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.

In their February Budget the Liberals said they were going to have a $500 million deficit this year. Nobody believed them then. Marc Lee called the Budget figures fiction. Writing for the Tyee Will McMartin said:

Another fudge-it budget, you say? It’s worse than that. This fictional fairy-tale might better be described as Toxic Fudge.

BC’s Credit Union Central pooh poohed the Budget projections as wildly optimistic and said the deficit would probably be two or three times higher than the government was admitting.

Today even the Globe and Mail said:

It would seem a given now that the projected budget deficit of $495-million is wholly unrealistic. It could reach $1-billion.

None of this should be wildly surprising. The Budget projected a $200 million increase in income tax revenues, for example, at a time when incomes and the number of people working were falling. It predicted a minimal increase in welfare spending at a time when it is growing so quickly the government stalled release of information about it until after the election.

I’m no economist, but if I can figure this out on the back of an envelope, I’m pretty sure the smart guys in the Finance Ministry have figured it out as well. And I’m pretty sure they wouldn’t have kept it a secret from the Premier and from the Minister of Finance.

So we can expect a financial statement in June expressing surprise, amazement and horror about how badly the financial situation has deteriorated since February.

What happens then? In an April 24 Vaughn Palmer column Premier Campbell said bluntly he would not let the deficit rise. He said:

“I can tell you this: the deficit for 2009-10 will be $495 million maximum.”

That gives him three options. First, he could cut services. Second, he could sell assets. Third, he could intervene legislatively to cut the cost of contracts for public employees. If this sounds familiar, it is because he did all three in his first term of office after manufacturing a huge deficit by the largest tax cut in BC history.

Now he doesn’t need to manufacture a deficit. He can use his promise to keep the deficit to $500 million to drive an ideological agenda. So here’s my prediction. More tax cuts which Campbell will say are necessary to boost the economy. And more cuts to government services for low and middle income people to reduce the deficit.

After all, as Public Eye Online reported:

The premier’s deputy minister Jessica McDonald has stated provincial civil service layoffs, if they do occur, will be under five percent of the workforce. But the Campbell administration is projecting demographic forces will reduce the number of bureaucrats by 30 to 57 percent over the next ten years.

How do you make cuts like that to the public service? Service cuts and privatization.

In the good times, under the Liberals BC became a bad place to be poor. In the bad times it is going to get worse.

In Delta 200 area residents showed up to protest the possible closing of Boundary Beach Elementary while the Board discussed how to deal with a possible deficit of nearly $5 million. North Vancouver has reduced its spending shortfall to $100,000 but is looking at closing Plymouth Elementary school. In Trail the school board fought with a funding shortfall of $500,000 and debated 24 ways to save money including $65,000 by eliminating mid-day bus runs to transport kindergarten students home from school.

In Victoria the school board voted five to three to pass a balanced budget. The board chair said in future they could face a deficit of $6 million. That’s because district reserves have been almost used in recent years to deal with ongoing budget issues. The Saanich board is trying to figure out how to cut $3 million. The Kootenay-Columbia school board is considering moving to a four-day-week calendar to save costs. Two other six-figure reductions being considered are a severe reduction in teacher-librarian time in all area schools and reducing the contingency reserve by $100,000. And so on.

Even Surrey, one of the few school districts in the province with growing enrolment is relying on a surplus from last year to deal with a shortfall this year. They still face a shortfall and the board chair says the board will consider a number of measures to balance the books. They include reducing the school year by six days and making up that time by adding sufficient minutes to the rest of the school year to meet the Ministry of Education’s requirements for hours of instruction. Chilliwack is another growing board but new students have not meant an easier financial time, according to Board chair John-Henry Harter. Harter told the Chilliwack Progress the amount of per student funding has barely increased in the last five years. In contrast, costs to the school district – like salaries that eat up nearly 90 per cent of the budget – continue to rise. “Government funding is not keeping up with inflation,” said Harter. School boards always go through this process, to one degree or another, at this time of year, but the result is often the same. Incremental cuts year after year.

Things are not set to improve. The February Budget in Victoria anticipates even smaller funding increases next year, and that projection doesn’t take into account how badly the budget overestimated revenues for this year and next. When school trustees had their annual meeting last week they decided to take a tougher stand lobbying the provincial government (see here). Connie Denesiuk, president of the Trustees’ Association, said trustees expect to see their provincial association being vocal. “Their first, second and third priority…[is] funding.” None of this has been the lead story on the provincial news. But parents protesting the closing of neighborhood schools and cuts in services for their children will be thinking about this on election day when they are deciding how to vote locally.

Like most of the data coming out these days, this economic report card is worse than expected. We should think about hiding it from our parents. For starters, BC’s real GDP fell by 0.3% – not a big drop, mind you, but the first actual fall in provincial GDP since 1982. Most observers now expect declining GDP for 2009, but a drop in 2008 is very much a surprise.

In the 2009 BC Budget, tabled just two months ago, economic growth for 2008 was estimated at 1.0%, slightly lower than growth of 1.3%, the average estimate of the Economic Forecast Council. This tells us yet again that our forecasting has been too biased toward good times, and we are not developing economic plans or fiscal policies with contingencies for bad times (that we hope will not materialize). The esteemed EFC did not even see a recession in 2009 as late as last Fall, and the BC government seems to have been equally delusional.

In 2008, the whole goods-producing part of the economy, i.e. the export sector, basically fall apart. That forestry got killed is probably of no surprise to anyone living in the Interior. Resource-based industries showed downward movement across the board, including a drop of 15% in forestry, agriculture and fishing. I’ve pasted Statscan’s summary below.

BC’s economy is facing a double-whammy: a demand shock as export markets to the US and Asia drop simultaneously (in 1998, it was just the Asian engine that sputtered); and a supply shock arising from the rapid drop of commodity prices, meaning it costs BC more in exports to buy the same amount of imports. On the way up, these forces, strong demand in export markets and rising commodity prices, essentially made a big part of BC’s boom overall, and almost all of it outside Vancouver, Victoria and Kelowna.

The other shoe to drop in 2009 will be the construction sector. In 2008, construction was a source of growth, up more than 4%. With the sharp drop off in new building permits and construction starts, this sector will turn negative in 2009. In employment terms, consider that there were about 235,200 employed in construction at its peak last summer. By March this number had already dropped to 187,800. This pattern will have huge ripple effects throughout the rest of the economy. It bodes ill, for example, for retail trade, which plummeted to 0.6% growth in 2008 (though still positive) from 7% the year before; more unemployment and broader consumer retrenchment will lead to a decent drop in 2009.

All of this reinforces my concerns that the economy is in worse shape than either the NDP or the Liberals are willing to admit on the campaign trail. We need to press our prospective leaders in the next two weeks on what their economic plan is, and how they are going to handle a much larger deficit than what was projected at budget time. Is either prepared to run the types of large deficits that will be needed as the economy worsens (tip: appeals to the Bank of Canada to puchase provincial debt should be made loud and vociferously, as the Bank contemplates a new round of unorthodox monetary policy measures).

This has relevance for another storyline in the GDP statistics: the growth of the public sector. BC’s GDP performance would have been deeper in the red had it not been for 3% growth in education, health care and social services, and almost 4% for public administration. In times like these, when consumer spending, business investment and export markets are down, the only major sector that can step up is government. In 2008, the BC government leaned against those headwinds – but this is in hindsight, the government thought the wind was still at its back.

In 2009, with the storm gaining strength, the lesson is that the government must do more, not less, to avert a major drop in economic output. The meme of BC “living within our means” and the excessive attention paid to keeping the deficit small (and returning to budget balance within two years) are contractionary ideas that will make the economy worse in 2009. That attitude has already settled in in Victoria to some extent, but could get worse. Making large budget cuts to “share the pain” is exactly the wrong thing to do right now, and is the type of move that turns recessions into depression.

Anyway, here is the blurb for BC from the official publication:

The effects of a sharp drop in output of the forestry industry (-18%) rippled through the economy. The decrease was triggered by a slowdown in housing construction in the U.S. combined with a high Canadian dollar in the first half of 2008. Forestry-related manufacturing, including sawmills and paper manufacturing, posted large declines. Affected by these declines, the wholesale industry contracted while transportation and warehousing services remained flat. With economic activity slowing, demand for energy was also affected. The output of utilities was down 4.0%.

Exports fell 6.8% following a small decline in the previous year. The 2008 downturn was largely due to a drop in lumber products.

Output in the mining sector was down as oil and gas extraction and metal ore mining reduced production. However, with prices high, especially for commodities such as coal and natural gas, revenues poured in. This income helped to offset the losses in the forestry sector and corporation profits registered a small gain in 2008.

After a decline in 2007, construction grew again in 2008. Business investment in non-residential structures picked up with projects related to oil and gas extraction and electricity generation. Government capital expenditure increased 0.3% after a cumulative gain of 80% over the previous six years. Housing starts fell off putting a damper on housing construction. Investment in residential construction declined 4.1%.

Growth in personal spending decelerated in 2008 to 2.8%. This was the slowest growth since 2001. Purchases of durable goods fell as sales of cars and trucks declined.

Labour market conditions stayed strong. Labour income increased 5.6%. This pace was well above the national growth rate but below the British Columbia average of the previous five years. Employment advanced 2.1% while the unemployment rate edged up to 4.6%.

The slowdown in the economy was also experienced in the service industries. Only health and public administration grew more quickly than in 2007, benefiting from government expenditures on goods and services, which advanced at a similar rate as in the previous year.

UPDATE: The online version has now been fixed.

Can the NDP deal with B.C.’s economic challenges?

By Marc Lee

In BC’s 2009 election, parties must respond to two fundamental challenges: first, a crashing provincial economy with rapidly rising unemployment; and second, the global climate crisis, which demands that BC dramatically reduce its greenhouse gas emissions.

Rather than pit these objectives against each other, good policy choices should instead link them together: our efforts to boost employment through stimulus packages should be strategic investments that put BC on a sustainable path, not just a return to old patterns of development.

While the NDP platform takes some important steps on both fronts, it does not offer the bold new direction and vision many might expect with global capitalism on its knees. The NDP attacks head-on some of the most egregious and controversial policies of the Liberals, like run-of-the-river power projects and the flawed P3 infrastructure model. But ultimately, the platform is cautious and lands very much in the middle of the road.

This is problematic in that the NDP platform accepts both the culture of fiscal conservatism that has come to dominate Canadian politics (manifested in an over-emphasis on tax cuts and balancing the budget), and an overly rosy view of the state of the economy. It takes as given the Liberals’ February budget, which describes an alternative universe in which unemployment averages 6.2% for 2009, and BC weathers a small storm just in time for the opening ceremonies of the Olympics.

But the provincial unemployment rate hit 7.4% in March, up from 4.3% a year before. Since last summer, 83,000 jobs have been lost. With new housing starts down 70% compared to last year, construction employment will plummet even further as current projects are completed, meaning an unemployment rate that could hit double digits by year-end.

This inevitably means the half-billion dollar budget deficit tabled by the Liberals is a work of fiction. Both parties need to come clean about how they would amend their plans given higher-than-budgeted deficits in the $1-2 billion range.

Moreover, falling consumer spending and business investment mean government must lean even harder against these adverse economic winds. In terms of stimulus, the 2009 budget package will do little to curb rapidly rising unemployment. BC is in an excellent fiscal position, and should err on the side of doing too much, not too little.

The NDP platform adds more stimulus, with a modestly larger deficit and higher capital spending. Together, these provide additional stimulus of 1 to 1.5% of GDP if we count the multiplier effects. How the stimulus is spent is also important, and the NDP’s plan is focused on green infrastructure and social investments.

The NDP platform also takes aim at the climate change file. Its program would cap emissions from large industrial sources starting in 2010, and will harmonize those efforts with a North American cap-and-trade system. They also propose major public transit investments, low-interest loans for building retrofits for energy efficiency, and a royalty on “flaring” in the oil and gas sector (the source of 13% of BC’s GHG emissions).

Unfortunately, most of the attention of climate policy has been on the BC carbon tax, which is neither as horrible as the NDP paints it, nor as potent as advocates make it out to be. Given BC’s fiscal challenges, the NDP would do better by fixing some of the problems with the tax (like ensuring it covers all GHG emissions), using the revenues to fund climate action (rather than borrowing), and shoring up a low-income credit that fails to protect low-income households as of 2010.

The incrementalist approach of the NDP platform also shows on social policy. Even during the recent boom, many British Columbians were left out. The Liberals have overseen the shredding of social assistance, the gutting of social housing construction, and the dubious distinction of BC having the lowest minimum wage in Canada.

The NDP platform would reverse some of this damage. It would raise the minimum wage to $10. It aspires to create 2,400 new social housing units this year, and 1,200 per year after that – a move aimed at a major reduction in homelessness. The NDP have said they would bring in a poverty reduction plan with targets and timelines, but do not say what those targets should be. And the new money for social assistance in their platform is inadequate given this goal and the economic situation.

Now that BC’s housing and commodity booms are over, and the recession is getting worse each week, structural weaknesses in BC’s economy have been revealed that were not cured with a tax cut. BC needs a bold new vision that combines social justice principles with a sustainable economy. By this yardstick, the NDP makes some progress, but by pandering to tax cuts falls short in its ambition.

You’d think that such a big drop in funding would provoke a massive outcry, yet the only ones protesting were Arts and Culture groups (see these articles in the Straight, and in Victoria’s Times Colonist). They are outraged for having their funding cut from $19.4 million in 2008/09 to $11.9 million in 2009/10. This certainly is a big funding loss (almost 40%), and more on this later, but the amounts involved pale in comparison to the total $298 million drop in the Ministry’s budget.

I had to dig into the Estimates (the book of tables that show a more detailed breakdown of proposed spending by ministry and government agency) to find out what is behind this seemingly enormous $298 million budget cut. Here is what I found.

1. Discontinued funding for projects that have been completed or are near completion ($278.1 million) as follows:

• $275.6 million – Vancouver Convention Centre Expansion Project
• $2.7 million – BC 150 years

2. Reduced funding for Culture and the Arts ($13.3 million) as follows:

• $7.6 million – Arts and Culture
• $5 million – BC Arts and Culture Endowment Special Account (the cut is due to the loss of investment income on the endowment, but it becomes clear why the Arts community is outraged)
• $0.5 million – Royal British Columbia Museum
• $0.2 million – BC Film Commission

3. Reduced funding for Tourism ($5.5 million) as follows:

• $4.7 million – Tourism (I suspect this will be more than compensated by VANOC’s promotion work)
• $1.2 million – BC Pavilion Corporation

4. Administrative savings ($0.3 million):

• $0.3 million – Executive and Support services

Good thing that the Throne speech told us that this government values culture and the arts as “critical drivers of dynamic growth” before the Budget numbers came out or I, for one, would have gotten quite a different idea by looking at these cuts.

In its latest annual Service Plan report, the Ministry notes that jobs in compliance and enforcement will decline by more than a fifth or 63 full-time equivalent positions over the course of the coming fiscal year. Total C&E staffing will shrink from 292 FTEs to 229, a decline of 22 per cent.

The coming cuts make it harder and harder to sustain the belief that anything approaching a proactive, rigorous and effective approach to monitoring forest company activities on public lands can be maintained by our Forest Service. Or that the public will not be shortchanged in some significant way either through unreported and unnecessarily destructive logging methods, insufficiently reforested lands, unacceptably high levels of usable wood waste at logging sites, or stolen timber on which no stumpage fees have been paid.

This is all the more troubling when one considers that it was only five years ago that the Sierra Club of Canada’s BC Chapter released a study documenting the elimination of 800 Forest Service jobs during the first Liberal mandate. The 2004 report – Axing the Forest Service – noted that 40 per cent of the jobs to disappear in the Ministry of Forests fell into a broad category called “Scientific Technical Officers”, which took in most of the men and women working in compliance and enforcement.

As goes the public’s eyes and ears in the forests, so goes the health of our publicly owned forests.

BC’s Credit Union Central has published its take titled “The Bandage Budget” (read here) and it is raising some questions about assumptions being presented.

On the size of the possible deficit:

• The projected deficit in 2009/10 is small in absolute ($495 million) and relative (0.25% of GDP) terms, however, there is a higher than usual risk associated with revenue projections during a recession.
• Based on our own economic forecasts, a deficit of $1 to $1.5 billion or 0.6% of GDP in 2009/10 is the more likely outcome due to revenue shortfalls.

On employment and housing projections:

• January 2009 employment is estimated at 2,267.6 thousand persons…compared to 2009 annual average of 2,303 forecast in the budget. The latest housing starts are equally well below the budget forecast.

On financial contingencies in the budget:

• The buffer in Budget 2009 is among the smallest in recent years and is especially small when situated in the weakest economy in many years.

On future revenues:

• Revenues in 2009/10 is not likely to be realized, particularly in the personal income, social services and property transfer taxes.

If the Credit Union economists are right in their forecasts, can we expect to see a second, more realistic budget within a few months of the May election? And should we start looking for words to rhyme with budget?