A CURE
for What AILS
British Columbia

“The Fraser Institute should get with it. What we need in BC is some positive thinking. We need people to believe in BC, to believe in the economy, and to believe it can get through this difficult time.”
—Hon. Ian Waddell,
Minister of Small Business (Vancouver Sun, Oct. 27, 1998)

The Minister’s response to the recently-released Fraser Institute report on the BC government’s performance is yet another instance of shooting the messenger rather than looking at the message. All the “believing” and chanting of positive mantras will not help BC’s economic malaise. What BC needs is a set of economic and social policies that is conducive to wealth and job creation.

The only way BC can once again become a generator of wealth and jobs is for the government to first admit that it has been pursuing a set of policies which has halted economic growth and destroyed jobs. As any self-help program worth its salt will tell you, admitting that you have a problem is the first step towards recovery. Therefore, Mr. Waddell and the BC government would do well to acknowledge that their policies have repelled investment and destroyed jobs. To go further down the path of enlightened self-recovery, Victoria should do a complete U-turn and implement a set of polices that is hospitable to entrepreneurs who create wealth and jobs.

The policies implemented by Victoria since 1991 read like a Stephen King horror story. One frightening statistic is government spending, which increased by 36 percent. Another is the debt load, which increased by 80 percent. The government has also failed to balance the budget 7 years in a row. In addition, while the government continues to claim that its budget deficit is $95 million for fiscal 1998-99, because of off-budget spending, the actual deficit is $949 million. Continued deficits and increasing debt simply translate into deferred taxes. What kind of positive spin can be put on this?

Victoria has increased the tax burden for the average BC family by $803. The top marginal personal income tax rate at 54.2 percent is the highest in Canada. BC’s personal income tax rate as a percentage of the basic federal rate is 50.5 percent. This has translated into giving BC the dubious distinction of being one of the highest tax jurisdictions in North America. The evidence shows that jurisdictions with lower levels of taxation are far better at attracting investment and creating jobs. Alberta’s performance is evidence of this.

Since taking office, the NDP government has passed over 3,000 regulations totalling almost 10,000 pages. If one stacks up the binders containing the Forest Practices Code, the pile is more than 6 feet tall—further evidence of the onerous growth of regulations. These regulations end up increasing the cost of doing business.

What has been the upshot of these policies?  BC is the only province apart from Newfoundland to have seen a decline in capital spending in 1995 and 1996. In fact, capital spending for 1998 is forecast to be below the 1994 level. BC’s unit labour costs have grown faster than Canada’s since 1991. Since 1991, BC has experienced negative productivity growth. Real gross domestic product in per capita terms has fallen in 5 of the last 7 years. At 8.3 percent, BC has the highest rate of unemployment west of Quebec. More depressing is the fact that many economic forecasters expect BC to have an unemployment rate of over 9 percent over the next two years. Today, on average, every resident in this province has $1,000 less in real after-tax income compared to 1992.

Is there a way out of this economic decline?  Yes, but positive thinking alone won’t provide the relief. The government has recently started to provide some tax relief and streamline regulations. These positive steps forward are indicative of Victoria’s recognition that the policies pursued in the last 7 years have been detrimental to the economy’s health. However, fiddling around at the edges is not enough to pull BC out of a recession.

British Columbia needs some bold moves. The government should cut spending by 10 percent over 3 years, enact a 30 percent reduction in the basic provincial income tax, and a substantial cut in the top marginal tax rate over 3 years. Victoria should also implement a moratorium on new regulations and repeal amendments that have made BC’s labour code rigid and inflexible. These changes will provide a signal to the investment community that BC is once again open for business.

Do that and I’ll think positive thoughts, Mr. Waddell

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Last Modified: Wednesday, October 20, 1999.