Scare Stories about High BC Spending Are False

Anybody who ever has given serious study to British Columbia's finances knows that the Campbell government has overseen a significant decline in Victoria's annual expenditures since their election to government in 2001.

And yet, for reasons that aren't clear -- probably ideology, possibly ignorance -- certain editors and columnists at the Vancouver Sun frequently and loudly assert the opposite. Provincial spending, they claim, is out of control.

The newspaper, moreover, regularly provides space for those who adhere to and proclaim this dubious view. Take Maureen Bader, B.C. director of the Canadian Taxpayers Federation, who makes frequent appearances on the Sun's op-ed page. At the beginning of this year, she published a piece which asserted her belief that "the B.C. government has a spending addiction." No empirical evidence was offered.

A month later, days after the Campbell government's throne speech, Bader wrote another missive with a similar theme. "This government has a spending problem, not a revenue problem," she declared. "Under this government, spending has spiraled far higher than anything seen under the NDP and brought us back into a deficit."

And on Feb. 22 she had yet another column, and again repeated the claim. "Liberal government has a spending problem, not a revenue problem," screamed the headline. Again, no facts or figures were provided to buttress those false and misleading claims.

Fraser Institute, Sun editors agree

Nels Veldhuis of Vancouver's Fraser Institute is another frequent Sun contributor. On Feb. 8, Veldhuis and a colleague had a column on the op-ed page which offered a confessedly "rather simple" solution to Victoria's fiscal situation: "The government must reduce spending."

The column was remarkably similar to one Veldhuis lead editorial blared: "The key to a balanced budget is curbing spending."

But, like the opinion pieces written by Bader and Veldhuis, the editorial offered no empirical evidence to show that the province's spending has risen significantly -- or even at all -- under the Campbell Liberals.

Cayo's first big error

So, it was surprising last week to see a post-budget analysis by Don Cayo, a Sun business columnist, which specifically addressed B.C.'s alleged soaring expenditures. The headline, of course, was what one has come to expect in the Sun: "Big spending rolls on in tough times." But then Cayo provided empirical evidence to back his thesis.

The columnist looked at a NDP government budget from a decade ago in fiscal 2000/01, and noted that estimated expenditures added up to $22.3 billion. To his credit, he re-calculated those expenditures in current dollars (to address inflation), and came up with an adjusted total of $27.4 billion.

Cayo then noted the estimated expenditures for the upcoming fiscal year of 2010/11, which Colin Hansen's latest budget puts at $40.6 billion.

That's quite a jump -- from $27.4 billion to $40.6 billion in just the last 11 years. Not surprisingly, Cayo succinctly summarized his findings thusly: "Provincial spending is up hugely over the past decade."

Except it's not. And a closer examination of Cayo's calculations reveals two fundamental errors that demolish his presentation of B.C.'s finances.

First, while Cayo deserves credit for adjusting the 2000/01 expenditures to address inflation over the last decade, he failed to acknowledge the province's population growth over the same period. A decade ago, in July 2000, according to BC Stats, the province was home to 4.039 million people. Hansen's latest budget [see p. 122 here] puts our estimated population as of next July at 4.524 million.

That's an increase of 485,000 people over the last decade -- the equivalent of adding a new Burnaby, Victoria, Kelowna and Prince George (combined) to the provincial population in the space of a single decade.

So, B.C. has gained nearly a half-million new taxpayers since 2000 -- and that same number of people now need government services such as more doctors and nurses, educators, police officers and so on. Is it surprising that both revenues and expenditures have increased as a result?

So, it's great that Cayo adjusted B.C.'s spending for inflation over the last decade, but he also had to account for the province's 12 percent increase in population over the same period.

Whopping oversight number two

But that's a minor quibble when one considers Cayo's second -- and most egregious -- error. He totally ignored the fact that in 2004 the Campbell Liberals instituted a new accounting system called GAAP (Generally Accepted Accounting Principles).

The expenditures in Ramsey's 2000/01 budget that Cayo used for his analysis were those from the Consolidated Revenue Fund (CRF) alone [see p. 3 and p. 5 at this link], while the expenditures in Hansen's latest budget were based on GAAP.

The latter includes the CRF, plus the SUCH sector (schools, universities, colleges and health agencies), plus net income from B.C.'s Crown corporations. Not surprisingly, GAAP expenditures (and revenues) are much larger than the CRF by itself.

To draw an accurate comparison between government spending in 2000/01 and 2010/11, Cayo should have examined either the CRF or GAAP for both fiscal periods, and then adjusted for inflation, population growth and miscellaneous accounting changes.

The government's real numbers

Fortunately for those who want an objective view of B.C.'s fiscal situation, the Ministry of Finance publishes those historical calculations every year in the province's Financial and Economic Review.

With regards to CRF expenditures, we can see [see p. 106 at link here] that in 2001/01 they totalled $22.444 billion, while for the upcoming fiscal year, Hansen puts CRF spending at $33.782 [see p. 206 here]. The latter figure is more than $6.8 billion less than the $40.6 billion cited by Cayo in his comparison.

Again, the Finance Ministry's Financial and Economic Review allows us to compare year-over-year spending adjusted for inflation, population growth and accounting changes by showing CRF expenditures as a percentage of B.C.'s gross domestic product (see p. 107).

In 2000/01, CRF spending was 17.1 percent of GDP -- its lowest point in a dozen years -- and then, after a slight increase, it went into a lengthy decline. By fiscal 2006/07, for example, expenditures dropped to just 15.4 percent of GDP.

We can do similar calculations for the current and upcoming fiscal years -- 2009/10 and 2010/11 -- by using data provided in Hansen's budget [see current dollar GDP on p. 121 here].

Not surprisingly, because B.C.'s economy has stalled in the current global recession -- with GDP dropping from $197.9 billion in 2008 to an estimated $188.0 billion and $196.3 billion in 2009 and 2010 respectively -- CRF expenditures have increased as a proportion thereof.

From its nadir four years ago, CRF spending can be estimated at 17.1 percent in 2009/10 and 17.2 percent in 2010/11. That's virtually identical to the 17.1 percent in 2000/01 under the New Democrats. Does this look like out-of-control spending to anyone?

Moreover, with above-average economic growth forecast for the foreseeable future, current spending cuts will ensure that CRF expenditures as a proportion of GDP in coming years will once again go into decline.

Getting it 180 degrees wrong

We can do the same comparison with GAAP -- using calculations either made by, or with data from, Hansen's finance ministry.

In 2000/01, GAAP spending totalled $28.439 billion, or 21.7 percent of B.C.'s GDP [see p. 89 at link here]. By 2006/07, GAAP expenditures sunk as low as 18.7 percent of GDP, and then rose slightly over the next two years.

In the current year which is just ending, 2009/10, GAAP spending is expected to come in at $39.7 billion -- next year, 2010/11, it's budgeted for $40.6 billion. The former number is 21.1 percent of GDP -- and the latter, 20.6 percent.

Clearly, the validity of the assertion of a wild rise in B.C.'s GAAP spending disappears upon objective analysis.

To repeat findings from the previous paragraph, Victoria's GAAP outlays a decade ago under the NDP came to 21.7 percent of GDP, and in the upcoming fiscal period with the Campbell Liberals will be just 20.6 percent.

That's not an increase in expenditure. It's an obvious decline.

And, to reiterate another point made earlier, once economic recovery takes hold, Victoria's annual expenditures once again can be expected to fall as a proportion of the provincial economy.