Tax cut experiment must be called off, CCPA tells BC's Finance Committee

Much of the economic boost of BC's tax cuts going to Ontario
October 9, 2001

(Vancouver) New analysis by the Canadian Centre for Policy Alternatives, presented today to the BC Legislature's Standing Committee on Finance and Government Services, indicates proposed spending cuts will slow the provincial economy and increase unemployment.

In its budget consultation submission, the CCPA called on the provincial government to rethink its fiscal strategy. "The changed global circumstances and economic downturn require a fundamental re-evaluation of the tax cuts," said the CCPA's BC director Seth Klein. "Now is the worst possible time for government to undertake radical spending cuts."

The CCPA submission features an economic model (provided to the Centre by the Ottawa-based forecasting firm Informetrica), used to analyze the impact of various tax and spending cuts.

"The model indicates that the tax cuts provide a modest economic stimulus," said CCPA economist Marc Lee. "However, it also shows that if most of the upper-income and corporate tax cuts are rolled-back and the same money is put into increased spending, economic growth and job creation is nearly double what the tax cuts alone provide."

"Our model indicates that if tax cuts are matched with spending cuts, as the government is now contemplating, the boost provided by the tax cut is cancelled out and then some--provincial GDP will fall by 0.73% and more than 14,000 jobs will be lost. That could spell the difference between an economic slowdown and a full-blown recession," said Lee.

"The problem with tax cuts is that much of the hoped-for economic boost 'leaks' out of the provincial economy," explained Klein. "For example, according to our calculations, approximately 31% of the economic stimulus from BC's recent tax cuts will actually go to Ontario. That's because Ontario has a much larger manufacturing sector, so many of the goods people buy in BC are imported from Ontario. We estimate that BC's recent tax cuts will create approximately 25,500 jobs, but only 8,823 will be in BC (about 35% of the total)."

"This new government has chosen to turn BC into a neo-liberal tax experiment," said Klein. "But they received no mandate, just four months into their term, to sat that the experiment isn't working and spending must be slashed. They promised tax cuts would pay for themselves and spending cuts would not be necessary. They must call the experiment off."