparison to what’s going to be spent on the Massey Tunnel replacement alone.

Funding for new buildings for schools and universities is welcome but it needs to be accompanied by a corresponding increase in operating funds.

Education funding comes only where the Supreme Court compels it

Looking at education funding more broadly, in essence: there’s new funding where the government has been forced by the Supreme Court of Canada to provide it – and very little otherwise. 

Looking at education funding more broadly, in essence: there’s new funding where the government has been forced by the Supreme Court of Canada to provide it – and very little otherwise.

In the K-12 system, the budget contains funding to implement the previously-announced interim agreement with the BC Teachers’ Federation to the restore class size and composition regulations that the government stripped in 2002. We’ll have to wait to see a final agreement, which is not reflected in the budget.

There is one-time funding ($29 million) for school supplies trumpeted in the budget, but this actually just restores—for one year only—an ongoing cut to the K-12 budget of the same size in 2015. The budget also seems to offer no additional funding to increase the non-teacher educational assistants and other support staff needed to properly restore service levels.

Without the force of a Supreme Court ruling behind it, post-secondary education is largely left to languish. There are new capital funding announcements, but very little on the operating side. Public funding as a share of college and university budgets has sharply fallen since 2002, tuition has risen (and is headed further upward), and student debt levels continue to pile up.

There is some modest relief for students. BC currently charges the highest interest rate on provincial student loans in Canada, so it was good to see that the Budget offers a cut in the student loan interest rate to prime (from prime plus 2.5 per cent).

The BC government is going to eliminate the small education tax credit ($9 million per year). The funding is supposed to be going into student financial assistance programs instead, though it’s unclear whether there’s any additional assistance for students besides the cut in lower interest rates.

Health funding continues to fall as share of GDP

The provincial government has steadily underfunded our health system over the past decade and a half – despite rhetoric we sometimes hear about “unsustainable” health spending. Unfortunately, Budget 2017 does little to right the ship. Health spending continues to decline as a share of our overall economic pie from 7.8% of GDP in 2011/12 to a projected 7.4% by 2019/20, even as the population ages.

As in much of this budget, we do see an attempt to slap a one-time band-aid on a long-simmering problem.

The consequences are clear to see. For example, the budget appears to take no new steps to address stunning levels of understaffing in seniors’ residential care: 91% of care homes fail to meet the government’s own staffing guidelines, as data recently released by BC’s seniors’ advocate has revealed.

As in much of this budget, we do see an attempt to slap a one-time band-aid on a long-simmering problem. Health spending in this year’s budget is set to increase modestly, by about 1.5% over projections in Budget 2016. Without this modest increase, the fall in health spending as a share of GDP would have been even sharper. But BC has long lagged the rest of the country in annual health investment increases, as well as in terms of health care funding per capita: BC fell from second out of ten provinces in 2001 to eighth out of ten by 2016.

More concerning still, after the province agreed to a bad deal on health with the federal government last week, the core federal health funding “escalator” is set to fall from 6% to 3% per year. There’s no word in the budget about how the provincial government plans to close that gap, year after year, let alone catch up from the cumulative effects of years of underfunding. 

What about housing affordability?

We did not see any major new initiatives on the long-building problem housing affordability in BC Budget 2017. CCPA’s Marc Lee provides a helpful analysis of the housing measures announced so far. Suffice to say: we need sustained, long-term investment in affordable housing to get this crisis under control.

Climate change

A simple exercise is to use “Ctrl-F” to search for the term “climate” in Budget 2017. Sadly, it’s virtually non-existent as it relates to any significant new climate action. Our political leaders remain in denial about the scale of action required to address the unprecedented global crisis we face in climate change.

Missing in action on quality, affordable child care

There is a massive affordability crisis for BC families that need child care. Fees can run upwards of $10,000 per year—higher than university tuition—and regulated spaces are available for only 27 per cent of BC children under age five. There’s no question that the status quo—a fragmented patchwork of child care programs with exorbitant prices, inadequate spaces and inconsistent quality—fails to meet the needs of BC families.

It is disappointing to see the BC government continues to ignore the large body of international and Canadian evidence demonstrates that affordable, high-quality child care and early education programs yield large social and economic benefits.

Unfortunately, the BC Budget has little to offer parents of young children. The Budget provides additional funding to fund another 2,000 child care spaces on top of the 13,000 spaces over 6 years announced in 2013 with the Early Years Strategy. While any increase is an improvement, 2,000 additional new spaces will not come close to meeting the needs of BC families.

Even if all new spaces opened are for children newborn to age five, the 2,000 new spaces would accommodate less than half a per cent of the children in that age group (fewer, if the number of children in BC grows). Under the government’s current Early Years Strategy, with today’s small improvement, BC would have regulated spaces for fewer than one-third of all children younger than five, far short of where Quebec is now, and there are no plans to make these spaces affordable.

The maximum subsidy for children from newborn to five years has been frozen since 2005. Income thresholds below which parents qualify for subsidies have not increased since 2005 either. Yet child care fees have increased two to three times faster than general inflation for the past decade. Families are left with thousands of dollars of out-of-pocket costs even if they receive the maximum subsidy.

It is disappointing to see the BC government continues to ignore the large body of international and Canadian evidence demonstrates that affordable, high-quality child care and early education programs yield large social and economic benefits. We remain laggards by international standards, investing far less than what is required to ensure that all children can thrive. Small enhancements to the status quo like the 2,000 spaces announced today are not cutting it. We need a shift in priorities.

BC Budget 2017 was the perfect opportunity to provide the investment needed to establish the widely endorsed $10-a-Day Child Care Plan.  Such investment would have had ripple effects across the provincial economy: taking some pressure off young working families, freeing resources to pay off their student and mortgage debt; providing a good start for all BC children; allowing more mothers to participate in the workforce, increasing tax revenues almost immediately; and creating new jobs. What a wasted opportunity.

Poverty reduction plan? Still the only province without one

People with disabilities will see their benefits go up by $50 per month on April 1, an increase that will come far short of meeting the costs of living in our province. Even with the new increase, a single person on disability benefits in BC will have an annual income significantly below the poverty line. The kind of rate increases that would have made a real difference are on the ballpark of $200 – $400 per month, depending on family size.

It is clear that economic growth is not being shared with the lowest-income families in this province.

Basic social assistance rates remain frozen for the tenth year in a row. Rising food, rent and electricity bills have rapidly eroded the real value of the social assistance benefits over the last decade.

For years, the BC government has insisted that its economic development measures would automatically take care of poverty. This has not happened. BC’s poverty rate is the same today as it was a decade ago despite significant economic growth and remains one of the highest rates of poverty in Canada.

It is clear that economic growth is not being shared with the lowest-income families in this province. To meaningfully reduce and eventually eliminate poverty, BC needs an integrated strategy that will address the complex and often interrelated root causes of poverty. All other provinces in the country have adopted or are in the process of developing such strategies. It’s long past time for BC to join them.

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