Fraser Institute Reaction to B.C. Budget
Contact:
Joel Emes, Research Economist
The Fraser Institute, (604) 714-4546, Email: joele@fraserinstitute.caMichael Walker, Executive Director
The Fraser Institute, (604) 714-4545 Email: michaelw@fraserinstitute.caRelease Date: 26 March 1997
VANCOUVER, BC>>> "In addition to failing to meet the Debt Management Plan targets, the B.C. government is adding to the total provincial debt by continuing to run deficits and by spending 'off-line'," said Fraser Institute executive director Michael Walker, in reaction to the NDP government's budget, tabled yesterday. Total provincial debt increased by $648 million in 1996/97, and will increase by $1.44 billion in 1997/98.
Spending
Spending per person in B.C. is $521 higher than the average of the other nine provinces. "The B.C. government has announced a token spending decrease of $131 million, when a decrease of $2.1 billion is necessary to get B.C.'s per person spending down to the average," added Dr. Walker.
British Columbia is the only province that had an increase in inflation adjusted spending between 1995/96 and 1996/97. The average decrease in spending in the other nine provinces was 4%, while spending in B.C. increased by 1.4%; the 1997/98 budget released yesterday shows a spending decrease of 2.4%. Still, the average decline in spending for the other provinces will likely outstrip B.C.'s, as Quebec and Ontario are on track to make their deficit reduction targets.
"Off-line" spending, which shows up mainly as increases in the debt of the Crown Corporations, is a large proportion of total spending in B.C. In 1997/98, debt issues for spending on ferries, highways, and transit will be $473 million. Debt issues for spending on schools and hospitals will be another $442 million. The worst example of "off-line" spending is for B.C. Hydro, which expects an $89 million increase in debt and will contribute $373 million to the government's general revenue fund.
"In other words, the provincial government is forcing B.C. Hydro to accept more debt when Hydro could have decreased its debt by $284 million," said Joel Emes, research economist at the Fraser Institute.
The Debt Management Plan
When the Debt Management Plan was introduced in 1994/95, then Finance Minister Elizabeth Cull said: "The Debt Management Plan represents a major government commitment to repay the province's direct debt and to cap and reduce the overall cost of debt."
The plan had four major goals, but only two were met in 1996/97. The first one -- maintain British Columbia's credit rating as the highest of any province in Canada -- was met mainly because the current government inherited the "best" debt of any province. The second DMP goal -- cap the interest cost of taxpayer-supported debt -- has been met, partially, due to the current low interest rates.
The goal of keeping provincial direct debt below $9.8 billion was not met -- the actual number turns out to be $10.2 billion. The projected debt repayments of $414 million in 1995/96 and $225 million in 1996/97 were not made, and the $40 million repayment in 1997/98 will not be made. Instead, provincial government direct debt increased by $837 million this fiscal year (1996/97), and is projected to increase by $530 million next fiscal year. The final goal -- to keep taxpayer-supported debt as a percent of provincial GDP under18.8% for 1995/96 -- was missed by 0.5%.
Deficit
B.C. posted a deficit of $395 million in 1996/97 and the B.C. government predicts a deficit of $185 million for 1997/98. Or does it? "It may be possible that B.C. Finance Minister Petter has learned one thing from Finance Minister Paul Martin," said Mr. Emes, "that beating a low target is much more popular than missing an optimistic one." Emes added that the $185 million deficit represents less than one percent of total expenditures. "It would be difficult not to better this target given that the budget contains reasonable revenue and GDP growth projections."
Provincial Tax Rate
The provincial government often claims that British Columbians have one of the lowest tax bills in the country. This claim, however, is not based on all the taxes that we pay. When indirect taxes are included -- liquor and tobacco taxes, license fees, corporate taxes that get passed along as higher prices, and Crown Corporation profits -- the average B.C. family has the highest tax burden in the country. The "Provincial Tax Rate" (B.C. government revenue per dollar of gross provincial product) has risen from 18.9% in 1992/93 to 21.8% in 1996/97, a 15% increase.
Graphs:
Revenue Take per Dollar of Gross Provincial Product, "Provincial Tax Rate"
Real Spending per Person, dollars
Fiscal Balance, 1996/97 surplus/deficit per person
Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver.
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