The false economy of Budget 2012

March 1, 2012

Last week’s provincial budget falsely claims that the proverbial cupboard is bare and that nothing can be done to meet any of BC’s most pressing social, economic and environmental challenges.

The budget’s stated priority is to balance the books in time for the next election, but the budget shortfall for this year is greatly overstated. The government has deliberately low-balled revenue forecasts and is hiding behind a convenient accounting artifact. Roughly half of the $2.5 billion projected deficit for 2011 is a product of accounting rules that require government to expense the full $1.6 billion HST transition funding repayment in the current year, despite the fact that BC negotiated a deal with the federal government to pay it in five $320 million payments over five years with no interest. The real budget shortfall is only $1.2 billion, half of which is fiscal padding in the form of a contingency fund allocation and a forecast allowance.

There’s very little in this budget on economic development even though BC’s economy is losing steam and expected to grow only sluggishly for at least the next few years. This is another lost opportunity to invest in green jobs and in the kind of green physical infrastructure that will ensure that BC can meet its climate commitments, and boldly tackle climate change. Relying on mining and resource extraction to prop up our economy is an increasingly risky strategy in a slowing global economy, and one that endangers our wellbeing and environment in the name of short-term profits.  

Instead of providing real assistance for families struggling to make ends meet in this slow economy, the budget offers a few token tax credit announcements. The new children's fitness and arts tax credit, for example, tops out at $50 per child, and that’s only after parents spend $1,000 or more on eligible fees and only if they owe income taxes, since the credit is non-refundable. Families struggling with modest incomes — those who cannot afford the high upfront fees of sports and arts activities for their children — will get nothing. This tax credit will cost $9 million per year of our public resources; money that would be better spent enhancing fitness and arts programs in our public schools where all children benefit regardless of their parents’ ability to pay.

The spin on this year’s budget is so-called “prudence” but in reality there is nothing prudent about failing to tackle the global climate crisis, reduce income inequality, invest in community-based supports for seniors, or reduce BC’s embarrassingly high poverty rate. For all the talk of preserving core public services, the budget provides meager increases to the ministries of health, education and social assistance that don’t keep pace with rising cost pressures and population growth.

This is not the time to starve the services so many British Columbians rely on. And we simply cannot afford to wait until the economy improves before we confront our persistently high rates of poverty, rising income inequality, the crisis in seniors care, or the environmental costs of our resource-driven growth strategy. Failing to address the root causes of these issues today will only make it more difficult and more costly to deal with their consequences over the next decade.

Practically speaking, it’s not real fiscal constraints that stand in our way but a lack of political will. Our debt levels are very reasonable, projected to peak at 18.3% of GDP. This is a far cry from the predicament of Greece and other European countries that find themselves with debt levels well in excess of 100% of their economies. We can afford to borrow a bit more at today’s record low interest rates to make capital and social investments that will make us all better off in the long run.

But taking on more debt is not the only option: BC’s personal and corporate income taxes are the absolute lowest in this country and there is room to increase them. After a decade of tax cuts that favoured corporations and the wealthy, it’s time to fix BC’s tax system so that everyone pays their fair share. The hike in MSP premiums announced in the budget is unfortunately yet another step in the wrong direction.

There are no easy answers in today’s slow economy, but as a society we have to make a choice: the choice to get serious about the pressing problems we face or to put off dealing with them and let our children pay for the consequences of our inaction.

Iglika Ivanova is an economist and researcher with the Canadian Centre for Policy Alternatives. Follow her on Twitter @IglikaIvanova.