The Era of Tax Cut Stupidity that Starved BC

Will McMartin details how the BC Liberals squandered a historic chance to strengthen this province.

By Will McMartin 27 Feb 2012 | TheTyee.ca

Tyee contributing editor Will McMartin is a veteran political advisor and analyst. Read his previous columns here.

A decade ago, neatly coinciding with British Columbia's 37th general election, began one of the world's greatest-ever commodity booms.

The province's newly-minted BC Liberal government, sworn into office in June 2001, was presented with an historic opportunity to reap windfall revenues from the development of British Columbia's abundant natural resources -- coal, copper, natural gas, forest products and the like -- and the economic activity associated with their extraction and export.

It did not happen.

Instead, the BC Liberals deliberately enacted massive tax cuts -- intended to benefit the province's wealthiest families and individuals, and most-profitable corporations -- and effectively knee-capped government revenues.

Today, the receipts generated by Victoria's Consolidated Revenue Fund (CRF) -- B.C.'s main financial account -- have sunk to a level not seen since the late 1960s/early 1970s.

And under the broader GAAP measurement, provincial revenues over the last decade have been in a near-constant decline, year after year.

Moreover, as a direct consequence of the BC Liberals' failed revenue policies, the province's most-vital public services -- protection for children, programs for seniors, the justice system, stewardship of our forests and other natural resources, health care and education -- have been slowly starved of funds.

Even worse, the much-touted economic objective of the BC Liberals' tax cuts -- a free-enterprise nirvana intended to attract newcomers and investment -- failed to materialize.

Government's duty

"The legitimate object of government," Abraham Lincoln once observed, "is to do for a community of people whatever they need to have done, but can not do at all, or can not so well do, for themselves -- in their separate, and individual capacities."

Over the following century, governments across the western, industrialized world slowly expanded their scope of activities, introducing rudimentary medicare, extending public education, regulating food production and workplace safety, and providing modest pensions and mothers' allowances.

By the Great Depression of the 1930s, economists led by John Maynard Keynes of Britain were arguing that governments could play a broader and positive economic role by promoting full employment and smoothing out aggregate demand.

Consequently, the scope of public activities in countries around the globe widened even further following the Second World War -- notably with post-secondary education, universal health care, unemployment insurance and improved pensions.

In British Columbia during the 1950s and 1960s, premier W.A.C. Bennett -- leader of the centre-right coalition called Social Credit -- oversaw a doubling of Victoria's CRF revenues to 15 per cent of the province's nominal GDP from approximately seven per cent.

CRF revenues continued to rise (albeit at a much-slower pace) after Bennett left office in 1972, and peaked at just over 19 per cent of nominal GDP in the early 1990s.

By 2001, when the BC Liberals won election to government, CRF receipts were down to an even 17 per cent of British Columbia's nominal GDP.

Ironically, concomitant with the dramatic, post-war growth in the size of B.C.'s government was a phenomenal boom in the province's economy.

Over the half-century between 1951 and 2001, British Columbia's population exploded to more than 3.9 million from less than 1.2 million -- the biggest increase in Canada during the period -- while nominal GDP skyrocketed to $133.5 billion annually from about $2 billion.

Far from impeding economic development, British Columbia's growing public sector seemed to provide an important impetus to growth.

After a decade of assault, cupboards bare

Yet, at the end of the 20th century the BC Liberals -- Gordon Campbell, Christy Clark and Kevin Falcon, along with their wealthy patrons and corporate donors -- were complaining loudly that government was not a force of good, but of evil. The province's public sector, they said, was bloated, unproductive, too-expensive and needed to be cut down to size.

And so within 24 hours of being sworn into power on June 5, 2001, the BC Liberals launched an unprecedented attack on British Columbia's public revenues.

Today, CRF receipts -- as outlined in Falcon's 2012/13 budget -- are down to slightly more than 15 per cent of nominal GDP, a level not seen since W.A.C. Bennett left politics 40 years ago.

The results of the BC Liberals' decade-long assault on provincial revenues are illustrated even more clearly under GAAP (generally accepted accounting principles).

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