2009 budget deficit likely to be in $1-$2 billion range – before needed stimulus plan

BC Budget must do heavy lifting on jobs, protecting vulnerable in coming recession
February 11, 2009

(Vancouver) Next week’s provincial budget should assume BC will be in a recession in 2009 and perhaps longer – and include an aggressive stimulus plan capable of reducing the length and severity of the downturn. That’s the central recommendation in BC Budget Reality Check 2009: Planning for a Recession, released today by the Canadian Centre for Policy Alternatives.

“With grim economic numbers piling up, the danger is in the government doing too little,” says Marc Lee, CCPA senior economist. “All major economic indicators are pointing in the wrong direction. If the provincial government fails to prepare for a rough ride, we risk a deeper and longer recession.”

BC Budget Reality Check 2009 models three possible budget scenarios for government finances: baseline (using the latest Economic Forecast Council projections), minor recession, and major recession:

  • Even with no changes in tax or spending policies, a minor recession would mean “status quo” deficits of approximately $0.8 billion in 2009/10 and $1.3 billion in 2010/11.
  • A major recession would push deficits to approximately $1.9 billion in 2009/10 and $2.7 billion in 2010/11.
  • These are just the cyclical deficits that arise from the drop in revenues due to a recession and the upward pressures on expenditures (notably, social assistance). A stimulus package, as recommended by most economists, would require an even larger increase in BC's debt.

“Debate now hinges on what form the stimulus should take,” says CCPA BC Director Seth Klein. “The focus should be on protecting and enhancing the incomes of the most vulnerable British Columbians –– the people who don’t have the luxury of saving, who spend everything they have in our local communities. That’s why a poverty reduction plan should figure centrally in an effective action plan.”

“The government should also make significant investments in social programs and public services -- not just capital projects -- and stay away from broad-based tax cuts, which have a much smaler bang-for-the-buck as a stimulus measure,” says CCPA economist Iglika Ivanova.

To arrange an interview, call Shannon Daub at 604-801-5121 x226. BC Budget Reality Check 2009: Planning for a Recession is available at www.policyalternatives.ca. Or see the CCPA’s provincial election blog: http://bcelection.policyalternatives.ca