BC's "structural deficit" a manufactured crisis to justify cutbacks

February 1, 2002

"Tough decisions must be made," declared the BC government in this week's Throne Speech. "It won't be easy and it won't be without some hardship," but spending cuts are "necessary."

The central message track coming from Victoria these days is: yes, this is going to hurt, but we have no choice. The message is nonsense--good public policy is all about choices. There is nothing inevitable about the government's reckless spending cuts

The planned cuts to government programs and jobs will depress the provincial economy, and will undermine our collective ability to care for one another and to protect the environment. On February 7, the Canadian Centre for Policy Alternatives released an open letter to the Premier signed by forty BC economists, who called on the government to rethink the spending and welfare cuts, scale back the tax cuts, and push back the deadline for balancing the budget. This week, the Centre released a "Solutions Budget for BC" outlining a more hopeful and realistic plan that would spare the province these destructive cutbacks.

Premier Campbell and Finance Minister Collins have continually stated that a $3.8 billion "structural deficit" (prior to last summer's $2.1 billion tax cuts) leaves them no choice but to cut spending. This claim is a fabrication--a manufactured "crisis" to justify the spending cuts.

First, let's look at what a "structural deficit" actually means. A structural deficit exists when government expenditures and revenues are such that, no matter where we are in the business cycle, the budget cannot be balanced. Yet, BC balanced its budget in 1999/2000 and ran a $1.3 billion surplus in 2000/01. Any "structural deficits" must be laid entirely at the feet of the government's massive tax cuts last summer.

In all likelihood, BC is facing a "cyclical" deficit (in addition to the deficit resulting from the tax cuts), due to the fact that we are in a severe economic slowdown (and likely a recession), and due to the impact of the Softwood Lumber Dispute. But as we emerge from the downturn, revenues will pick up and the "cyclical" deficit will disappear.

The government defends its claim of a structural deficit by citing last summer's report from the Campbell-appointed Fiscal Review Panel (FRP). However, as our Centre wrote at the time, the FRP's deficit forecasts were based on a number of hyper-conservative assumptions. Among other things, approximately one third of the so-called structural deficit ($1.25 billion) is actually a "forecast allowance"--a huge revenue cushion that was simply injected into the FRP's projections as an unprecedented dollop of caution.

Moreover, the spending cuts the government announced on January 17 will, at best, merely recoup the lost revenue due to the tax cuts. Thus, for the government to claim that the spending cuts were needed to deal with a pre-tax cut structural deficit is highly disingenuous.

In many respects, we are witnessing a dramatic transfer of income from the poor (who will disproportionately carry the burden of the program cuts) to the wealthy (who disproportionately benefit from the tax cuts).

The notion that we cannot afford our public programs----that BC has been living beyond its means and has "the most expensive social programs in Canada" (as the government keeps repeating)--is simply untrue. BC's public sector is already the second smallest in Canada (measured as the number of public sector employees per capita). BC's government spending relative to GDP (the size of its economy) is already the third lowest in Canada.

The government's press release on "Black Thursday" states: "Government spending has increased far beyond our rate of economic growth over the past decade and is simply not sustainable." Again, this is not true. BC Government spending relative to GDP peaked in 1991 and has since declined. Likewise, program spending per capita peaked in 1991. Outside health and education, program spending was already significantly cut under the NDP.

More importantly, BC is a very rich province. As our Centre noted in an analysis published in November, BC is home to the highest average personal wealth in Canada. We can afford to take better care of one another than we do. It comes down to a question of political choices. Nothing is forcing the government to savage our public programs.

Seth Klein is Director of the BC Office of the Canadian Centre for Policy Alternatives.