But that’s the U.S. right? Surely, our reality is different, eh? As the occupy movement comes to Canada in the coming week, we don’t really have reason to copy these American trouble-makers, do we?

Think again.

While inequality in Canada is not as great as in the U.S., in recent years it has been growing faster here (as noted in a recent report from the Conference Board of Canada).

As the CCPA documented in a report earlier this year on The Rise of Canada’s Richest 1%, “the 246,000 privileged few who rank among the country’s richest 1% took almost a third (32%) of all growth in incomes between 1997 and 2007.”

And here in British Columbia, the richest 1% have been doing remarkably well.

Last June, the CCPA-BC released a report on the erosion of tax fairness in BC. We found that BC’s personal tax system (including income tax, sales taxes, property taxes, carbon taxes and MSP premiums) has become out-and-out regressive –– amazingly, the richest 1% of BC households pay a lower overall tax rate than others. Meaning, in today’s BC, as a share of one’s income, the richer you are the lower your overall tax rate.

In fact, provincial income tax cuts introduced since 2001 delivered, on average, a whopping $41,000 to the top 1% of BC households.

How could the value of ten years of tax cuts be so great for the richest 1%? The answer: tax cuts are worth so much because the richest 1% have been making out so fantastically well. As of 2010, the average income of the richest 1% of BC households had reached a staggering $820,000 (that’s in one year!).

And the top 1% saw huge gains over ten years. Back in 2000, their average household income was $602,000. So in ten years, their income rose by a fantastic 36% (double the inflation rate of 18% during that time). With the market producing so much gains for the wealthiest among us, why on earth did the government feel compelled to pile on with tax cuts for those who need it least?

Quite a contrast with the rest of us: real median incomes were flat during that period.

If we are serious about addressing rising inequality, we need to increase taxes on the wealthiest British Columbians. BC’s upper income tax brackets need to be increased, and we should bring in a new high income tax bracket or two (hey, if even Warren Buffet can advocate for that in the US, we can and should be pursuing it here). Longer term, we need a Fair Tax Commission – a chance to have a full public conversation about how much money we need to pay for what we want to provide collectively, and how to raise that money in a fair and equitable manner.

Hochstein is president of the Independent Contractors and Business Association of BC – representing non union construction corporations. He is the public face of the hard right in British Columbia and has a long history attacking unions. He opposed raising the minimum wage and supports, through the HST, shifting taxes off corporations and on to working people.

While the views in his op-ed come as no surprise it is worth having a look at their validity and perhaps speculating on the makeup of the growing chorus supporting his views.

Hochstein complains that local government taxes have been rising faster than the cost of living. He is not the first to make this complaint. The Canadian Federation of Independent Business makes this complaint so regularly that last May the Union of BC Municipalities (UBCM) was finally moved to respond.

The UBCM acknowledged that local taxes had gone up faster than the Consumer Price Index. They then showed the reasons why. The fastest areas of growth were protective services, parks and recreation. These are areas where the public has demanded more services from local governments. Whether you agree with it or not, the demand from the public for more police on the streets is almost unlimited. As a percentage of total costs, general government expenditures – the cost of running local governments – has actually declined.

 Downloading of costs from the federal and provincial governments to municipalities had also raised the cost of delivering local services. New environmental mandates have been a big part of this. As well in many provinces municipalities get more in provincial grants than BC municipalities do.

One other thing is worth noting here. Based on the most recent Stats Can figures available, local taxation in BC is significantly lower than the national average.

Hochstein’s next complaint is twofold. First, public workers are paid better than private sector work, and second, municipal wages went up during the recession.

Both accusations are correct. How does this come to be? One of the most important reasons why average wages are higher in the public sector is that there is less discrimination in wages.

CLC Economist Andrew Jackson has published some excellent work on this.  He quotes one report saying:

While now somewhat dated, the best independent Canadian empirical studies show that a modest public sector pay advantage is mainly the product of higher pay for women in lower paid occupations, offset by lower pay for mainly male workers in managerial jobs.

He cites another study finding:

Based on the 2006 census data, this study shows that visible minorities and Whites receive similar pay for similar jobs in the public sector. By contrast, in the private sector visible minority men earn significantly less than observationally comparable Whites.

Discrimination against women and minorities does not appear to rank highly in Hochstein’s priorities.

And yes, because of long term contracts signed prior to the Olympics, wages for government workers did go up faster than inflation during the recession. But over the last ten years they have gone up more slowly than those for unionized private sector workers.

Now Hochstein is no fool. He is aware of all these things yet he continues to make arguments that do not stand up to scrutiny.

In this he is not alone. These are the same arguments made by the Canadian Federation of Independent Business, the Fraser Institute and the many Fraser Institute clones such as the Frontier Centre.

And these are exactly the same arguments we are hearing by the Tea Party Republicans in the United States and the billionaires who back them. Their goal is not just the reduction of taxes; it is the undermining of progressive forces that oppose their view of the world. For them attacking unions is not just about driving wages down, though that is important to them, it is about undermining one of the only forces left today pushing a progressive agenda.

Make no mistake, Philip Hochstein and the people like him look admiringly to Governor Scott Walker and his agenda for Wisconsin. Their policy agenda is low wages and high taxes for workers and a monopoly on power for corporations.

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.

But when we talk taxes, less attention has been paid to the great deal that B.C. property taxpayers – particularly businesses –  are getting at the municipal level.

“Great deal?”. That certainly isn’t the message in the steady drum beat from mill owners like Catalyst Paper or  business lobbyists for the so-called “Fair Tax Coalition” in Vancouver. To hear them tell it, both municipal property tax levels and municipal spending are out of control in B.C.. But the facts tell a different story.

Two significant studies were prepared in May of 2010, which are both full of information that help explain what’s really going on.

Let’s start in Vancouver. On May 12, 2010, well known global advisory firm KPMG released their annual guide to international business costs as well as a special report on taxes. That report compared major cities around the world, each with populations of more than 2 million people. Their finding? Vancouver has the lowest business tax costs of 41 international cities! That means businesses in Vancouver have lower tax costs than businesses in New York, London, Houston, Tokyo, Los Angeles, Berlin and many more. So if business taxes in Vancouver are that low, how come the City of Vancouver is continuing  the big multi-year tax shift begun by the NPA, steadily increasing residential property taxes and cutting programs, while at the same time freezing commercial and industrial tax levels? Beats me.

The other interesting finding of the KPMG study is that Canada has the second lowest business tax costs out of ten countries they studied. Only Mexico has lower business tax costs. Countries as varied as the U.S., the U.K., Japan and Australia all have higher tax costs for business than Canada.

What about municipal spending and taxes in the rest of B.C.?

The other important study prepared last May was by Dr. Harry Kitchen of Trent University, a widely respected expert on Canadian municipal tax issues. He was asked by Metro Vancouver to study principles and best practices for financing municipal services in the Metro Vancouver region.

The report is full of important data. Amongst other things, Dr. Kitchen found:

• municipal spending per capita in British Columbia is the lowest of all provinces
• per capita municipal property taxes in B.C. are well below the tax levels in the other big provinces of Alberta, Quebec and Ontario and are lower than the Canadian average
• overall municipal revenues in B.C. are lower per capita than the other big provinces of Alberta, Quebec and Ontario
• over the decade from 1998 to 2008, municipal revenue in B.C. rose only marginally ie. by only .1% of GDP

So it isn’t only business property taxes which are low. We’re all getting a great deal at the municipal level. B.C. local governments use those comparatively low property taxes to provide many of the core services citizens expect – everything from fire and police services, to clean water, healthy sanitation, garbage and recycling collection, transit, urban planning and much more.

But year after year,  B.C. municipalities are under unrelenting pressure to reduce property taxes. The most egregious example is the industrial property tax revolt led by Catalyst Paper. This year, Catalyst has decided to pick on the small District of North Cowichan. Once again, the company has decided to pay only about one third of the legally assessed taxes it owes. Catalyst is dragging small North Cowichan before the Supreme Court of Canada to defend its tax rates, even though Catalyst lost its earlier court actions at the B.C. Supreme Court and the B.C. Court of Appeal. In Powell River, the town is facing community opposition to a deal with Catalyst in which property taxes will be capped in exchange for an annual fee to pay for privatized treatment of the town’s sewage and wastewater . In Campbell River, the Elk Falls mill was permanently closed, even though the municipality has been steadily reducing the portion of municipal taxes paid by Catalyst, reducing it from 35% of municipal revenue to 25% last year. In Port Alberni, pressure from Catalyst prompted the town to increase residential property tax rates by 23% in 2009.

None of this is necessary or justified. As noted at this year’s UBCM Convention in Whistler, there has been no independent study that shows property taxes are actually damaging business. That’s probably because they’re amongst the lowest in Canada and internationally.

British Columbians need to recognise the great deal we’re getting for the property taxes we pay. And we need to look at what other provinces are doing to diversify municipal revenue so communities are not so dependent on property taxes. In Saskatchewan, municipalities receive one percentage point of the provincial sales tax. In Ontario, municipalities have options like a personal vehicle levy, municipal land transfer taxes and the authority to charge sales tax on alcohol.

But first, we need to look at the facts and then put a stop to this big municipal tax shift.

Last Friday the Globe and Mail published an article in their business section outlining how Los Angeles area apartment owners in the mid 1970s financed a campaign against municipal taxes.  That was the infamous Proposition 13 which rolled back and capped residential and commercial property taxes.  It required local voters to approve all municipal tax increases. 

Since that time the State of California took over the funding of schools from property taxation.  Like many other states California is also barred by legislation from running an operating deficit.

The net result?  California is looking at a $19 billion funding shortfall this year and a $37 billion shortfall next year.  California’s schools were once considered the best in the country but are now dead last in student/teacher ratios.  The State may have to seek a bail out from the federal government.

You can read the article here.

http://www.theglobeandmail.com/report-on-business/economy/california-on-verge-of-system-failure/article1609891/

California was once a dynamic leader in the United States famous for its education system.  Now it has become the Greece of the American states.  Maybe those Los Angeles Landlords, and Maureen Bader, should be careful what they wish for.

According to the Fraser Institute’s recent report on the average Canadian family’s tax bill, the average family earned $69,175 in 2009 and paid $9,341 in personal income tax (see table 1 in their report). In other words, income tax took up only 13.5% of the average family income, pretty close to what Seth reported he paid this year.

Yes, personal income tax is not the only tax people pay. However, Canadians need to know that our tax system has changed considerably over the last fifteen years. Income tax became a lot smaller as a share of the total tax revenue collected by the government, while other taxes, such as consumption tax, now make up more of the tax revenue.

The bad news is that these indirect taxes are often regressive because they take up a higher share of incomes for lower-income households than from higher-income households.

In fact, personal income tax is the most progressive tax we have — the tax rate grows with income (according to income brackets) so people earning higher incomes typically pay a larger share of their incomes in tax.

Contrast this with flat taxes, for example, like BC’s MSP premiums. Everyone pays the same amount regardless of whether they earn $40,000 or $90,000 in a year, which is clearly cheaper for the higher earner than the lower earner.

Even taxes that seem proportional at first sight, like sales taxes which charge people the same percentage rate on their purchases, often end up costing more to those who earn less. Lower income people cannot afford to save much and they end up spending almost all of their incomes on daily purchases that are taxed, while higher income people save a much larger fraction of their incomes (and end up not being taxed on it).

These recent tax changes have had serious distributional impacts that cannot be captured by looking only at the average tax bill.

Studies that look beyond the average and consider the distribution of recent tax cuts by family income find that the biggest beneficiaries of tax cuts over the past 15 years have been the highest income earners. In 2005, taxpayers in the top 1% of the income ladder paid a smaller share of their income on taxes than the bottom 10%, according to a 2007 CCPA study by Marc Lee — even though the richest 1% are clearly in a better position to contribute to the greater good.

In short, recent tax system changes have eroded tax fairness in Canada.

Looking at the size of the average tax bill is the first step, but what matters more for the economic security of Canadian families is the kind of taxes that make up that tax bill and how equitable they are.

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.

The after-tax dollars for someone at minimum wage in this province is quite good compared to some of the other provinces that have a higher minimum wage.

This isn’t the first time that the government has used the low taxes argument to dismiss calls for higher minimum wages, but has anybody bothered to check whether their logic is correct? Do BC’s low taxes make up for the low minimum wages we pay?

There are reasons to be skeptical of the Minister’s assertions: previous CCPA research has documented that BC’s personal income tax cuts disproportionately benefited higher income taxpayers.

A back of the envelope calculation to check how much tax would a full-time, full-year minimum wage worker owe in each province reveals that minimum wage workers in other provinces have more money left in their pocket after paying provincial taxes than a BC minimum wage worker would be able to earn in one working year (with the possible exception of PEI).

To make this graph, I used the provincial personal income tax comparison published in the 2010 BC Budget (appendix table A3). The income levels compared start at $10,000 and go up in $10,000 increments, so I wasn’t able to get at the tax level for the exact minimum wage incomes. I used the tax payable at income of $20,000, which is more than what the minimum wage worker would owe in all provinces except Ontario (because they earn less than $20,000). Even at these overestimated tax levels, the extra income that higher minimum wages bring more than offsets the extra taxes owing, leaving workers better off (see table).

BC may be home of the lowest tax rates, but it’s also home of the highest after-tax poverty rate in the country – 11.1% of British Columbians lived on after-tax incomes below Statistics Canada’s low income cut off rate in 2007.

Minister Coell, take note: even if you don’t tax low wage workers at all, they only earn so much. There are many low wage workers in BC who would be much better off if they could earn higher wages even if they had to pay slightly higher taxes on them.

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.

What is surprising, however, is the lack of substantive discussion over the relative merits of each party’s proposed economic recovery policy, as stated in their platforms. Instead, we are repeatedly told that responsible economic stewardship involves keeping the business sector happy and anything that goes against the interest of “employers” (such as increasing the minimum wage, for example) is bad policy. The Liberals’ tactic seems to be to market themselves as friends of businesses while portraying the NDP as the employers’ enemy.

This tactic was used in the televised leaders’ debate last weekend, when Mr Campbell remarked:

“When you’re talking about the economy, I think it’s fair to ask the question: Why is there not one major employer group in British Columbia – in mining, in tourism, in forestry – that actually supports the New Democrats’ policies?”

Like most other over-simplified messages, this one is also incorrect. Good economic policy does not mean pandering to business-based interest groups. Yes, lowering business taxes and relaxing workers’ rights makes it easier for firms to reap higher profits, which encourages them to set up locally, creating jobs for the local population and increasing economic growth. However, economic growth alone is not a guarantee that everyone (or even most people) would benefit from the increased prosperity. In BC, we’ve seen this clearly over the last 25 years, when economic growth was strong yet poverty remained largely unchanged and income inequality increased substantially.

Where does this leave us? We need to keep in mind that the whole point of having a strong economy is to benefit society by improving the standard of living of people. We cannot continue to ignore our social and environmental problems in the name of having a strong economy. We need to balance the need of businesses to keep their costs low with the needs of workers to earn enough so that they are able to afford the basics like housing, child care, education to make sure we’re all set on the right path in life.

This does not mean that we have to completely ignore the interests of the business sector. Policy-making in a recession involves some trade offs for sure, but it’s not the all-or-nothing proposition that the BC Liberals are trying to make it.

US President Obama summed it up well on March 10th, when he revealed the first details of his education plan (quoted widely in the media, for example here):

I know there are some who believe we can only handle one challenge at a time [but] we don’t have the luxury of choosing between getting our economy moving now and rebuilding it over the long term.

It’s time for our policy-makers to recognize that tax dollars are not simply a drain of resources from individuals or businesses but can and should be used for productive investments that would make the economy stronger and more sustainable in the future. These investments include building up physical infrastructure, as the current government is doing, but they also include making this infrastructure “green,” which they are not doing (as Marc explains here), as well as building up the social infrastructure we require to ensure that our children are well-educated and prepared to face the challenges of tomorrow.

The current US Administration is doing it. Let’s make sure that those we elect next week do the same.

But there is no reason to believe that the only thing the NDP would do is cap and trade. There are other ways to reduce GHG emissions besides implementing cap and trade, even without a carbon tax. There are, for example, additional investments that could be made in transit and energy efficient technologies, reversals of policies that subsidize the development of new mines and other energy intensive industry, additional regulations governing energy use. The NDP would undoubtedly pursue at least some of those alternatives to help offset whatever impacts the elimination of the carbon tax would have. They may not be as economically efficient as a carbon tax, but nor would they be so devastating as Jaccard would have us believe.

But as disappointing as Jaccard’s crusade against the NDP was, John Robinson and co’s op-ed in the Vancouver Sun this past weekend (excoriating the NDP and lavishing praise on the Liberal’s carbon tax) was almost too much to bear. In their unabashed effort to pick political sides, they completely missed the key policy issues that need to be addressed.

The Liberal’s tax, as currently proposed, is too modest to have a significant effort on carbon emissions. If the tax is retained and is to form a central part of the emissions reduction plan, we need to consider how high the tax proponents will demand that it go – more to the point, how high the politicians will let it go. It would be nice to discuss, and for the proponents and politicians to be transparent, on where this is going.

Also, the carbon tax is technically flawed. The objective of the tax is to achieve specified target reductions. But reductions in gasoline and other fossil fuel use will depend on their total price, not simply the tax component. The size of the tax that is needed with crude oil at $50/ barrel is a lot more than at $150. The question is: how do the proponents think this problem can or should be fixed – how are they proposing that the tax be linked to the price of crude oil and other fossil fuels.

The most troubling policy issue, and one the proponents are curiously silent on, is the notion that carbon taxes should be revenue neutral. Since the tax is levied on carbon emissions precisely because of the climate change and other costs those emissions may have, surely the revenues from the tax should be dedicated at least in part to offset and mitigation measures.

It is almost certainly the case that investing carbon tax revenues in carbon-reducing measures, like additional transit, or climate change mitigation measures, like additional flood control or crisis preparedness, would be far more significant than the behavioural effect of the tax itself. The use of gasoline and most other fossil fuels is what economists like to describe as inelastic (relatively unresponsive) to price. A modest increase in the price will not have much effect on consumption.

Of course revenue neutrality provides a nice political spin. But isn’t the point to get away from political spin. The proponents of the tax are adamant we must meet our reduction targets. We won’t get there without public investment; and we won’t get the public investment if new sources of revenue are not available for that purpose. If it isn’t revenues from a carbon tax, it would be nice to know where the new sources of revenue will come from.

The issue is not simply to tax or not to tax. The issue is how to tax if that is part of the plan, and what else must accompany it. It’s the package, not one component, and currently a small one at that, that needs to be addressed.

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.

Yet, on the front page of the Vancouver Sun, Miro Cernetig opines that this is wonderful, and makes a sneering comparison to Gregor Robertson, arguing that the economic policies of the new Vancouver mayor amount to chicken coops in the backyard and organic veggies on the city hall lawn. Cernetig goes on to quote an anonymous provincial bureaucrat saying that “Vancouver has no economic plan”, which is ridiculous given the source – the provincial government is still officially in denial about the deepening economic crisis, and its strategy amounts to building a $5 billion super-bridge across the Fraser (officially, $3.3 million but no one believes that target will be met) and waiting for the Olympics.

Besides, the City of Vancouver has been preoccupied getting the house ready for those very Olympics, and athletes’ rooms are in a shambles. And what about eliminating homelessness? That is good for business, is it not? Cernetig’s comments are more than a cheap shot – he endorses a race to the bottom that will have the impact of further reducing municipal services so that businesses can get more tax cuts.

Cernetig points to a Microsoft office that ended up in Richmond not Vancouver (this was in 2007) as further evidence for his thesis. But does this really matter? From Microsoft’s perspective they see Vancouver as Metro not the City. And why shouldn’t Richmond get more corporate offices, as it needs greater economic diversity?

This us-versus-them frame is unfortunate. With an election coming in just two months, the real topic of discussion should be about the future of Metro Vancouver and what can be done to create greater harmony among cities, not more division. For example, most cities in Metro have “economic development” offices, such as the Vancouver Economic Development Commission, specifically tasked with finding locations for businesses that want to set up shop here (this is a very narrow conception of “economic development” but that is another blog post). What we need is a Metro-wide organization that does this function, so that individual cities are not spending our tax dollars competing against each other.

Moreover, citizens of Metro Vancouver need more say over what happens in their individual cities and in the region. The trend has been in the opposite direction, with the somewhat-democratic Translink turned into a totally undemocratic board of directors by the provincial government. Cities, and perhaps the region as a whole, need more powers of taxation so that they can address pressing issues without being reliant on property taxes. And they are very limited in terms of how they act to fight the recession.

We need some public debate, even if just among the Liberals and NDP, about a vision for the region. If we are left with beggar-thy-neighbour politics, our reputation as one of the world’s most liveable cities will be tarnished before long.

“I want you to think about one thing. Think about the opening ceremonies of the Games next Feb. 12th. There will be lots of government officials. I expect the prime minister will be there. I expect the mayor of Vancouver will be there. I expect the premier of British Columbia will be there. Visualize those opening ceremonies with Premier Carole James.”

This riff only makes sense in the context of a long-running refrain that NDP government can only play the economic blues. In the weeks to come, we will be reminded about the bad old days when the NDP were last in power. But now that we can roughly compare two terms of the NDP with two terms of the Liberals, we find that there is little truth to the smear that the NDP have the cooties.

The average rate of economic (real GDP) growth under the Liberals has been 3.1%, whereas the so-called “lost decade” under the NDP saw average growth that was only slightly lower, at 2.8 %. But if we add in estimates for 2008 and 2009 (using latest projections from the private sector, which are too rosy in my opinion, and better than what the government itself is projecting in the budget), the average growth rate under Liberal rule falls to 2.6%, LESS than under the NDP.

In terms of family incomes, average after-tax income in BC (constant dollars) was $46,340 in 1991. By 2001 it rose to $50,248, an increase of 8.4%. And by 2006 (last year for which we have data) it grew to $55,583, an increase of 10.6%. This masks some important differences in distribution, with average incomes further down the income distribution lower than they were in the early 1990s, while incomes up higher soared much more than average.

How about employment? During the “lost decade” of 1991 and 2001, BC employment grew by 344,100, an increase of 22%. Between 2001 and 2008, BC employment grew by 392,700, an increase of 20%. However, BC also just lost 35,000 jobs in January, and the prospects for rising unemployment in 2009 are severe. By the time the election occurs, it could well be the case that more jobs were created under the watch of the NDP than under the Liberals.

In terms of the unemployment rate, it was about 10% when the NDP came to power, and fell to 6.9% in May 2001. In the following boom years, the unemployment rate fell to record lows of around 4%, but at last glance (January) it was 6.1% and rising. By the time of the election I would not be surprised if the unemployment rate was higher than when the Liberals first came to power.

My point here is not a partisan one – the NDP were far from perfect in office; they benefited from immigration to BC in record numbers; but also got sideswiped by the Asian crisis of 1998-99. Rather, it is to remind people that BC’s economic fortunes generally swing on decisions made outside our borders. Politicians will inevitably try to take claim credit when times are good, and just as quickly will shift blame onto others when times get bad. The BC Liberals have rode as astonishing wave of luck by coming to power in 2001, just as BC’s real estate boom got underway in the cities, and just as exports surged and commodity prices soared, taking with them the rest of the province.

The Thone Speech may claim that all new jobs in BC have arisen due to tax cuts implemented in 2001 and 2002, but the reality is that BC benefited from: low interest rates as determined by the Bank of Canada that launched a housing boom; an extra $3 billion per year in transfers from the federal government; huge growth in export demand from the US and Asia. At best the government can claim that the downturn of 2001 and 2002 was softened by its deficit-financed tax cuts, although even there so much of the gains went to the top earners in the province that it was a weak stimulus.

That the housing and commodity booms are now over, and BC is in a recession that is getting worse each week, points to structural weaknesses in BC’s economy that were not cured with a tax cut. Alas, the Premier is once again getting bit in the backside by his own penchant for populism, as BC’s fixed election date guarantees two and a half more months of bad economic news in the press in the lead-up to the next election. Given the choice, most politicians would have held a snap election last fall when plausible denial about the state of the economy was still possible (our Prime Minister even broke with his own fixed election date for this very reason).

But since that was not the call, expect a rugged and ugly election season, with a lot of finger-pointing and name-calling. That is a shame because now more than ever British Columbians need a real democratic debate about where the province is headed.