Fudging Up

In February, Finance Minister Colin Hansen laboured mightily to produce the smallest-possible deficit in his pre-election 2009/10 budget. Next Tuesday, Hansen will perform a 180-degree pirouette and produce the biggest-possible shortfall in his post-election 2009/10 fiscal plan.

From a relatively puny $495 million deficit six months ago, Hansen now will claim that B.C. faces a massive -- colossal, really -- multi-billion dollar deficiency.

And not only will he manufacture a gargantuan deficit, the finance minister also will project fiscal shortfalls as far as the eye can see. Indeed, Hansen's already announced that the Balanced Budget and Ministerial Accountability Act -- remember when Gordon Campbell and the BC Liberals promised they would "outlaw deficits forever" -- will be amended once more to increase the current two-year exemption to four years.

But, just as sensible British Columbians were right to be skeptical about Hansen's pre-election veracity, they again will be wise to question his post-election budgetary sleight-of-hand.

To understand why, think back to February 2002.

We've been here before

On the eve of unveiling his 2002/03 budget, then-finance minister Gary Collins leaked the possibility of a four-billion dollar-plus deficiency. It seemed an incredible number; after all, only six years earlier, the New Democratic Party government had been roasted for incurring a $337 million "fudge-it budget" deficit.

Was it possible that Gordon Campbell's B.C. Liberals would deliver a budget shortfall at least a dozen-times larger than that which ultimately led to the demise of the NDP government?

Indeed, they would -- and did. Collins' budget had a summary accounts shortfall of $3.65 billion, with a "forecast allowance" of $750 million, for a total deficiency of $4.4 billion. Surprisingly -- shockingly -- B.C.'s business community and most of the mainstream news media greeted this stunning figure with quiet acceptance.

But that reserve gave way to outright giddiness one year later, in February 2003, when Collins unveiled his 2003/04 budget. For now it looked like 2002/03 had ended with a much-reduced $3.5 billion shortfall (not including the forecast allowance), and the year ahead would feature a deficit of just $2.3 billion.

These deficits dwarfed the New Democrats' seemingly tiny fudge-it budget, but the business community and the news media weren't about to allow facts to get in the way of a good-news story.

"These guys are good!" gushed the president of the Certified General Accountants Association of B.C. He added: "The Finance minister is quickly putting B.C. on a solid footing with better-than-forecast deficit reduction. CGA applauds the financial restraint shown across all sectors of government that has allowed the minister to reduce the forecast 2002-03 deficit..."

Back to the future

So, when it comes to B.C. budgets, it's not too difficult to see the future -- if one remembers the past. Next week, we can expect Colin Hansen to talk somberly of colossal deficits over the next four years.

But one year afterward, in February 2010, British Columbians can expect the finance minister to introduce a budgetary deficit somewhat smaller than that recorded in 2009/10. The feat will be quietly applauded by the business community, newspaper editorialists and radio talk-show hosts.

And two years after that, in February 2012 -- one year before the 2013 general election -- the Campbell government will bring in a balanced budget. B.C. Liberal supporters will roar with enthusiasm, because instead of four-years of deficits as envisioned by Colin Hansen way back in 2009, British Columbia endured just three!

Business representatives and the mainstream news media will be unable to contain their giddiness. One or more of them will say, "These guys are good" (or words to that effect), and newspaper editorialists and radio talk-show hosts will applaud the BC Liberals' obvious business acumen.

Finally, in February 2013, mere weeks before the fixed-election date of May 14, the BC Liberals will bring down a sizeable budgetary surplus. Newspaper editorials will endorse the government's re-election, radio talk-show hosts will throw softball questions to the Premier ("Gosh, tell us how you did it"), and business interests will buy large advertisements urging the government’s re-election.

Only later will British Columbians learn that, golly, the pre-election surplus somehow morphed into a different post-election picture, and the cycle will begin again.

Business can be counted on to cheerlead

How far will the business community go to endorse Gordon Campbell's B.C. Liberals? Pretty far, if one judges from a pre-election economic analysis prepared by the Business Council of British Columbia.

The Business Council, you see, made the B.C. Liberals' first year in government, 2001, simply "disappear" from their analysis of the province's economic performance in the 1990s under the NDP and early 2000s with the B.C. Liberals. And with that year out of the way, wouldn't you know it but Campbell's Liberals were better stewards of the B.C. economy than the New Democrats! Who knew?

At issue is how to assign a year when a change in government occurs. Usually it's not too difficult. In 1975, for example, the election was fought on December 11, and Bill Bennett's Social Credit party was sworn into office on December 22.

Surely no reasonable person would deny that financial and economic data recorded in 1975 should be attributed to Dave Barrett's defeated New Democrats, not to the incoming Socreds, who were in power for little more than a week before the year-end.

Similarly, in 1991 the election date was October 17, and Mike Harcourt's NDP government was sworn in on November 5. Again, anyone would give the year 1991 to the defeated Socreds, and not to the New Democrats, who held office for just seven weeks out of 52.

Slippery accounting

The year 2001 is slightly trickier, because the general-election writs were dropped on April 18, E-day was on May 16, and the B.C. Liberals took their oaths of office on June 5.

But, actually, it's not that difficult to see that 2001 belongs to Campbell's Liberals. Consider that the defeated New Democrats exercised power for 108 days (from the beginning of the year to the dropping of the writs), while the newly-elected BC Liberals were in office for nearly twice as long, 210 days (from their swearing-in to the end of the year).

Even if one were to assign to the NDP the 28-day writ period, plus the following 15 days before the Campbell's new government was sworn in -- and, really, one ought not to because the incumbent executive council traditionally absents itself from the levers of power once the writs have been dropped -- the count still favours the B.C. Liberals: 210 days to 155.

Even more important, the New Democrats took little legislative, fiscal or economic action before their near-death experience in the general election. Yes, they introduced and passed a throne speech, and even unveiled a budget, but not only were the budget estimates not passed, they weren't even debated before the legislature was dissolved.

Campbell's aggressive moves in 2001

In contrast, Campbell's Liberals took significant fiscal and economic action in their first months in government. On June 6, one day after taking power, they cut personal income taxes by $1.5 billion. Seven weeks later, the corporation capital tax was cut by $273 million, the corporation income tax by $200 million, and the sales tax on machinery by $160 million.

Incredibly, the new administration simultaneously decided to boost Victoria's yearly expenditures by an even larger amount. The Campbell Liberals took the New Democrats' un-passed budget lift of $1.8 billion -- and added another $455 million in new spending!

In just their first two months in office, the Campbell government had whacked Victoria's revenues by an astounding $2.1 billion, while at the same time increasing outlays by $2.3 billion annually.

(Always) blame it on the NDP

Could any reasonable person argue that the year 2001 ought not to be assigned to the B.C. Liberals? The Business Council did.

In fact, in their pre-election analysis, the Business Council of B.C. put forward two scenarios: in the first, 2001 was assigned to the NDP! And, in the second, it simply disappeared. (See figure 2 on page two here).

Under the first scenario, B.C.'s economic growth from 1992 through 2001 under the New Democratic Party averaged 2.8 per cent annually. That was much lower than the mark achieved by Campbell's Liberal from 2002 to 2008, which was 3.1 per cent.

The second scenario -- where 2001 was simply removed from all calculations -- B.C.'s economy from 1992 to 2000 with the NDP grew by 3.0 per cent, which still was lower than the Campbell government's 3.1 per cent.

But surely 2001 can't just "disappear" from B.C.'s record of economic growth. And, as was shown above, it seems silly to attribute the year to the New Democrats -- who exercised power for about 16 weeks out of 52.

It's easy enough to understand why the B.C. Liberals' business supporters either don't want to count the year 2001, or want to attribute it to the accursed NDP. And that's because B.C.'s GDP expanded by an anemic 0.6 per cent in Gordon Campbell's first year in government.

Far from providing a "big bang" (as Jimmy Pattison once said) to B.C.'s economy, the BC Liberals' massive stimulus of whopping tax cuts and an enormous increase in spending had a minimal impact in 2001.

Moreover, when 2001 is correctly assigned to Campbell's government, the comparable record between the BC Liberals and NDP changes considerably. For, where B.C.'s GDP grew by an average of 3.0 per cent between 1992 and 2000, it expanded by just 2.8 per cent from 2001 to 2008.

By that measure, the provincial economy performed slightly better under the New Democrats than it did under the B.C. Liberals. (In a couple of years, when the current recession is counted in the Campbell government's numbers, it won't even be close.)

Switch on your fudge detectors

So, next Tuesday, when Colin Hansen unveils a gargantuan budgetary deficit, wise British Columbians might want to exercise a modicum of skepticism. There will be a deficit in 2009/10 to be sure; bigger than Hansen said it would be last February 17, but smaller than what he claims on September 1.

And when representatives of the province's business community chime in with their observations, well, it wouldn't hurt to have at hand a grain or two of salt.