Tuesday is BC Budget day. As the province stares down the largest deficit in its history, and braces for two more years of painful spending cuts, many British Columbians are wondering if it really had to be this way.
Could much of this hardship and red ink have been avoided? Could the school, hospital and child care closures have been prevented? Did the welfare cuts have to happen? Could we have done all this and still balance the budget by 2004/05?
Sound like wishful thinking? Not at all.
The Canadian Centre for Policy Alternatives decided to find out exactly what would have happened if the government had chosen a different path. We “modeled” an alternative budget scenario in our annual BC Solutions Budget (released earlier this month)-which we called “the path not taken”-and got some very interesting results.
In “the path not taken,” we asked what the BC Budget would look like if no tax cuts had been introduced in 2001, if there’d been no regressive tax increases (such as last year’s 50% hike in MSP premiums), no $1.5 billion in spending cuts over the 2002 to 2004 period, and modest increases in the health and education budgets to maintain service levels.
The answer? Had BC followed the “path not taken,” the province would have had much smaller deficits between 2001 and 2003, and a surplus of $47 million by 2004/05-in line with the government’s own timetable for balancing the budget. This alternative scenario shows that even with reasonable increases in expenditures, the deficit would have been gradually reduced, as the economy slowly recovered from the 2001 downturn. And over the 2001-2003 period, “the path not taken” scenario saves more than $3 billion being added to the provincial debt.
So how does this square with the government’s claim that a “structural deficit” left them no choice but to dramatically cut spending? It doesn’t. Public services had not reached “unsustainable” levels in 2001-we were simply at a downturn in the business cycle. Regardless of what party was in government in 2001, there was going to be a deficit.
But the tax and spending cuts actually made the situation worse. As an economic strategy, the tax cuts have been a failure. They have resulted in a massive loss of revenue, record deficits, and they have widened the income gap, both between rich and poor, and between the Lower Mainland and rural BC. And to boot, they are not accomplishing what they were supposed to do: stimulate so much economic growth that they would pay for themselves.
In spite of the tax cuts, BC went into recession in 2001 for the first time since 1982 (and was the only province in Canada to experience negative economic growth). BC will record slow growth in 2002, but will again trail the rest of the country. Even the government’s own forecasts suggest that economic growth is not anticipated to boom in the short- to medium-term, nor is long-term investment, which the tax cuts were also supposed to stimulate.
Tax cuts have turned out to be the real source of a “structural deficit,” blowing a big hole in government revenues, and leading to spending cuts that are causing hardship and increases in other, regressive taxes. In spite of all the rhetoric about “making BC open for business,” tax and spending cuts were more of a leap of faith than a compelling economic plan for BC’s future.
The Solutions Budget shows that none of the painful spending cuts had to happen. It is not too late for the government to reconsider the program of cuts slated for the next two years. Budgets are always about choices, values and priorities. We can afford to take better care of our province, and of each other. It’s time for the government to thoughtfully and compassionately rethink its plan for BC.
Seth Klein is BC Director of the Canadian Centre for Policy Alternatives.
