This isn’t the kind of balanced budget law that we had at the provincial level – the kind that can be amended at the government’s convenience. Oh, no. We’re looking at a real binding law here.

(Well, almost always binding – the Vancouver Charter was amended a year ago to allow the city to borrow $458 million to fund the Olympic Village without having to go to the people first. But I digress.)

To cut services or increase taxes and user fees: that is the question.

On December 1, City Council announced their plans for balancing the books: a combination of both cuts and tax increases. It’s not looking good, as Frances Bula summarizes in her Globe article:

Vancouver will see the loss of 177 jobs at city hall, the closing of a landmark conservatory and a children’s petting zoo, dramatic hikes in parking charges, the elimination of the city’s high-profile summer street banners and reductions in everything from library hours to after-school childcare.

City Council’s decisions have left many wondering whether the city’s fiscal health will be achieved at the expense of the overall health of the city. Despite recent activity in Vancouver’s real estate market, we’re far from a robust recovery. Cutting municipal spending and jobs at this time would act as an additional drag to the economy exactly when we need to think about boosting future growth.

The worst part is that cutting services and closing attractions (as if Vancouver has that many to begin with) is only necessary in order to fund a tax break for commercial property owners in the City. This is effectively the result of a decision made by the previous city council (and supported by Mayor Robertson) to shift a portion of business property taxes onto residential property owners over a period of five years.

Think City is among the most vocal critics of Vancouver’s proposed budget. Their key points are outline in a recent Georgia Straight article Vision Vancouver looks after business with tax shift. Think City’s proposal is to defer the tax shift for a year and instead implement a 4% property tax increase on both residential and non-residential owners (instead of the currently proposed increases of 4.3% for residential and 0.3% for non-residential properties). This is estimated to cover almost the entire current shortfall of the city, making service cuts unnecessary.

While reducing the share of taxes paid by businesses can stimulate the economy, paying for this tax reduction through cutting municipal services is not the best bang for the buck. From a macroeconomic perspective, modest tax increases are better that service cuts for meeting the city’s shortfall. This is because macroeconomic models that estimate the multiplier effects of fiscal changes to the economy consistently show that tax increases have somewhat smaller drag at the local economy than spending cuts.

It makes sense: businesses can deduct the property taxes they pay from their provincial and federal taxes, so the income reduction that comes from a business tax increase is not as big as the income reduction from a lost job.

It’s no different at the municipal level than it is provincially or federally – tax cuts are a leaky economic stimulus, while spending on service provision ensures that the money spent benefits the local economy.

Additionally, many of this year’s Vancouver budget woes stem from Olympics-related costs (for example, the City is said to be losing $1.8 million in parking fees because of Olympics-related street closures next year). Guess who’s going to benefit from the Olympics related tourism? That’s right, it’s not the home owners, it’s Vancouver’s service and tourism industry. They should pay their share of the costs, too.

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.

In the absence of comprehensive information from the provincial government about exactly what programs and services will be reduced or eliminated, the CCPA is documenting the cuts and their impact. We need your help to do this!

If a program, organization or service is being cut in your community, comment here or let us know by sending a message to cuts@policyalternatives.ca. And feel free to include details or a quote about how the cuts will affect you, your family or others in your community. The more information we have, the better we can raise awareness about the damage that the cuts will do, and offer an alternative plan for our province.

In the Liberal government’s first term major cuts were announced with glee but this time it is happening by stealth.  People only find out when friends tell them about a cut, or when a local newspaper picks it up.

And local newspapers are picking up stories about cuts that are just astonishing.  One of the cuts that amazed me most was the elimination of BC’s Books for Babies program. Through the program every baby born in BC was supposed to receive a book bag containing a board book, a CD and information about library and other services in their community.

The program, the Books for Babies website announced, “is one of several initiatives aimed at making British Columbia the most literate jurisdiction in North America by 2010.”  The program was funded by the province with support from business.  Three days after the Budget speech Premier Campbell told CBC radio in an interview that, “Honestly, I think the greatest gains are made with early childhood learning.”

Rhian Piprell, one of the programs champions was quoted in the Peace Arch News agreeing with the Premier. 

“The government has put a lot of money into early learning in schools but I don’t think they are as effective as this inexpensive program because it’s reaching families when they are at their optimum best and wanting to provide opportunities for their babies.

“If you look at a child of seven and look at their reading capacity, you can predict how successful they will be in their 30s, and how healthy they are,” she said.

Honestly.  Cutting a program like Books for Babies.  Sometimes you have to wonder which is more non-functional, their policy judgement or their political judgement.

The poll was conducted in early August for the BC Federation of Labour.  It shows a solid majority of British Columbians disaprove of the way the government is handling the economic downturn.  Only 45% of people consider the government credible on budget forecasts, while 53% do not consider them credible.

Nearly 70% of British Columbians agree that public services need to be a priority even if it means a short term deficit.  Only a quarter of respondents want balanced budgets to be the top priority.

It comes as no surprise that the poll shows people opposed to the HST, but they are in favour of increasing taxes on corporations and wealthy British Columbians.  People supported a number of public services raised in individual questions.  For example, 86% supported investment in public services like post-secondary education and retraining programs.  Nearly 80% said they believed affordability was the number one barrier to college or university education.

Some people will seek to discredit the poll because it was conducted on behalf of the BC Federation of Labour.  However, Ipsos-Reid’s reputation rests with their integrity.  Agree with the results or not, they are a credible pollster.

In the Throne Speech Tuesday the government claimed a mandate from the May election to pretty well do whatever they want.  This poll and another released yesterday by the Mustel Group showing the Liberals falling 8% behind the NDP suggest the government might want to rethink its plans. After all, the election was not won on a promise to cut public services.

The Ipsos-Reid poll can be found at http://www.bcfed.com/node/1742.

This may be the first time you are hearing about the Ipsos-Reid poll.  So far nothing has appeared about it in any of the province’s newspapers.

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.

We’ve had a lot of budgets like this in B.C., so this one is in keeping with its right wing predecessors. During the 1980s, for example, the never-ending Social Credit government used to table budgets that gave the boot to working people in general, unions in particular, the poor, women, youth and, their favourite target, public sector workers. While they slashed services Socred ministers reassured everyone that the public would never notice the difference despite the fact that fewer people would be there to deliver them and that those who remained looked increasingly haggard and exhausted.

The Liberals are continuing this tacky boondoggle. This week’s budget boosted health care more than any other sector, which gives you some idea of how poorly everything else fared. Finance minister Colin Hansen claimed that the $4.8 billion for the health sector over the next three years constitutes 90% of all “new spending”. But as Marc Lee pointed out in his excellent post, very little of what’s gone to health actually is new money — last year’s allocation was brought forward to this year’s budget, with a dash of $25 million on top.

But this budget’s spending reflects a more general malaise in the provincial government when it comes to health care. As with many of the policies it pursues, all of the evidence should have pointed to a decidedly different direction in regard to the budget.

Take, for example, evidence about the social determinants of health, those factors that can prevent things like cardiovascular disease and Type 2 diabetes, the latter of which is now described as an epidemic. These social determinants play a greater role in preventing disease than biomedical or lifestyle behaviour modification. A 2006 paper by Dennis Raphael identified 11 key social determinants of health: Aboriginal status, early life, education, employment and working conditions, food security, health care services, housing, income and its distribution, social safety net, social exclusion, and unemployment and employment security.

David Gordon’s sensible Ten Tips for Better Health put these in language we can all understand:

THE SOCIAL DETERMINANTS TEN TIPS FOR BETTER HEALTH

1. Don’t be poor. If you can, stop. If you can’t, try not to be poor for long.
2. Don’t have poor parents.
3. Own a car.
4. Don’t work in a stressful, low paid manual job.
5. Don’t live in damp, low quality housing.
6. Be able to afford to go on a foreign holiday and sunbathe.
7. Practice not losing your job and don’t become unemployed.
8. Take up all benefits you are entitled to, if you are unemployed, retired or sick or disabled.
9. Don’t live next to a busy major road or near a polluting factory.
10. Learn how to fill in the complex housing benefit/ asylum application forms before you become homeless and destitute.

Gordon, D., Posting (April, 1999) Spirit of 1848 listserv.

The increase in the incidence of Type 2 diabetes in Canada — 69% between 1997 and 2007 — can be linked to the rising number of people who aren’t able to act on these good suggestions. People who are poor are not only more likely to get Type 2 diabetes than their wealthier counterparts, but they are also more likely to hospitalized with complications related to the disease. This has been shown to be the case by Canadian and international researchers, including those associated with the World Health Organization and the Pan-American Health Organization.

According to a 2007 study published by Ontario’s Institute for Clinical Evaluative Sciences,for example, Toronto neighbourhoods where poor people live also have much higher rates of Type 2 diabetes and obesity. “Areas with lower socioeconomic status (SES),” the report said, “had…higher diabetes rates. These neighbourhoods clustered in the northwest and eastern parts of the city. Conversely, neighbourhoods with a more advantaged SES profile tended to be clustered in the centre of the city and had lower diabetes rates.” In January 2006, the New York Times reported that in East Harlem, where incomes average $20,000 a year and the poverty rate is 38.2%, between 16 and 20 percent of residents have Type 2 diabetes. That compares to the Upper East Side, where the average income is $75,000, the poverty rate is about 6.2% and an estimated 1% of residents have the chronic condition. Like Clyde Hertzman (UBC) and others in Canada and internationally, Raphael has argued that the most important policy options for governments are ones aimed at reducing poverty. Poverty reduction is not just a human right, not just a moral and ethical obligation of government, but strategies to achieve that goal would reduce the strain on our health care system as well.

Does the budget have anything to do with the growing mountain of evidence about what people need to be healthy?

Hmmm… let’s see. The $8 minimum wage is frozen at $8 an hour, well below the “living wage” of $16.74 an hour. Wages in the public sector are to be frozen for the next couple of years and there is no strategy to raise wages in the private sector. The budget projects unemployment at 6.2% but by last month it had already reached 6.1% and the “up to” 88,000 new jobs it projects are clearly inadequate. The social safety net? The only reference to safety that I could find was in reference to policing and roads. Housing? The housing budget has been cut and market housing prices are 55% above the average family’s ability to pay. Those on income assistance will see an increase of one-half of one percent, while the ministry of Children & Families got only a one percent boost in the budget.

I would say the budget failed to ensure that the determinants of health are more accessible in these looming tough times — a 100% percent failure rate, in fact. But don’t worry! While the budget fails on health determinants side, the government has engaged the pharmaceutical industry in public-private partnerships to deliver chronic disease management (CDM) programs. So British Columbians with Type 2 diabetes and other chronic conditions — if they can afford to do so — will be able to dip in to the medicine chest to heal the wounds inflicted by this budget.