How BC Conservatives Learned to Love Deficits

Apocalyptic warnings about the provincial deficit have been the centrepiece of B.C. Conservative economic discourse.

B.C.’s deficit reflects NDP mismanagement, they say, and will ultimately bankrupt the province unless prudent hands are put in charge.

It was surprising, then, to peruse the party’s costed economic platform released over the weekend (six days before the vote) and discover that the projected Conservative deficit is virtually indistinguishable from the NDP’s.

After balancing the effects of tax cuts, new spending and some vague but potentially massive spending cuts, the deficit forecast in their platform hardly changes at all.

In fact, if compared on an apples-to-apples basis (correcting some accounting tricks used in both parties’ respective costings), it turns out the Conservative deficit would actually be bigger than the NDP’s for at least the first two years of a new government.

The Conservative platform pledges the deficit under its plan would fall from $13.7 billion in the current fiscal year to $13.5 billion next year and $12.3 billion in 2028-29.

The NDP platform, in comparison, projects a deficit of $13.8 billion this year, $12.7 billion next year and $12 billion in 2028-29.

If you had to do a blind taste test to guess which forecast belonged to which party, you might as well flip a coin.

Both parties, predictably, challenge the arithmetic of their opponents. The Conservatives reject the NDP’s forecast of additional provincial revenues ($1.8 billion over three years) flowing from newly approved resource projects (such as the LNG Canada expansion). They also predict that high-income people will flee the NDP’s proposed new tax bracket for people earning over $1 million per year, reducing revenues.

With these corrections, they claim, the Conservative deficit would be slightly smaller than the NDP’s — by all of $101 million next year and $762 million the year after that. But measured against a $13.7-billion starting point, this is pocket change. The blind taste test still would be a coin toss.

Moreover, umbrage can also be taken with several assumptions underlying the Conservative projections. Their costing of proposed tax cuts is very optimistic.

And the Conservatives’ assumption that faster economic growth under their leadership will generate billions in new revenue is blatantly hypocritical. They reject the NDP’s claim of future revenues from investment projects that have actually been approved. But they then claim they will pocket a larger amount of hypothetical revenue ($2.6 billion over three years) from generic growth they say will be unleashed by their business-friendly stewardship.

Another arithmetical sleight of hand underlying the Conservative deficit projection is the reallocation of much of the contingency fund that is traditionally built into the provincial budget.

Contingency funds are used by many governments as a cushion against unexpected developments. Brian Mulroney was first to explicitly budget a contingency reserve at the federal level, back in 1990. If the money isn’t used, it flows automatically into a smaller deficit.

But the B.C. Conservatives now call it a “slush fund” and are raiding $7 billion over four years from this convenient cookie jar. That makes up fully 60 per cent of their total purported spending cuts.

The problem is you can’t cut something that wasn’t spent. And if the Conservatives are saying that money will not be spent no matter what (whether forest fires or pandemics), then they need to specify the concrete functions that would face real (rather than sham) cutbacks.

Let’s try to make an apples-to-apples comparison. We will remove the assumption of hypothetical revenues from new projects or new growth from both platforms. And we will disallow the raiding of the contingency fund, which amounts to a fiscal shell game and would have no genuine impact on the budget balance.

In this comparison, the NDP comes out slightly ahead on the deficit-fighting scorecard. Their deficit would be $13.3 billion next year and $12.7 billion the year after.

The Conservative deficit would exceed $15 billion both years — highlighting the extent to which their platform depends on shaky assumptions about future growth and shuffled contingencies.

For anyone seriously concerned about the provincial deficit, this is concerning.

To be sure, those deficit fears must be placed in context: the province is not going broke, and most jurisdictions around the world are running big deficits because of geopolitical shocks and other challenges.

But there’s no doubt the next provincial government, whatever its political stripe, will face hard choices about managing that large deficit.

What’s striking is how the Conservatives’ long-standing focus on the dangers of deficits disappeared into thin air when it came time to cost out a political platform. This confirms that most of the hyperbole over B.C.’s deficit is more about ideology than economics.

There are many examples of right-wing politicians who rail righteously about the need to balance the books but then run up bigger deficits than ever once they get into power. U.S. President Donald Trump is an extreme case: he’s running a US$2-trillion deficit, equal to six per cent of GDP — the biggest in U.S. history outside of wars and pandemics.

But there are plenty of Canadian examples, from former prime minister Brian Mulroney to Ontario Premier Doug Ford, of conservatives who learned to love deficit funding once they got in office.

In that light, B.C. voters should focus attention on what priorities each party would pursue in power — funded, in both cases, from a continuing deficit.

Because it’s clear that neither is ready to take any dramatic action to reduce that deficit.