But don’t hold your breath that new progressive tax changes are in the offing.

First, a closer look at that expert panel: You can find the government’s announcement of the panel’s terms of reference and a list of the panel members here. Sadly, the panel is not mandated to examine the fairness of the overall tax system, nor is it to propose ideas to restore the BC tax system’s progressivity (something that is sorely needed, as we found in this CCPA study last summer).

Rather, the mandate is narrowly to advise on how to improve the “business competitiveness” of BC’s tax system, and to offer recommendations on “administrative improvements to streamline the Provincial Sales Tax.”

The membership of the “expert” panel is entirely made up of business representatives. Not a single person on the panel is an academic economist (the one person with an academic connection is Grace Wong, a former assistant dean with UBC’s Sauder School of Business). There are no representatives from labour or the community or non-profit sectors. The panel chair, Sarah Morgan-Silvester, is the current chancellor of UBC, but has spent most of her career as a senior banking executive.  In short, there is not a single person on the panel one might expect to offer a dissenting voice ­– a perspective that is interested in anything other than how to lower taxes for the corporate sector.

And how about that cool new online BC Budget simulation tool for the public? You can access the “My BC Budget” website here.

Now I love online tools, and I’m told I’m somewhat nerdy when it comes to the BC Budget, so I was all ready to geek-out on this.  And thus, my disappointment is deep.

The stated intent of the online tool is to:

“Let people see the effect of raising and lowering revenues and spending on the provincial budget, with the goal of eliminating the 2013-14 deficit, which was forecast in September to be $458 million. Once people have achieved a balanced budget, they can send their solutions to the finance minister with their comments. The website also includes informative facts about the budget and is one of several ways the government is consulting with British Columbians in the lead-up to Budget 2012.”

The government’s ill-advised (and much-amended) balanced budget legislation commits it to balance the 2013/14 budget (an entirely arbitrary deadline). And so, only when someone has used the online simulator to model a balanced budget does the tool allow you to submit your “solution”.

But the tool is much sillier (and nefarious) than that.

You can reduce any tax you want by as much as 100%, but you can’t increase any tax by more than 10% (which is certainly interesting, given the stated intent of trying to balance the budget).

When you start to fiddle with personal income tax levels, the “information” window kindly informs you that, “BC families generally have one of the lowest overall tax burdens in Canada, and BC currently has the lowest provincial personal income taxes in Canada for individuals earning up to $119,000 a year.”

What’s more, while you can adjust personal income taxes overall, the simulator does not allow you to adjust the income tax brackets (let alone propose one or more new upper-income ones, as I recently did here). Meaning, you cannot modify the progressivity of the tax system (the distribution of taxes by income) – Minister Falcon apparently isn’t interested in hearing about that.

And don’t go trying to propose increases in corporate taxes. If you do, the simulator responds with a finger-wagging note warning: “Raising corporate income tax would make the province less competitive compared to other provinces and countries, and would reduce long-term economic growth. Companies would decide to move to lower-tax jurisdictions, costing B.C. jobs and investment.”

This despite the fact that BC has among the lowest corporate tax rates in the country, and global accounting firm KMPG consistently finds BC to be one of the least expensive places to do business among major industrialized nations. Surely, we have room to move on this front.

Oddly, the one tax increase the simulator does not actively discourage is further increases to MSP premiums, the most regressive tax in the province.

Overall, the simulator is quick with warnings if you try to increase taxes to close the budget gap, but oddly silent when you try to lower spending. No bias there I guess.

(My thanks to both Shannon Daub and Iglika Ivanova for drawing some of these ridiculous features to my attention.)

We do indeed need a fulsome review of BC’s tax system, and the public certainly does deserve a chance to weigh in with our ideas for how to rethink the ways in which we raise and spend revenues. Sadly, neither this expert panel nor the online simulator will give is that chance. As I’ve said before, we need a full Fair Tax Commission, with an extensive public-engagement process that lets us genuinely deliberate on these matters.

Here’s what I just submitted:

Submission to the BC Legislature’s Select Standing Committee on Health

From: Seth Klein, BC Director, Canadian Centre for Policy Alternatives

Re. Sustainability of the Health Care System

Date: Jan 13, 2012

Thank you for this opportunity to offer this written submission to your committee’s deliberations.

Given the topic you are investigating, I want to make sure that you are familiar with some relevant peer-reviewed reports that have been published by our institute.

Of most direct relevance is a 2006 report by our senior economist Marc Lee entitled Is BC’s Health Care System Sustainable? A Closer look at the Costs of Aging and technology. The report can also be found here.

Like your committee’s mandate, this report estimated the financial implications of demographic trends on the health care system into the 2030s. Among the report’s key findings:

This paper finds that population aging, in and of itself, is but a small contributor to rising cost pressures in the health care system. Based on current projections there is little to suggest a demographic time-bomb about to go off. Instead, the real challenge for financing the health care system is advances in technological possibilities, broadly defined to include pharmaceutical drugs, new surgical techniques, new diagnostic and imaging technologies, and end-of-life care. These challenges can be addressed most efficiently and equitably in the context of a public system…

• Population aging has been a cost driver in the system, but a very small one compared to other sources. The impact of population aging was 0.9% per year over the 1995 to 2005 period. This is consistent with other studies of population aging.
• Inflation (as reflected in salary increases and higher cost of supplies) has been the biggest cost driver over the 1995 to 2005 period, with increases averaging 2.4% per year, followed by population growth at 1.2% per year.
• The expansion (or “enrichment”) of health care services over time (such as new technologies, long-term care, home care and pharmaceutical drugs) is also an important factor. The average British Columbian receives one and a half times more health care services as his or her equivalent 30 years ago.

I would also like to draw you attention to a number of other CCPA reports relevant to your work:

• Why Wait? Public Solutions to Cure Surgical Waitlists, by Alicia Priest, Michael Rachlis and Marcy Cohen (2007), available here.
• What’s in a Scan? How well are consumers informed about the benefits and harms related to screening technology (CT and PET scans) in Canada, by Alan Cassels et al (2009), looks at how unnecessary and sometimes harmful scans can drive up health care costs. It is available here.
• An Uncertain Future for Seniors: BC’s restructuring of home and community care, 2001-2008, by Marcy Cohen et al (2009), looks at how inadequate investment in community care is placing more pressure on the more expensive acute care system. It is available here.
• Innovations in Community Care: From Pilot Project to System Change, by Cohen et al (2009), is a companion paper that highlight successful innovations that, if scaled-up province-wide, could take pressure off the acute care system. It is available here.
• The Cost of Poverty in BC, by Iglika Ivanova (2011), looks at how poverty increases costs to the health care system. In particular, it finds that poverty in BC is adding an additional $1.2 billion per year to the province’s health care system. It is available here.

Thank you for this opportunity.

The Minster’s presentation focused on highlighting the cost of the move back to PST/GST, providing some large numbers for the media headlines, instead of looking at the big picture.

In case you missed the media coverage, the provincial coffers are projected to suffer a loss of $2.8 billion over the next 3 years, relative to the estimates presented in February’s Budget 2011. The Ministry estimates that $2.3 billion of the loss is brought about by the HST defeat and the move back to the PST/GST system.

The Minister argued the impact of the HST defeat is manageable, but warned that:

“We’re going to be very tough on operating expenditures and people need to understand it is going to be a government that is going to be run very, very tightly from a fiscal point of view.”

However, closer look at the numbers reveal that the provincial financial situation is not nearly as dire as it may seem. And that returning to PST/GST is not all that costly, when compared with how much it would have cost to keep the “fixed” HST.

Firstly, comparing the costs of repealing the HST to the February budget estimates is misleading. Budget 2011 numbers did not include the cost of the last minute HST “fix” that Premier Clark announced this summer. Keeping the HST would have involved a significant budget loss relative to the numbers announced in February, as Seth Klein pointed out here. This is why the impact of reverting to PST/GST should be compared to the impact of keeping the “fixed” HST.

The cost of the one time rebates of $175 per child regardless of family income and for low- and modest- income seniors were estimated at $200 million. The government’s news release announced that these checks would go out before the end of the year, so they should be considered as expenses in 2011/12.

In addition, the HST was slated to be reduced to 11% in July 2012, which would have cost the government around $638 million in 2012/13 — 3/4 of the annual cost of a 1 percentage point reduction (estimated at $850 million). In 2013/14 the government would have given up $850 million. And this isn’t even considering that in July 2014, the tax was going to be reduced to 10%, giving up a total of $1.7 billion in revenues every year. At that rate, the government’s actually going to be collecting more revenue with the PST/GST than otherwise.

Some of these extra costs would have been offset by the increase in the corporate income tax to 12% (from the current 10%) in January 2012 and by postponing the small business tax cut slated for April 2012. These would have generated an additional $100 mil  in 2011/12 (1/4 of the annual revenue gain, estimated at $400 mil) and just over $400 million each in 2012/13 and 2013/14.

Thus, the real comparison of the costs of repealing the HST looks more like this:

My analysis shows that the provincial treasury would have faced a shortfall of $800 million even if the HST had survived the referendum. The real net costs of reverting to PST/GST are $1.5 billion, not $2.3 billion.

Of course, using the bigger number is more effective if one were looking to lay the blame for provincial fiscal challenges onto the referendum results.

Now, let’s turn to the total provincial fiscal position. Many analysts/commentators seem to have forgotten that the fiscal plan features unusually large contingencies and forecast allowances over the next 3 years. These total $2.5 billion over the 3 years and thus entirely cover the costs of the HST reversal.

If the HST defeat is not an unexpected event worth dipping into the contingency funds for, I don’t know what is.

As for the forecast allowance, the government has already built a lot of prudence into the budget projections by using economic growth forecasts that are considerably lower than the private sector consensus forecast (2% vs 2.8% growth for 2011 and 2.3% vs 2.8% growth in 2012).

In other words, the BC government has a real fiscal gap of only about $300 million over 3 years relative to Budget 2011, not $2.8 billion. This is a lot more manageable and hardly requires the kind of tight-fisted approach advocated by Minister Falcon.

Some of the media commentary around the fiscal update, such as Vaughn Palmer’s piece in the Sun are suggesting that the BC government is using the current fiscal challenges as an opportunity to punish British Columbians for exercising their rights in the HST referendum. This would be a great mistake. Not only would it go against our country’s respect for democracy, but it would also put a drag on the already fragile recovery (latest job numbers released today show BC is shedding jobs, full-time jobs in particular).

There are elements of the latest reform package I like (which I’ll get to below), but overall the government’s proposed “bold fix” is a classic case of politics trumping good policy.

What’s my beef with the “fix”?

In promising to lower the HST by two percentage points (from 10% to 12% over the next three years), and in sending families cheques this year of $175 per child under 18 regardless of household income, the government is proposing to spend a great deal of money on people who don’t need it.

True, a two percentage point reduction in the HST will benefit everyone, but the biggest dollar savings would go to the wealthiest households (as they spend the most on goods and services). Likewise, wealthy families with children under 18 will get cheques this year that they will hardly notice in their household budgets (even though, collectively, these cheques will cost the public treasury a lot), while low and modest income people without children get nothing. This is not a wise use of public funds –– it makes much more sense to target money to the individuals and households who really need the help. (Ironically, this is what the government is proposing to do for seniors –– offering additional rebates only to low and modest income seniors –– but for political reasons they’ve chosen a different approach for everyone else.)

The government is proposing to partially pay for this change by increasing the corporate income tax from 10% to 12% (meaning, returning the corporate tax rate to its 2008 level). Now I’m all for that. But Finance Minister Kevin Falcon has made a point of emphasizing he sees this change as “temporary.”

But here’s the bigger problem:  Cutting the HST by two percentage points is very expensive –– about $1.7 billion in lost revenue per year once fully implemented. In contrast, increasing the corporate income tax rate to 12% will only recoup about $400 million. That would leave a hole in the budget of about $1.3 billion. So this “fix” would mean the HST is no longer revenue neutral, but revenue negative, and would have to be paid for in either increased debt or (more likely) cuts to public services and programs.  (The government is also proposing to delay further reductions in the small business tax rate, which would save about another $300 million, but again, the Minister has emphasized that this delay is temporary.)

In short, Premier Clark has more or less done the same thing Premier Campbell tried just before announcing his resignation; namely, seeking to win the public over with a promise of more tax cuts, the budget consequences (and money for public services) be damned.

A much better (and cheaper) fix, as I recently wrote here, would have been to keep the HST, expand the low-income HST credit, and fully pay for this expansion with increases in corporate income taxes. But again, what we really need is a full Fair Tax Commission, in which we deliberate over the role of a value-added sales tax within the overall tax system (which would serve us so much better than a referendum on such a narrow question).

That said, embedded in the government’s proposed “fix” are some positive developments that need to be recognized.

The campaigners against the HST should take some satisfaction from the fact that they made the government say “uncle”. The government was forced to admit that the HST shifted too much onto consumers and too much off corporations.

More importantly, the government has now acknowledged that we can increase corporate income taxes and the sky will not fall. It is no small irony that when Adrian Dix proposed during the NDP leadership race that corporate income taxes be returned to their 2008 level, he was accused by government representatives and media pundits of being a “class warrior”. Yet now Christy Clark has proposed doing just that (and even gone a step further with a proposed delay to planned reductions in the small business tax rate).

And another rather delicious irony: those corporate income taxes reductions since 2008 were part of the carbon tax’s revenue recycling regime. Meaning, if the government did actually increase the corporate income tax, they would have to amend their carbon tax legislation, which requires that the tax be revenue neutral. Again, I’m all for that. The CCPA has long said that making the carbon tax revenue neutral (and giving big tax cuts to business) made little sense, and that the carbon tax income should be partially used to fund other climate initiatives. So nice to know the new Premier is now ready to break with revenue neutrality there.

My point: corporate tax cuts simply have not delivered on their promise, and thus continuing to cut the corporate income tax rate to 15% makes no sense. Already we’ve seen the corporate tax rate fall from 28% to 18% over the last 10 years, with no noticeable effect on investment. The non-financial corporate sector is sitting on half a trillion dollars in cash right now, so why should we reward them with more tax cuts? KPMG already ranks Canada as having the second lowest corporate taxes in the industrialized world after Mexico (and look how well it’s working for them).

At one point, the Fraser fellow was lauding the benefits of the corporate tax cuts between 1997 and 2007. So I’m thinking, hey, he should be happy if we return to the 2007 corporate tax rate. Coincidentally, that’s precisely what this year’s Alternative Federal Budget proposes. Doing so would raise an additional $11 billion a year in government revenues — that’s a lot of money that can be put to better use.

For more excellent analysis of the federal budget, go here.

It seems to me that the really important questions about the future of BC are getting lost in the narrow debt discussion.

Our Finance Minister just announced that the next Premier will have close to $1 billion dollars of “wiggle room” for the 2011/12 alone, with $800 million in both of 2012/13 and 2013/14. The money comes in the form of unusually large contingencies and forecast allowances, though it would have been better called “the new directions fund.”

So, how are the Liberal leadership contenders planning to use the money?

Surprisingly little attention is being devoted to this key question. The Globe, for example, dedicated more space in their print edition to a large photo of Colin Hansen and Gordon Campbell in the Legislature than to the four main candidate’s budget priorities (p. S3).

Most of the budget commentary provided by leadership hopefuls was limited to self-congratulatory remarks about their government being one of the few jurisdictions that will come below projected deficits this year. They’re too quick to claim credit for the stronger than expected economic performance, which is more of a case of getting lucky than the result of any policy choice of theirs (though it would certainly have been worse if they had insisted on balancing the budget during the recession). But I digress.

What’s missing from the public debate is a real meaty discussion of our visions and priorities for the future of BC. Of the new ideas and the new directions that a change of leadership opens the door for.

Now is precisely the time for these conversations and debates to take place. Now, when several politicians with vague but rather different agendas are vying for Premiership. Now, when the questions are still open and decisions haven’t been made yet.

So let’s start asking the questions that really matter and have an open and honest debate on the various plans for how the “wiggle room” money can be used to build a better BC for all. Now, not after the “real budget” is tabled later this year.

British Columbians need to know where each Liberal leadership hopeful’s priorities lie. If they had an extra $1 billion for 2011, how would they spend it? What policy changes do they think are needed to make BC a better place to live and work for all?

Deferring the debate until after the HST referendum is just an excuse and should be exposed as such. Yes, a potential HST repeal would require some budget revisions. We may have to repay $1.6 billion to the Feds, but that works out to $533 per year over 3 years or only 1% of the annual provincial budget. It’s less than the cost of the tax cuts Premier Campbell announced and then repealed. So let’s move beyond the HST scare tactics and have a conversation about the real issues facing our province.

With or without the HST, British Columbia families will remain vulnerable, burdened with unprecedented levels of household debt — 160% of income — a weakening housing market and high unemployment that is projected to persist over the next few years. Without a robust labour market recovery and real increases in household incomes, consumer spending will no longer be able to drive the type of strong economic growth BC experienced in the mid-2000s.

We’re still struggling with low business investment after years of corporate tax cuts that were supposed to stimulate investment and productivity. The problems that climate change poses continue to grow. We need an economic strategy what would invest in people and take bold steps to support a greener economy for our province.

We face pressing social problems in this province that need to be addressed immediately. Too many children continue to live in poverty in this rich province, and some will die preventable deaths that the Office of Mary Ellen Turpel-Lafond will document in more scathing reports like this one. Too many British Columbians with mental health and addiction issues continue to languish and die on our streets. Too many seniors continue to live the last years of their lives without the supports they need from community and home care.

These are the types of issues that the next Premier will have to tackle, and they should be at the center of the economic debate in BC.

The Vancouver hearing kicked off this year’s budget consultation process, a month-long opportunity for British Columbians share their priorities and recommendations for next year’s provincial budget with a legislature committee made up of representatives of both the party that is in government and the Opposition.

The Select Standing Committee on Finance and Government Services will accept citizens’ input until October 15. You can sign up to present in person at a public hearing in your hometown, you can submit written recommendations or video/audio clips, or you can respond to a brief online survey with open-ended questions.

This year, it’s particularly important to make your voice heard, because there are actual money on the table that are not spoken for. Just last week, the Ministry of Finance revealed — surprise — $2.7 billion extra revenues over the next three years above and beyond last year’s budget forecast. In the same news release, the Ministry announced that about $600 million of the moneys would be applied to reducing the deficit, but the other $2.1 billion are yet to be allocated.

Personal income tax cuts have been floated as a possibility and given the current HST mess, the temptation to appease the anti-tax vibe in the electorate must be higher than ever. There are also calls in the media for the windfall revenues to be put towards further reducing budget deficits and paying off the provincial debt.

At the CCPA, we believe that the money should be used instead for strategic spending initiatives to reduce poverty and homelessness in the province. Here is why.

Debt-reduction is not a priority for our province at this point. Our debt levels remain affordable and the current environment of low interest rates presents an ideal time for the government to borrow in order to invest in improving the economic security and future productivity of British Columbians.

The rate of return on debt-reduction is the interest rate we pay on the debt (this is how much we save if we pay a portion of it today). The long-term interest rates the province pays on its debt are around 4 to 4.5%. Many public investments have higher rates of return that that, which makes them better candidates for government spending than paying off the debt.

Using the $2.1 billion windfall revenues to offer personal income tax cuts would frankly be irresponsible. It will squander the opportunity to boost the economy and address BC’s pressing social problems all at once. Tax cuts will not do anything for the poor or the homelessness who don’t owe much in taxes to begin with. Tax cuts will not build affordable housing, improve access to post-secondary education for low-income youth, or reduce our greenhouse gas emissions. Strategic public investments, on the other hand, can do all these things.

The CCPA recommends that the revenue windfall is used to reduce poverty and homelessness in this province. Investing in poverty reduction has the potential to bring huge savings for the province over the long term in terms of lower criminal justice costs, lower healthcare costs, and higher school achievement and productivity. A report from the Ontario Association of Food Banks estimates that poverty cost the provincial treasury about 2% of GDP per year. If costs in BC are in the same ballpark, we’re talking about potential savings of $4 billion annually.

Personally, I’ve never found completing my taxes particularly onerous. It takes me a few hours — no big deal. I’m paid well (and well above the average). I’ve never had to hire an accountant, as I’m not doing anything fancy. I’m only availing myself of a few basic deductions — RRSPs, the child care deduction, and charitable deductions.

But when I’m done, I like to do the following exercise: first, I go back and look at my total income (not my “net” or “taxable” income, but rather my gross income). Then I look at what I actually have to pay in total federal and provincial income taxes (not what was deducted from my paycheque, but rather what I will actually have to pay after all my deductions and my tax refund). Then, using these two figures, I calculate the total effective income tax rate I pay.

And what do you think that is? Go ahead, take a guess… 20%? 25%? 30%? More? Alright, I’ll tell you — 13.38%! And all I can think is “What a #?!@#*?&@#!!  steal!” Here I am making roughly two and a half times the median income, and I’m getting all these public services, and I’m only paying 13.38%! In fact, if I isolate only my provincial income taxes, the total effective income tax rate comes to a paltry 3.46%. Ridiculous. What are these tax cutting maniacs complaining about?

Now granted, we pay other taxes too: payroll, sales, property, MSP, etc. When these get included, the tax regime ends up a whole lot less progressive, and the total bill increases. But, as the CCPA’s Marc Lee found in a major 2007 study entitled Eroding Tax Fairness, even when these all these taxes are included, most people are paying closer to 35% of their income in total taxes, and no income group is paying more than 40% (indeed, the very wealthy pay a lower overall rate than the poor and middle class). So why are so many people under the mistaken impression that they are paying over 50% of their income in taxes? Well, because they are told this so relentlessly in the mainstream media. But they aren’t.

I encourage people to do the same exercise I did when they complete their taxes. The results will surprise you. And when you stand back and look at what we pay in taxes, set against the public goods and services we provide to one another in exchange, one is hard-pressed not to conclude that it’s a pretty great deal. In fact, maybe it’s time to increase our taxes.

And it isn’t just the federal Conservatives. Ever since the introduction of the GST, successive Conservative and Liberal federal governments have been pressuring the provinces to harmonize their provincial sales taxes with the GST. Why?

At one level, there is the explanation that harmonization will simplify the sales tax system, allowing businesses to submit only one set of remittances. But I think the real reason is more substantial.

Ever since the original Free Trade Agreement with the US was instituted, the federal government has really had only one core economic development strategy – boosting exports. We have no meaningful industrial strategy. Our federal governments have not had a real vision for the role of government in economic development, strategic procurement, or the nurturing of new sectors. Rather, all the economic eggs have been in one basket –– free trade and export promotion.

Understood through this lens, pushing both the GST and the HST make perfect sense. These moves towards a value-added sales tax mean that Canadian exporters are spared these taxes (at the expense of Canadian consumers), as exporters can get rebates for any sales tax they pay on inputs. So, these taxes will make Canadian and BC exporters more “competitive.”

All of which raises a much more fundamental question: do we really want to hinge all our economic development goals on exports? As we seek to get serious about confronting the climate challenge (and if Jeff Rubin is correct that rising oil prices mean “our world is about to get a whole lot smaller”), does it really make sense to structure our economic and taxation policies around the goal of export promotion? My guess: The era of ever-increasing trade and tourism will soon be coming to a close. We need a new economic plan.

For analysis of the HST by CCPA-BC senior economist Marc Lee, see here

These cuts have been devastating to many service delivery agencies and will result in the cancellation of programs that benefit the least fortunate in our society: children growing up in low income families, women at risk of violence, the poor. In a recent news release, the CCPA has called for the government to repeal all the cuts made since the February budget.

Make no mistake: these cuts are made because our provincial government wants to end up with a smaller deficit at the end of the fiscal year, not because we cannot afford to help vulnerable groups during a serious recession. Despite the recession, BC is one of the wealthiest provinces in this country. Our provincial debt is relatively low. We certainly have the capacity to cushion the blow of the economic downturn to the more vulnerable individuals and families among us. But our government is choosing not to.

In fact, in their obsession with minimizing the size of the deficit, our policy-makers are pushing people into further hardship. And those who have to endure the pain are those who can least afford it. Kudos to Bill Good for recognizing this simple fact on his CKNW show this morning.

The savings from reduced government grants to social service agencies are $354 million, a mere 0.9% of the overall $40 billion provincial budget for 2009/10. These cuts could easily have been accommodated in only a slightly higher deficit.

The recession is temporary, and so are the current deficits, but the lost educational opportunities for children would never be recovered. It’s penny wise but pound foolish to cut funding to programs that have already been pared to the bone and that provide services with long-term payoffs.

The government is trying to create the impression that cuts are concentrated among “nice to have” but non-essential programs. This is simply not the case. Many of the initiatives that are now being cut have been set up to fill a need that exists because the government is not providing adequate social services and supports out of its core budget. Literacy initiatives, supports for violence against women and children or seniors’ activity programs that keep people healthy and out of hospitals should not be left to the whim of discretionary grants funding. We need to ask ourselves questions such as whether we prefer to pay for programs that enrich the lives of disadvantaged children as they grow up, or for policing and anti-gang measures a few years in the future.

The secrecy with which these cuts have been implemented is also egregious. Without knowing exactly what is being cut, we cannot evaluate the impact of the cuts, and without openness and transparency it is simply not possible to have an honest public debate about priorities. This is why we’ve launched our own effort to track the cuts and we are asking affected groups or individuals to come forward and share their stories.

From a purely macroeconomic standpoint, any government spending is better than none in the midst of a recession as it will boost the economy in the short term. In the long term, however, the best use of government borrowing is to finance investments that will bridge our current economic needs with long-term social and environmental goals. Think investments that leave us with healthier and better educated citizens, that increase long-term productivity and set us up for the “green” economy of the future, while also increasing the quality of life for all people.

It’s here where the current government policy leaves a lot to be desired. We would be better off running higher deficits and making these public investments now, than running smaller deficits and having to pay them off with a less productive economy in the future. Let’s not forget that public dollars can be invested in initiatives that will have long-lasting benefits for said future generations.

According to a new study by UBC’s Human Early Learning Partnership, just under 30% of BC children entering kindergarten are “developmentally vulnerable” (read, not ready to learn), and the resulting depletion of human capital is estimated to cause BC to forgo about 20% of GDP growth over the next 60 years, a value equivalent to investing $401.5 billion today at a rate of 3.5% interest (for more details, see this Vancouver Sun article).

By failing to make public investments now to eliminate child poverty and ensure that our children grow up healthy and have access to good quality education, we are wasting our children’s potential and leaving them with a less productive economy in the future. Yes, making these investments will cost money and increase the government debt, but at this point leaving debt to our children seems far preferable to the alternative of saddling them with the (often very expensive) consequences of our unresolved social and environmental problems.

There is, however, a type of debt that we should not leave to future generations. It’s the debt incurred from hosting lavish parties for ourselves (Olympics, anyone?) or creating wealth by destroying the environment (through subsidizing natural gas extraction, for example).

Increasing government debt in itself is not as large a problem as some of the recent media coverage would suggest, but both BC and Canada’s governments could and should be making better spending choices.

While being short of money for school athletics — the type of events that marked the beginning of the sports career of many a BC athlete, including Beijing Olympic medalist Carol Huynh — our Ministry of Education apparently had no problem finding $500,000 to fund Olympics promotion in schools through a new Spirit Schools program.

Whether you support the Olympics or you think it’s a giant waste of public money, it’s hard to argue that learning about sports in the classroom and getting to watch them on TV is more valuable than actually having the opportunity to participate in person. Yet this is exactly the message that the Ministry of Education is sending out to school children with their bizarre funding choices.

It seems that many of the cuts we’re seeing are not about tough times and lack of money as much as they are about priorities. And this government’s priorities raise some serious questions.

Well, the Early Childhood Learning Agency — the one that was established in the spring of 2008 to study the feasibility and costs of expanding kindergarten to a full day for 5-year-olds — concluded that expanding early learning programs in BC is both desirable and feasible. It did indeed recommend a gradual expansion of full-day programs for 3- to 5-year-olds. So far so good.

However, in its final report, Expanded Early Learning in British Columbia for Children Age Three to Five, the Agency estimated the total operating costs to about $130 million per year for full day K for 5-year-olds once fully implemented. That is to say that it would cost more to get the system going (it always does).

The BC government has budgeted $44 million in 2010/11 when half of BC 5-year-olds are expected to be covered by the program and $107 million in 2011/12 when the program is planned to cover all 5-year-olds. These amounts come to 34% and 82% of the annual operating costs estimated by the Early Childhood Learning Agency. And that’s during the two years that the program will be set up, when facilities need to be found, new teachers/early childhood educators recruited and curriculum and program standards developed. This just doesn’t add up.

Not to mention that no funding is provided in this fiscal year to enable the Ministry of Education to prepare for these programs by undertaking the next steps recommended by the Early Childhood Learning Agency:

1. carrying out a detailed facilities analysis and starting to prepare space for programs;
2. creating a human resource strategy; and
3. developing program standards for full day kindergarten for five-year-olds

If the government’s own report is to be believed, then the budgeted amounts for all-day-kindergarten are too low to start up a good quality program.

The February Budget documents stated that:

To ensure that health services are protected in the current economic environment, the Ministry of Health Services and health authorities will be required to achieve efficiencies and administrative savings beginning in 2009/10.

For the health authorities these administrative savings came to $25 million annually.  Post-secondary institutions were expected to find $11 million in administrative savings.  School boards were told to cut the administrative fat by $12 million.

Contrast that to the government’s privatization agency, Partnerships BC, which published their administrative expenses in their Service Plan in the September update to the Budget.  It turns out that after an 9% jump in administrative costs in 2008/09, they are still planning for an increase of another 2.8% in 2009/10.  Next year they plan to bump admin costs another 6.5% and the year after that in 2011/12 they plan administrative costs to rise by 2.3% 

That is an increase of administrative costs of 22.3% in four years.

It appears the administration of privatizing government services is much more difficult than the administration of healing the sick and educating our children. 

Or perhaps Partnerships BC is just baffled at how to deal with these ballooning admin costs so let me offer a humble suggestion.  Perhaps they could randomly pick any elementary school principal in the province to advise them.  After all, people who actually deliver services to the public are used to being told to find fat to cut year after year even when they are down to the bone.

We have argued that broad-based spending cuts are unnecessary since BC does not have an expenditure problem, just a short-term revenue problem arising from the recession. Running a large deficit is entirely appropriate and good economics. The last thing BC needs is a government piling on with spending cuts on top of the downturn — this will only worsen the economic picture and throw more people out of work.

To some small extent this message seems to have gotten through – the government will allow the 2009/10 deficit to reach $2.8 billion this year. However, the new budget announced $1.5 billion in “administrative savings” over three years and it’s not clear yet exactly where these will come from (more on this below). The choices tell us that on balance the government’s actions will exacerbate the recession, particularly in smaller communities around the province.

The new economic projections paint a more sober picture of the BC economy in 2009: a 2.9% drop in real GDP; 5% drop in nominal GDP; 2.8% decline in total employment. The average unemployment rate is now forecast at 7.9% for 2009, rising to 8.3% in 2010, and slowly declining to 7.0% in 2013. So the expectation is for “jobless growth” for a few more years. Overall improvements by 2011 are predicated on US and Canadian recoveries.

Based on this gloomy short-term outlook, the new BC Budget figures a deficit of $2.5 billion, or 1.3% of provincial GDP — $2.8 billion or 1.5% of GDP if we add the forecast allowance. Although much ado has been made of the size of the deficit in dollars, as a percent of GDP this is not particularly large by historical standards or even compared to what other provinces are doing. The overall number is consistent with Iglika’s estimate of a status quo deficit on the order of $3.2 to $3.9 billion, because the BC budget banks $750 million from the feds for HST transition (the full $1.6 billion in total transitional funding is spread over three years).

The good news is that most public services have more or less been preserved and there are even some modest increases in some budgets compared to February’s first take. In fact, total expenditures are up $826 million compared to February, although a big chunk of this is increased expenditures for fire fighting (file this one under climate change adaptation).

Some other budget lines had to increase due to the recession – an additional $100 million (compared to Feb) for social assistance, the expenditure area most sensitive to the economy. Compared to 2008/09 this is an increase of 8.8%, and seems too small given that the total caseload is expected to rise by almost 17% (the temporary assistance caseload is up more than that, about 33% higher than 2008/09). Child welfare is also up substantially, by $115 million higher than February. But on the cutting room floor, the budget for community living and related services was pared back by $154 million relative to Feb (though this is still a small net increase in dollars relative to last year’s budget).

Health care sees an overall budget increase of $189 million compared to Feb (and $790 million or 5.2% above 2008/09 levels). In spite of this, there will continue to be challenges in certain areas of the province and certain services. Health authorities identified a $360 million shortfall over the summer and that has led to cuts in services like outreach to seniors.

For K-12 education the picture is much worse, with a cut of $31 million from February — a measly $3 million increase over 2008/09 (on a budget of $5.7 billion). This is going to hurt and already school districts and schools across BC are implementing cuts to staff and increases in class size. For post-secondary education there is an increase of $160 million from February and $177 million, or 3.9%, over 2008/09 –  not great (especially with the prospect of rising enrollment due to the recession) but increases nonetheless.

What is going to sting are a litany of smaller cuts spread across all of the government’s operations, in particular reduced or eliminated grants to NGO service providers and charities, arts and culture groups, and students. All told these cuts are tiny compared to the overall provincial budget, but devastating to the programs themselves. They could easily have been accommodated in only a slightly higher deficit. No detail in terms of specific cuts is provided in the budget itself but overall grants are cut by $354 million, a reduction of 30% from 2008/09. Cuts to grants account for more than half of the identified “savings” from Administrative and Discretionary Spending (Table 1.14). Further “efficiencies” (ie, more cuts) on the order of half a billion dollars will need to be found in 2010/11 and 2011/12, and these are all on top of $1.9 billion in “savings” over three years announced in February’s budget.

The government’s news release speaks a lot about infrastructure spending and stimulus but in fact the budget contains nothing new. Budgeted capital spending is up, although this reflects the addition of funds for the new Port Mann bridge, which were not available back in February. This is a dumb capital expenditure that attempts to build our way out of traffic congestion even though such approaches have never been successful anywhere in the past. In fact, funds for some other capital projects have been scaled back, offsetting somewhat the increase due to the PM.

On the revenue side, total revenues are projected to fall by $1.45 billion in 2009/10 from 2008/09, although this is offset by that $750 million in HST funding from the feds. Revenues are down across the board with the biggest hits on personal income tax revenues (almost $900 million) and natural gas royalties (almost $500 million). The latter is down to $522 million in 2009/10 from $1.3 billion in 2008/09.

A surprise is that Medical Service Plan (MSP) premiums are going up by 6%. This is BC’s most regressive source of revenue (BC is the only province that retains these premiums), one that actually has no linkage to health care spending. This represents about $36 per individual per year, and $72 per family, and there is an enhancement of the premium assistance that will see low-income individuals (under $30,000 income) and families (under $40,000 income) pay less. While these are not huge amounts, this is not what most families with $40,000 of income and up would want after already getting dinged by the HST.

The MSP increase contrasts with an across-the-board income tax reduction in the form of a higher basic personal exemption (to $11,000; this is the threshold at which on begins to pay income tax). Yes, another tax cut I do not need and did not ask for. The cost of the higher exemption is $173 million when fully implemented, compared to a net increase of $107 million from higher MSP. All individuals making more than $11,000 benefit by $72. It hardly makes sense to spread such a thin tax cut across the province when there are pressing needs arising due to the recession.

So why go ahead with this tax cut and MSP increase at the same time? Why table a large deficit but introduce widespread cuts that are going to adversely affect communities across the province? Such is the bizarre world of BC Budget 2009 Take Two.