The BC Budget - A Turning Point or a Missed Opportunity?
Contact:
Jason Clemens, Director of Fiscal Studies,
The Fraser Institute, (604) 714-4544 Email: jasonc@fraserinstitute.caJoel Emes, Senior Reserch Economist,
The Fraser Institute, (604) 714-4546 Email: joele@fraserinstitute.caRelease Date: 23 March 2000
VANCOUVER,BC>>>The government of British Columbia faces one of the most important budgets in recent memory and has an opportunity to return the province to prosperity after a decade of economic stagnation says The Fraser Institute, commenting on the upcoming BC budget.
"The government must signal a change in policy away from an activist government towards a leaner, more focused government that effectively delivers needed services while encouraging economic activity by individuals and businesses," says Jason Clemens, Director of Fiscal Studies at the Institute.
The Fraser Institute has repeatedly warned of the economic consequences of poor government policies such as increased government spending and taxation, overbearing regulations, and encroaching activism by government.
The Budget Deficit
BC is one of only five provinces that does not have a balanced budget (Figure 1). Of those five provinces, BC's deficit per capita is the second largest. Meanwhile, Alberta has had seven consecutive budget surpluses; Saskatchewan and Manitoba have had, respectively, six and five consecutive budget surpluses (Figure 2).
BC was expected to balance its books in 1995/96 and 1996/97 only to end both years in deficit. According to the BC government's recently released Third Quarter Report, the deficit for 1999/00 will be roughly $1.4 billion.
"The fact that the government has consistently failed to deliver a balanced budget indicates a complete inability to manage our province's finances," comments Clemens.
The Debt
Over the five year period ending in 1998/99 only two provinces increased their net debt as a percent of GDP. British Columbia's net debt increased by 4.1 percent while Ontario's increased by 3.7 percent.
All other provinces experienced a decline in net debt to GDP, ranging from a decline of 0.9 percent in Quebec to 95.4 percent in Alberta. "BC's continued record of not balancing its books coupled with a penchant for spending has resulted in the fastest growth in net debt of any province," says Clemens.
The Provincial Tax Rate
The provincial government often claims that British Colombians have one of the lowest tax bills in the country. However, when all taxes, including indirect taxes such as liquor and tobacco taxes, license fees, and corporate taxes, are included, the average BC family has the second highest tax burden in the country. The Provincial Tax Rate has risen from 23.6% in 1991/92 to 25.4% in 1999/00 (Figure 3).
Spending
All provinces have cut spending (provincial and local spending, less federal transfers) as a percent of GDP over the last five years, however, the reductions in BC were smaller than in every other province except Nova Scotia. BC's spending (less transfers) as a percent of GDP (25.6) is second only to Quebec (26.0) and well above Alberta (19.9), and Ontario (21.7).
Recommendations
There are a variety of tax, spending, and fiscal management initiatives that can and should be undertaken in Monday's provincial budget.
- Reduce spending in core areas such as education, health, and welfare to levels comparable with other provinces, particularly Alberta;
- Eliminate or streamline provincial departments that either overlap federal departments or could be replaced by private sector alternatives;
- Reduce provincial personal income taxes;
- Eliminate the provincial high income surtax which punishes risk-taking, entrepreneurship, and innovation;
- Reduce provincial corporate tax rates to levels competitive with other provinces, once again, particularly in regards to Alberta;
- Eliminate highly distortionary taxes such as the corporate capital tax, sales tax on machinery and equipment, and reform the retail sales tax as it applies to business-inputs;
- Undertake wide-sweeping privatization efforts for crown corporations such as BC Hydro and use the proceeds to reduce the province's debt;
- Institute strict tax and expenditure limits while legislatively requiring that unexpected surpluses be used exclusively for debt reduction;
- Institute a more flexible and streamlined regulatory regime that focuses on economic growth and development.
"The poor economic performance of the province over the last decade is simply unacceptable given the enormous potential of the province. A budget focusing on reducing the tax burden faced by the citizens of BC coupled with prioritised spending and reasonable regulations will return the province to prosperity," concludes Clemens.
Figure 1: Deficit Per Person, 1999/00
Source: Statistics Canada; federal and provincial budgets and updates; calculations by The Fraser Institute
Figure 2: Western Provincial Comparison
Sources: Provincial Budgets; Statistics Canada; Canadian Tax Foundation; calculations by The Fraser Institute
*2000 budget not released yet
Figure 3: Revenue* Take per Dollar of Gross Provincial Product, "Provincial Tax Rate"
Sources: Statistics Canada; BC Public Accounts, Budgets and Quarterly Updates; calculations by The Fraser Institute.
* consolidated provincial-local own source revenue
Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver.
For further information contact:
Suzanne Walters, Director of Communications,
The Fraser Institute, (604) 714-4582,
Email suzannew@fraserinstitute.ca
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