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Un-Spinning the B.C. Budget

Having shielded their budget from debate, the B.C. Liberals are free to spin madly on the campaign trail. Some facts to bear in mind.

Will McMartin 25 Feb 2005TheTyee.ca
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It may be as late as October before British Columbia’s legislators finally get around to reviewing the spending estimates for 2005-06. By then, more than half the fiscal year will be over, and about $16 billion of taxpayers’ funds will be spent with minimal or no scrutiny by the Legislative Assembly.

The following may assist Tyee readers in examining some of the budget’s minutiae, an opportunity which apparently will be denied our MLAs.

Accounting for ministry of ‘spin’

Every single government department has received an increased budget for the coming fiscal period, unsurprising perhaps given the general election scheduled for May 17. But one entity is going to receive substantially less than its allocation one year ago: the Office of the Premier.

In 2001, when NDP premier Ujjal Dosanjh occupied the Parliament Buildings' west annex, the premier’s office had a budget of just $2.7 million. That figure quickly skyrocketed to $20 million when Gordon Campbell moved in, and then shot upward to $50 million in 2002 and $52 million a year later, before dipping to $44 million in 2004.

The massive increase in spending under Campbell was because he had appropriated several government functions for his own office, notably the Intergovernmental Relations Secretariat, the Crown Agencies Secretariat and the Public Affairs Bureau (PAB).

This year the premier’s office budget is a paltry $11 million. That’s because last year, when Gary Collins held the finance portfolio and was co-chairing the Liberals’ re-election team, the PAB was transferred to the department of finance. That move would have made it difficult for the NDP opposition, to compare this year’s estimates with last, and so quiz Campbell about the government’s multi-million pre-election advertising campaign which ran from last fall through to mid-January. The transfer involved a $33.1 million operating budget and approximately 200 hand-picked political appointees.

This year’s budget estimates show PAB as a stand-alone entity (Vote 24) under the purview of the finance minister, with an operating budget of $34.2 million. Of that figure, $13.9 million will go to advertising, $14.2 million to salaries and benefits, and $1.7 million for "professional services."

Tuition hikes pour in revenues

After enduring a four-year freeze, the ministry of advanced education is scheduled to receive incremental funding increases over the next three years. From a base of about $1.9 billion, the department will get an additional $56 million in the coming year, and then $64 million and $76 million respectively in the following two years.

These funding increases, of 2.9 percent, 3.3 percent and 3.8 percent, should ensure that post-secondary institutions can keep pace with cost-of-living increases as well as some small enrollment growth. Earlier this year, the government announced that annual tuition hikes for post-secondary students will be capped at the rate of inflation.

An appendix to this year’s budget shows that total revenue from post-secondary fees when the Campbell government took power in 2001 was $452 million. That number will be about $829 million in the current year, and is forecast at $924 million in 2005-06.

Big boost for advanced ed? Reality check

Despite the schedule of additional funds for advanced education over the next three years, the department actually can count only on receiving this year’s boost of $56 million. That is because our parliamentary system of government provides funds on an annual basis only; the promise to allocate $64 million and $76 million in two and three years is just that: a promise.

While B.C. budgets contain a three-year outline of revenues and expenditures, the spending estimates presented to the legislature — and which must be voted by MLAs — continue to be for just one fiscal-year. The latter two fiscal years of the plan are projections only.

Still, that does not prevent our provincial politicians from manipulating the numbers in their own interest, as the Liberals now are doing with their funding for advanced education. The Legislative Assembly will vote this fiscal year (perhaps before the election, but more likely next fall) to increase the department’s budget by $56 million. That will be the total voted increase in funding for the ministry of advanced education.

Instead of boasting of that number, the Campbell Liberals have selected a much higher figure. It’s not $196 million ($56 million + $64 million + $76 million), but $372 million ($56 million in year one; plus $56 million + $64 million in year two; plus $56 million + $64 million + $76 million in year three).

Expect to hear Liberal MLAs seeking re-election to boast that this year’s budget boosted funding by $372 million, which is nearly seven-times greater than the actual increase.

It pays to be a ‘have not’

Looking at revenues, for the first time in four decades the personal income tax (PIT) is not the largest source of revenue for the provincial government. In the year just ending (2004-05), transfers from the federal government are forecast at $5.174 billion, compared to PIT revenues of $5.055 billion.

This is expected to continue in the coming fiscal year (2005-06), with Ottawa’s transfers expected to exceed PIT, $5.492 billion to $5.202 billion.

There are two reasons for this development. First, the BC Liberals cut PIT rates by 25 percent within hours of being sworn into government in 2001. Despite the promise that ‘tax cuts would pay for themselves,’ PIT revenues remain well below their pre-cut levels.

The second factor is the explosion in federal transfers to B.C. It began in 2000, when the Chretien Liberals restored most of the Canada Health and Social Transfer monies cut in 1995. Since then, Ottawa has negotiated three separate health funding increases with the provinces, including last year’s First Ministers’ Accord on Health Care Renewal.

B.C. also has been receiving federal equalization payments in recent years. In the current fiscal period, equalization revenues are expected to provide an amazing $980 million, and in the year ahead, $590 million. While the B.C. Liberals boast that British Columbia has ‘turned the corner’ economically and fiscally, the fact is that we are considered a ‘have-not’ province.

Tax cuts have yet to ‘pay for themselves’

This year’s PIT revenues are slightly less those received in 1996-97, when individual taxpayers provided $5.3 billion to the provincial treasury.

In 1999-2000, PIT revenues were $5.8 billion, and in 1999-2000 nearly $6 billion. They then plummeted to $4.1 billion in 2002-03, following the Campbell government’s 2001 decision to reduce PIT rates by 25 percent.

According to BC Stats, the province’s population has grown by 322,107 — to a total of 4.2 million — over the past 10 years. In other words, despite population growth and inflation, the PIT today returns to the provincial treasury the same amount as a decade ago.

There is no evidence to date that the PIT cuts have, or will ever, "pay for themselves" as was promised by the Liberals four years ago.

Tax take signals no ‘boom’

The total tax revenues estimated in Finance minister Colin Hansen’s first budget do not confirm that a long-lasting economic boom is underway in B.C. For the year just ending, tax revenues are expected to total $14.741 billion, an increase of $556 million over the initial estimate at the beginning of the year, but a paltry $438 million higher than 2000-01, the year the Campbell government took power.

And next year, tax revenues are forecast to fall by $49 million to $14.692 billion.

The biggest anticipated declines will be in the corporate income tax (down $181 million to $1.075 billion) and the property transfer tax (down $140 million to $460 million).

Revenue increases are expected in the property tax (up $63 million to $1.706 billion) and personal income tax (up $147 million to $5.202 billion).

Proportion of  ‘regressive’ sales tax grows

Despite the half-percent reduction in the Social Service (Sales) Tax announced last fall in anticipation of the Surrey-Panorama Ridge by-election, retail sales tax revenues continue to be well above their historic proportion of the government’s take from PIT.

Over the past thirty years, the ‘regressive’ sales tax provided slightly more than half the revenue of the ‘progressive’ personal income tax. But that figure shot up to 91 percent in 2002-03, and has hovered around the 80 percent level since then.

In the coming fiscal year, sales tax revenues are expected to be 79 percent of PIT.

Refreshing the finance minister’s memory

Rookie finance minister Colin Hansen, understandably perhaps, uttered numerous factual errors on budget day, both in his speech and in media interviews.In the budget speech, he lambasted the New Democratic Party government for its last budget, in fiscal 2000-01. The NDP, Hansen charged, had received windfall revenues from a hot economy and energy exports, and then "built a budget that committed the province to spending more than taxpayers could actually afford."

For the record, the NDP recorded a massive $1.5 billion summary accounts surplus in 2000-01. The budget for 2001-02, released March 15 in anticipation of the May 16 general election, increased consolidated revenue fund expenditures by a staggering $1.8 billion over the previous year.

But here is the important point. Just as the Liberals now plan to do, the NDP did not actually pass the ‘estimates’ associated with their budget. Instead they enacted ‘interim supply’ which enabled the government to spend taxpayers’ monies for just four months, April through July. That was all that the New Democrats "committed" the government to spend: one-quarter of the monies outlined in their budget estimates.

With supply due to expire in mid-summer, the newly-elected Campbell government had to convene the Legislative Assembly before August 2001. They did, and on July 30, then-finance minister Gary Collins brought down a ‘mini-budget’ which outlined new spending estimates for the fiscal year.

The session came bare weeks after Collins and premier Gordon Campbell had announced a 25 percent reduction in personal income tax rates, a move which cost the provincial treasury $1.5 billion in foregone revenue over each full fiscal year. In his mini-budget, Collins added another $628 million in cuts to taxes paid by businesses, for a total full-year loss of $2.1 billion in annual tax revenues.

A prudent finance minister might then have taken an axe to the NDP expenditure plan, but Collins did no such thing. In fact, his mini-budget added another $455 million to the already enormous $1.8 billion hike plotted by the New Democrats.

In other words, over the eight months of 2001-02 for which they were responsible, the Campbell government increased annual spending by $2.2 billion while at the same time cutting revenues by $2.1 billion. Within a couple of months, it had become evident that the only thing "committed" was a fiscal blunder of colossal proportions. The next two years were marked by drastic budget-cutting in ministries outside of health and education, accompanied with massive tax increases.

Fortunately, the federal government bailed B.C. out with a massive increase in transfer payments. Still, the province’s direct government operating debt soared from $12.1 billion in 2000-01, the NDP’s last full fiscal-year in office, to $15.7 billion in 2003-04. With Ottawa promising additional windfall equalization payments for the current year and next year, the operating debt is expected to drop to $14.0 billion at the end of 2005-06.

Will McMartin writes a regular column for The Tyee and has worked for a wide range of political parties.  [Tyee]

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