Business As Usual in Victoria - Fraser Institute Says New BC Budget is a Missed Opportunity
Contact:
Jason Clemens, Director of Fiscal Studies,
The Fraser Institute, (604) 714-4544 Email: jasonc@fraserinstitute.caRelease Date: 27 March 2000
VANCOUVER,BC>>>In one of the most important budgets in recent memory, the government of British Columbia has failed to put the province back on the path of economic prosperity by today handing down a business as usual budget full of unwarranted spending increases, insufficient tax relief, and continued deficits says The Fraser Institute.
"The poor economic performance of the province over the last decade is simply unacceptable given the enormous economic potential of the province. This budget will do very little to return the province to its position of economic leadership and prosperity - if anything, it will actually hinder the province's recovery," says Jason Clemens, Director of Fiscal Studies at the Institute.
The Budget Deficit
Despite revenues $1 billion above expectations, the provincial government failed to balance its books once again largely due to higher than budgeted spending totalling nearly $1.6 billion. The government has now announced its tenth straight deficit.
"While other governments record balanced budgets, BC has languished with consistent budget deficits even in a period of rising revenues. The only explanation is irresponsible spending by the provincial government," says Clemens. "Had the provincial government simply stuck to the spending levels planned in last year's budget, it would have balanced its budget this year due to higher than expected revenues," explained Clemens.
"It is unprecedented for a provincial government to plan for an 11.6 percent increase in the budget deficit while revenues and the economy are growing. This is a clear indication of the provincial government's penchant for spending," comments Clemens.
Spending
While all provinces have cut spending over the last five years in order to gain control of their finances, British Columbia's reductions have been the smallest of any province except Nova Scotia.
BC's spending (less transfers) as a percent of GDP (25.6 percent ) is second only to Quebec (26.0 percent) and well above Alberta (19.9 percent), and Ontario (21.7 percent). The spending spree contained in this new budget will only worsen an already bad situation regarding the level of BC's spending relative to other provinces.
"This budget pays lip service to the fact that throwing more money at programs will not solve their problems, rather we must look at what is fundamentally wrong with these programs," explains Clemens, "BC already spends considerably more on health care, basic education, post-secondary education, and social services than Alberta with little results to show for the extra spending. The problem is not that we don't spend enough, it's that we spend ineffectively and this budget does nothing to address how services in BC are delivered."
The Provincial Tax System
The stated objective of the provincial government was to restore business confidence and promote entrepreneurial activity. However, the lack of meaningful tax cuts and the absence of any inclination to reform the business or personal tax systems (as Alberta has recently done) means the announced measures neither restore confidence nor encourage entrepreneurship.
For example, the government has left in place, completely untouched, several taxes, such as the high income surtaxes and corporate capital tax, that discourage business activity, entrepreneurship, and innovation. In fact, BC maintains the dubious distinction of having the highest personal marginal income tax rate in North America.
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. This budget will not alleviate to any great extent the serious tax burden placed on average BC families.
Rather than reduce the tax burden for all individuals and businesses, the BC government again chose to pick winners and losers by using targeted tax incentives such as tax credits. For instance, rather than eliminating or reducing the punitive 7 percent sales tax on machinery and equipment, the government created a 3 percent investment tax credit for manufacturing and processing investments.
The Debt
British Columbia's total debt is expected to increase $2.2 billion (a 6.5 percent increase) to $36.5 billion over the next year. The increase in net debt inevitably results in greater resources allocated to simply servicing our debt rather than being directed to services such as health care and education or used for tax cuts.
"The government has failed to move away from the ill-advised policies of the last decade towards a focused government that effectively delivers services while encouraging economic prosperity," concludes Clemens.
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
info@fraserinstitute.ca
4th Floor, 1770 Burrard Street, Vancouver, BC, Canada, V6J 3G7
Tel: (604) 688-0221 Fax: (604) 688-8539 Book Orders: 1-800-665-3558 ext. 580
You can contact us at the above email address for any comments or information requests. Please report any dead links or technical problems.