B.C. Budget Backgrounder

Contact:

Michael Walker, Executive Director
The Fraser Institute, (604) 714-4545, Email: michaelw@fraserinstitute.ca

Release Date: 26 March 1999

Vancouver, BC>>> The Fraser Institute first sounded an alarm bell about the causes of B.C.'s deteriorating fiscal position and the economy in June of 1995. The warning was repeated in an open letter to Premier Glen Clark in November 1996 and again, in a report card on the B.C. government in 1998.

The economic distress of the province is not the product of some foreign influence; it is, as was foreseen, self-inflicted by provincial government policy. "Contrary to government assertions, British Columbia's problems are primarily not a result of foreign influences; they are a result of local policies" noted Fraser Institute executive director Michael Walker. The Fraser Institute's recently released Fiscal Performance Index, which measures the performance of the Canadian Provinces and US states with 14 variables that reflect changes in spending, changes in government revenue, and changes in the structure of taxation, placed British Columbia 54th out of 56 jurisdictions - ahead of only Florida and Oregon.

British Columbia's weak economic performance in relation to the other provinces, most notably Alberta and Ontario, should come as no surprise. In The Fraser Institute's Summer 1998 Survey of Senior Investment Managers in Canada, 73 and 81 percent, respectively, of the managers surveyed had a positive outlook on the investment climate in Alberta and Ontario - 49 percent had a negative outlook for BC. The majority of senior managers cited high taxes as part of the explanation for their negative assessment of British Columbia.

The purpose, therefore, of this Fraser Institute budget backgrounder is to compare B.C.'s fiscal situation with that of the other provinces.

B.C. is one of four provinces that does not have a balanced budget Alberta has had six surplus budgets in a row; Saskatchewan plans to present its sixth surplus this month; Manitoba expects to table its fifth surplus budget soon.

B.C. was supposed to have balanced budgets in 1995/96 and in 1996/97. Both years ended in deficit. According to Auditor General George Morfitt, the 1995/96 operating surplus was"overstated by up to $272 million in each tabling of the Estimates" and the information provided by the government when the 1996/97 budget was presented "did not make full and fair disclosure of the extent of the business risk being assumed and the government's plan to address it." According to the recently released Third Quarter Report, the deficit for 1998/99 will be between $500 and $600 million.

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 in the form of higher prices, and Crown Corporation profits - the average B.C. family has the third highest tax burden in the country. The "Provincial Tax Rate" (B.C. government revenue per dollar of gross provincial product) has risen from 18.5% in 1991/92 to 20.7% in 1998/99.

The government of British Columbia is spending more per person in inflation-adjusted dollars than the average of the other nine provinces. This is a departure from the historical pattern where B.C. consistently spent less.

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