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The Fraser Institute

BC Budget Not Strong Enough Medicine

Contact:

Jason Clemens, Director of Fiscal Studies
The Fraser Institute (604) 714-4544
Email jasonc@fraserinstitute.ca

For Release: 19 February 2002

VANCOUVER, BC— The BC budget, released today, generally maintains the course of reforms pursued over the last eight months but does not implement the necessary cuts in spending and taxes required to return British Columbia to full prosperity, says the Fraser Institute.

"This is unfortunate given the lessons we should have learned from Alberta and Ontario. British Columbia, given its bleak performance throughout the 1990s, is in need of much stronger medicine than was included in today's budget," says Jason Clemens, the Institute's director of fiscal studies.

British Columbia faces a deficit today of 3.4 percent of GDP. Alberta and Ontario faced deficits of 1.6 percent and 1.4 percent, respectively, in their first budgets. BC's reforms are well behind those undertaken in Alberta and Ontario, even though our circumstance warrants more, not less, restraint (Table 1).

"Regardless of which measures are used, the reductions in spending announced today by the BC government pale in comparison with those implemented in Alberta and Ontario," says Clemens.

In terms of reducing the size of government, British Columbia again fails to provide sufficient medicine. In 2000/01, government spending in Alberta and Ontario represented roughly 14.5 percent and 15.6 percent of GDP. In British Columbia, on the other hand, government spending represents 21.0 percent of GDP.

Even after the proposed cuts of 5.6 percent of government expenditures are fully implemented (by 2004/05), government spending will still represent roughly 17.0 percent of GDP, well ahead of the levels in Alberta and Ontario, assuming no further changes in either of the other 'have' provinces.

A shift towards consumption taxes, like the PST, is generally a positive move as consumption taxes impose fewer distortions on the economy. However, the increase in the PST should have been accompanied by an equivalent reduction in other taxes with high relative distortionary effects, such as the corporate income tax or the corporate capital tax.

"Although in the right direction, the depth of spending cuts and reduction in the size of government are not as large as is required to fully harness the economic potential of British Columbia. Additional spending and tax cuts are required to fully restore prosperity to a province long suffering from economic malaise," says Clemens.

Table 1: Big Bang - Changes in the First Year

Indicator BC AB ON
Reduction in Total Spending (Nominal) 0.3% 6.5% 4.0%
Reduction in Per Capita Spending 1.7% 8.9% 6.6%
Reduction in Government Spending-to-GDP 1.3% 13.7% 6.5%

 


Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver with offices in Calgary and Toronto.