Today’s throne speech suggests that the BC government has finally recognized the severity of the recession and the hardship it’s causing to families across the province. Unfortunately, when it comes to policy implications or what to do about the recession, the government seems to have it all backwards. Instead of presenting an ambitious stimulus plan to speed up economic recovery and help those hardest hit by the recession, the throne speech makes much of the need for government to “live within its means” and includes alarmist warning about the dangers of “borrow[ing] our way into oblivion” and the supposed great burdens to the next generation that would result from deficit spending today.
Let me set the record straight: temporary, recession-driven deficits do not threaten the longer-term health of provincial finances.
The deficit that the province now faces is a direct result of the recession; it’s what economists call a cyclical deficit. As economic conditions deteriorate, lower personal incomes and business profits lower tax revenues, while government spending increases to meet the growing need for welfare and other transfers to low-income people, creating a budget deficit. However, these deficits will all but disappear when BC recovers from the recession as tax revenues grow (boosted by higher incomes and profits), while spending on social supports declines (as fewer people need them).
Yes, the government should live within its means over the long term, but there is absolutely no reason to do so every single year. In fact, when “living within its means” requires cutting spending on important programs and services during a recession, it is not just unnecessary but downright harmful. It penalizes the families most affected by the recession, who will have fewer supports to rely on, and it takes money out of the economy precisely at the wrong time.
With the second lowest debt-to-GDP ratio among Canadian provinces, BC is in a good position to run even large deficits over the next few years. The unacceptably high child poverty rate in BC presents a far bigger danger to our children and grandchildren than several years of cyclical deficits ever could.
vantown // Aug 26, 2009 at 3:59 pm
Even the Harper government has accepted that massive spending cuts are a bad idea in a recession. I’d rather we not leave our kids a province with even more poverty and homelessness…or one that abandons seniors…
Kim Poirier // Aug 27, 2009 at 9:30 am
Congratulations on your new blog. I will be bookmarking it. Gordon Campbell and his caucus appear to be truly evil people who feel that the workforce is both stupid and expendable. Hopefully we can wake enough people up to make them realize that it is the current government who are stupid and expendable.
Ali T // Aug 28, 2009 at 9:18 am
I believe the announcement of an all day kindergarten is a step in the right direction however I am fearful of how these changes will be carried out. Will the province simply increase the kindergarten class sizes? We definitely don’t want to see 40 5 year old children in the same class. When will the province understand the essential need for universal childcare?
Steve // Aug 29, 2009 at 9:35 pm
Right on Iglika. The BC government seems to be an outlier in the Western world. All other governments (including even the Harper and Alberta governments) seem prepared to let these deficits run their course, given the serious downturn. But the Campbell government alone is insisting on reigning spending in. We’ll see to what extent on Budget day next Tuesday.