Proven: Whatever New Dems Do, BC’s Biz Boosters Will Bellyache

Isaac Newton would be scratching his head.

“For every action, there is an equal and opposite reaction,” famously posited the Cambridge professor who three centuries ago used scientific investigation to unlock the mysteries of the universe. Some fiscal historians even attribute to Newton the concept that budgets should balance.

What a puzzle, then, is British Columbia. The universal law here? “For every NDP budget, balanced or not, business interests and centre-right politicians will have a negative reaction.”

Two weeks ago B.C. Finance Minister Carole James brought in a budget projecting a modest surplus. The BC NDP government’s third consecutive balanced budget is a model, you might conclude, of fiscal probity.

Fiscal probity is said to be held dear by the province’s business community. Did members therefore celebrate the NDP budget? No, their responses ranged from unimpressed to overtly hostile.

Let’s start with the Greater Vancouver Board of Trade, whose new president, Bridgette Anderson, once worked as press secretary for BC Liberal premier Gordon Campbell.

The “business community is feeling thoroughly tapped out,” whinged Anderson, implying government spending is gobbling up too much of the economy.

Except James and the New Democrats are taking in government revenues that represent a smaller portion of the economy than did the BC Liberals when they were last in power — 19 per cent compared to 19.5 per cent.

Even looking just at taxation receipts, James’s projected total for 2020/21 is only 11.1 per cent of GDP, compared to 11.2 per cent recorded four years ago by the BC Liberals.

Somehow, Anderson and the VBOT now profess to be upset because the NDP government is taking less money out of the economy than did the BC Liberals when they were power.

(Of course, the bulk of provincial revenues are promptly re-circulated as government expenditures, so tax monies are not actually taken out of the economy.)

James’s budget also outlined plans to take advantage of historically-low interest rates by embarking on a massive capital spending program that will enlist B.C.’s business community in adding new infrastructure — roads and bridges, schools and colleges, plus hospitals and BC Hydro facilities — to the province’s tangible assets.

Anderson, however, audaciously asserted that James’s budget “offered little to no mention of measures to support economic growth and competitiveness.”

She said that. Really.

Then the B.C. Chamber of Commerce — whose director of policy development, Dan Baxter, is a former BC Liberal Party organizer — weighed in. The Chamber conceded it was “pleased with the financial prudence in the budget,” but nonetheless was upset that James had failed to foster “an environment that encourages investment.”

That observation is astounding insofar as Statistics Canada last week reported that capital spending on non-residential construction and machinery and equipment in B.C. has skyrocketed from $29 billion in 2017, to a projected $41.8 billion in 2020.

And mere days after James’s budget, the Conference Board of Canada published a report on investment intentions for 2020 and declared “we see big projected investment growth in Ontario, Quebec and B.C.”

Meanwhile, over at the Independent Contractors and Businesses Association (ICBA) — now led by Chris Gardner, a former principal secretary to BC Liberal premier Christy Clark — there was loud moaning that provincial businesses, “looking for relief from higher taxes, suffocating red tape and other anti-employer policies enacted by the BC NDP government over the past three years, got nothing” in the latest NDP budget.

Incredibly, in one of the most-laughable claims ever made about any B.C. budget, the ICBA also accused the Horgan government of boosting spending so high that it was “running out of money.”

No, it isn’t. Stop being silly. (See budget surplus above.)

Finally, the Business Council of B.C., which often strives to be objective, squarely took aim at James and blasted her for delivering “an underwhelming effort” with “skinny operating surpluses” over the next three years.

In other words: Congratulations on balancing the budget but your surpluses should have been bigger. Hmmm.

The council’s economists decided to be “concerned about what was not in the budget.” Apparently they want the government to play favourites by awarding some commercial enterprises more perks and tax breaks and subsidies.

British Columbia, they contend, has a “fraying competitive position” and “rising business costs,” and is in desperate need of “a more competitive environment for our export-oriented industries.” The latest NDP budget “contains little that will strengthen the province’s economic fundamentals or improve its competitive position over the medium-term.”

So, thanks for the balanced budget, the competitive tax rates, the new expenditures on health, education and social services, and a record-breaking investment in infrastructure — but the business community wants more.

James’s 2020/21 budget, the Business Council concluded, was “a disappointment” with “no meaningful tax or regulatory initiatives.”

Okay.

Bad math by BC Liberals

As might be expected, opposition BC Liberal Party MLAs had little positive to say about the budget. More surprising was the sketchy arithmetic many of them employed. Here’s just one example.

“This budget, it's disappointing,” lamented Steve Thomson, representing Kelowna-Mission. “Taxation is up $5.7 billion under the NDP.”

That alleged $5.7-billion tax hike was repeated by MLAs Teresa Wat (Richmond North Centre), Todd Stone (Kamloops-South Thompson), Sam Sullivan (Vancouver-False Creek) and Stephanie Cadieux (Surrey South).

BC Liberal MLA Rich Coleman (Langley East) took the pile-on to an absurdly ridiculous level by asserting, “Taxation is up $5.7 billion per year since 2016/17.”

Wow. While Coleman’s colleagues used the $5.7-billion figure to imply that’s how much the tax burden has grown for British Columbians while the NDP has been in office, Coleman claimed that’s how much it’s gone up each and every year.

In any case, all those claims are misleading in the extreme.

Let’s recall that over the 16-year period when the BC Liberal Party was in government, total tax revenues climbed from $14.3 billion in 2000/01, to $27.1 billion in 2016/17. That’s an increase of $12.8 billion.

Those numbers do not include BC Liberal governments’ crushing and frequent hikes to Medical Services Plan premiums, which over the period tripled total MSP revenues from $894 million to $2.6 billion.

Does that mean the BC Liberals raised taxes by $12.8 billion — or by the even larger number of $14.5 billion when revenues from both taxation and MSP premiums are combined?

Of course not. That’s because between 2001 and 2017, British Columbia’s population grew from about 4.1 million to 4.9 million. Moreover, inflation — which erodes the purchasing power of the country’s currency — rose by 28 basis points as measured by the consumer price index.

So, while the BC Liberals in power made significant changes to taxation policies, tax rates and MSP premiums, the most-important reasons for the government’s soaring tax revenues was population growth and inflation.

It’s exactly the same today under the NDP. The province’s population since mid-2017 has expanded by about 222,000 more residents, and the CPI has gone up another nine basis points.

So, despite the fact that James has overseen a number of policy changes over the last three years, the most-important determinants behind the growth of provincial tax revenues since mid-2017 remains population growth and inflation.

And whereas total tax receipts — both taxation and MSP premiums — under the BC Liberals rose by $14.5 billion, total tax revenues under the New Democrats have climbed upward by $5.7 billion (from just under $29.7 billion in 2016/17, to a projected $35.3 billion in 2020/21).

Even though total tax receipts are expected to rise by a total of $5.7 billion over the four-year period, it does not mean that the increase was generated by (or is due to) new taxes or changes in tax-rates.

That said, there is no explanation as to how Coleman — who this past weekend announced his impending retirement after a quarter century in the legislature — could make the ridiculous charge that the NDP have raised taxes by $5.7 billion each and every year since John Horgan became premier.

That’s just plain weird.

Big banks are pleased

While B.C.’s business representatives were having a collective conniption over the latest NDP budget, Canada’s Big Five banks did not agree. In fact, they were laudatory.

RBC Economics — the Royal Bank of Canada — prepared an analysis which noted that B.C.’s “strong fiscal position aids the province in weathering any economic headwinds, while continuing to support essential services.”

The bank observed that James had coloured her budget well within the lines. Private sector economists, including RBC’s own, predicted “significantly” stronger growth for B.C.’s economy through 2021 than does the provincial government. RBC also noted that B.C. projected revenues and spending increases were lower than the average over the past decade.

An analysis by TD Economics — with the Toronto-Dominion Bank — opened with the headline: Staying the Course on Balanced Budgets. James’s 2020/21 fiscal plan, the TD observed, “builds on the government’s prior two budgets, highlighting existing affordability and climate change initiatives, while keeping a relatively tight lid on new programs.”

The report further noted that “the budget contained little of new spending policy changes,” and continued: “outlays are expected to leave spending growth running at just below inflation and population growth over the next few years.”

“Prudent” was mentioned more than once in the TD report. “Conservative economic forecasts and sizeable forecast allowances should provide sufficient cushion if global headwinds act to slow B.C.’s economy to a greater degree than expected.”

Economists at Scotiabank declared that “B.C. maintains one of the most enviable fiscal positions of any Canadian province, and we support its balance of long-term investment and attention to debt and deficit management as new risks emerge.”

The economics shop at the Bank of Montreal concluded that B.C.’s “revenue outlook is based on reasonable economic assumptions.”

And CIBC Economics prepared a lengthy analysis that began by noting that British Columbia “is expected to see continued economic growth of around two per cent over the coming four years in real terms. While that’s weaker than the average seen since 2010 (2.8 per cent), those growth rates would still leave B.C. outperforming the national average.”

Three cheers for fiscal probity!

Let’s review. The BC NDP government delivered a balanced budget which boosted spending on the government’s largest program areas (health, education and social services). It kept tax rates generally static save for some new levies on high-income earners and sugary sodas. And it provided a sizeable lift to capital spending on public infrastructure.

The reaction from the province’s business community was criticism and confrontation.

Maybe that’s just the way things work in British Columbia. When the New Democrats hold the reins of government — regardless of whether budgets are balanced or not, no matter how favourably B.C.’s economy compares to other provinces — business interests feel obliged to attack.

It’s no scientific mystery. At least not one worthy of explanation by Isaac Newton.