British Columbians who expected to see any meaningful action on the economy tonight were greatly disappointed by Premier Campbell’s address.
In a paid television appearance (*update* which we now know cost $240,000), the Premier attempted to set the record straight on HST and claimed to be concerned about the economy and families struggling to get ahead, but had little to show on all three counts.
As a BC citizen, I was appalled by the disregard for the democratic process that defined this government’s position on the HST until the very end when the anti-HST petition initiative was declared successful. But as an economist, I’ll focus my comments on Wednesday’s big tax cuts announcement.
The new tax cut is bad news for BC. Not only is it inequitable, but it won’t do much to stimulate our stalling economy nor will it help the families who are working harder and harder but still living paycheck to paycheck. Here is why.
The new tax cut primarily benefits higher-income taxpayers — those earning over $72,000 in taxable income per year — who will get the maximum tax saving of $616. This is because everyone pays the same rate of income tax on the first $72,000 of their taxable income, regardless of whether they earn $10,000 or $110,000 per year.
In contrast, full-time full-year minimum wage workers, individuals earning under $20,000 per year and low income families with children would not get a single cent out of the newly announced tax cuts. They already do not owe BC personal income taxes.
Middle income families — those who need more help than the $72,000+ earners — will get part of the income tax cut but not all of it.
The real kicker is that tax cuts — especially those who primarily benefit higher-income taxpayers — make for poor economic stimulus. Higher income people use some (if not all) of their tax savings to pay off debt, to save or to spend on imports. Those who spend their entire incomes in the local economy are the low and modest income people, those who would be seeing no or little benefit from the tax cut.
So this tax cut won’t help the economy much, but will it benefit British Columbians? Those who’ve been telling the Premier that they’re working harder and harder but can’t seem to get ahead? The answer is No.
If tax cuts helped, Mr Campbell won’t be seeing so many people who are struggling to keep up with the costs of living after two rounds of massive income tax cuts in 2001 and 2007.
The problem faced by a large number of BC families is not too much taxes. BC is already the province with the lowest income tax in Canada. Yet we also have the highest poverty rates.
The real problem is that inflation-adjusted earnings have not gone up in the last 30 years. Among full-time full-year workers, median earnings have actually fallen slightly since the late 1970s to around $44,000 in 2008 (adjusted for inflation). Almost all of the benefits from economic growth overt the last three decades have accrued to the top 1% of income earners.
Somebody should have told Mr Campbell that economic growth alone is no guarantee that all British Columbians will benefit.
If our Premier wants to help British Columbians, he should focus on directly intervening in the labour market to ensure that all workers can benefit from economic growth or on redistributing income through more generous transfers, more progressive taxes and through investing in public services that even the playing field by benefitting all British Columbians. Notice that tax cuts are not on this list.
In summary, the Premier just announced that he’s giving away $616 per year to taxpayers earning more than $72,000 and less to those who earn less. Doesn’t seem like much for individual people — barely enough to cover the costs of 3 year’s worth of the government’s MSP premium increases — but it’s costing the provincial treasury an estimated $568 million per year in the first year. And the price tag will only rise in subsequent years.
If you’re wondering how the Premier can spare more than half a billion dollars per year when there’s no money to fund poverty reduction, universal early childcare (not programs like StrongStart who are inaccessible to families with two earners) or the arts, it’s being paid for with the surprise extra $2 billion that the Ministry of Finance found in their last review of BC’s fiscal position in September.
Spending a temporary unexpected windfall on a permanent tax cut does not make economic sense, especially when the benefits of the tax cuts will be concentrated among higher earners. What Mr Campbell must be betting on is that it will make political sense.
Chris Robinson // Oct 27, 2010 at 11:38 pm
It’s sad new to hear what the government has been doing while I’m overseas. These tax cuts don’t seem top make any sense at all. I think it’s about time to get those Liberals out of office.
Keith Reynolds // Oct 28, 2010 at 6:54 am
Thanks Iglika, for this outstanding short summary of why there are some issues in the world that a taxcut won’t solve.
Tom // Oct 28, 2010 at 8:39 am
Campbell’s speech presented an unfair tax shift, more regressive taxes on the poor and middle class and less funding for popular public programs that benefit everyone and make for a more equal B.C. On top of it, it make empty promises for today’s kindergarteners and families. Here’s an analysis from a child care and early care and learning perspective: http://liberationlearning.com/1284
Dan // Oct 28, 2010 at 2:19 pm
Campbell commented on the CBC this morning that the TV spot cost “around 200,000″
Gulshan // Oct 28, 2010 at 4:28 pm
When will BC taxpayers stand up and realize income tax works (a set amt is taken off your annual salary), sales tax (HST) does not. As we end up paying more tax and earning less at the end of the day.
Lisa (Surrey, BC) // Oct 28, 2010 at 4:48 pm
I would also like to say….that I am in the middle class bracket and I don’t mind paying taxes at all and don’t need tax cutbacks as long as my money is going toward social programs (EI, Education, Health, etc) as I feel every person should have fair access to resources…but these areas are also being neglected by our premier….I think this is another sad way to distract us from HST (having to wait for a year for the referendum). I think this is a ploy and way to desensitize the public to get used to it and then use scare tactics….i just say give the money back to the federal government and think about the people of BC. I’m definitely voting against HST next year.
Scott Ireson // Oct 29, 2010 at 9:46 am
I was quite concerned about the inequitable distribution of benefit that this tax cut would have. I currently am a low income BC resident and this tax cut will do nothing for me.
H.G. Harrison // Oct 29, 2010 at 9:57 am
I think it is time to start identifying tax cuts for what they are. They’re government spending money today that they should be investing in the future. Carrying a government debt is not the only way to pass debt on to our children. Allowing our public services to crumble because of lack of funding leaves a terrible legacy to our children.
Joan Richard // Oct 29, 2010 at 10:46 am
What distresses me is the fact that the tax system becomes more and more complicated every time they add or subtract a new tax. For the lower income earners, they have to apply for a rebate which is really our money that is taken and then returned, for a big price I like the idea of consumption taxes and much lower income taxes, BUT essential consumer items should not be taxed at all. Luxury items should be taxed to the max and that is how it becomes a progressive tax. However, this all has to be carefully co-ordinated, not just dragged out to prime the voters every time a polititian is in trouble.
Larry Mutter // Oct 29, 2010 at 1:35 pm
This is just another phase in the eventual privatization of services and the dismantling of our social net as we know it. Eliminate government tax revenue to the point were right wing pundits can claim the cuts have to be made and then contracting to politically friendly providers begins.We all know what this government wants, a huge pool of cheap working class labor and the political support of a content middle class that actually votes.Voila, the tax break.
chris richmond // Oct 31, 2010 at 1:24 pm
Larry Mutter, Oct 29 has it right on! NDP should hammer away at the voters with these truths. Do we want a society of “I’m alright Jack” and to hell with you if you don’t earn enough!
Iglika Ivanova // Nov 1, 2010 at 11:28 am
Thanks for the comments, everyone.
You may be interested in a recent article in Business in Vancouver titled Economic Impact of Premier’s Income Tax Cut Analyzed.
I think it’s quite telling that the newspaper calls it “the Premier’s tax cut” and not “the government’s tax cut.”
Scholastic Books: Greed Trumps Literacy, No Surprise : Politics, Re-Spun // Nov 3, 2010 at 8:01 am
[...] haggard BC premier just tossed out the province’s second largest tax cut in history which will go mostly to the rich, to shore up his pathetic level of [...]
stephen elliott-buckley // Nov 4, 2010 at 12:01 am
So this really bugs me:
http://fullcomment.nationalpost.com/2010/11/03/brian-hutchinson-campbell-made-right-move-at-wrong-time/
“Mr. Campbell then made a rare televised address to announce a major tax cut, 15% on personal incomes up to $72,000.”
It makes it sound like no one over $72k will get any of the tax cut. Blimey!
Show notes for Episode 88 « Radio Freethinker // Nov 10, 2010 at 9:02 am
[...] http://www.policynote.ca/disappointing-premiers-announcements-wont-help-the-bc-economy/ http://www.people.hbs.edu/mnorton/norton%20ariely%20in%20press.pdf http://pages.stern.nyu.edu/~nroubini/SUPPLY.HTM [...]