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Ready for a Slump?

As BC's economy cools, how well are we prepared?

By Andrew MacLeod 26 Mar 2008 | TheTyee.ca

Andrew MacLeod is The Tyee's Legislative Bureau chief in Victoria. You can reach him here.

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British Columbia and the BC Liberal government have enjoyed the benefits of a strong economy for several years. But now the United States is possibly in recession and at least some Canadian provinces are following it down. It's too soon to say whether B.C. will follow too, but observers and the Finance Ministry are at least predicting slower growth.

The downturn raises questions. Where should the government spend money to buffer the decline? Are the Liberals budgeting more for areas like education, welfare and housing that will likely see more demand? When they've let these areas slide in a hot economy, can they be relied on to fund them when times are tough?

"It's obviously a rapidly changing economic environment we're finding ourselves in," said Jock Finlayson, vice-president of the Business Council of B.C. and an advisor to the finance minister through the B.C. Economic Forecast Council.

Things have been good in recent years, he said. The economy has performed well, the job market has been strong with very low unemployment numbers and the province has consistently had surplus money left over at the end of each year. "It would be easy to grow complacent," he said.

There are, however, several threats to the provincial economy. The rise in the Canadian dollar, which has hovered around parity with the U.S. dollar in recent months, the shortage of labour in the province, and even the new carbon tax add to the difficulties for B.C. businesses, he said. "If you add them all up it paints a picture I wouldn't call black, but it shows some of the things businesses are grappling with."

Quarterly warning

Finance Minister Carole Taylor noted the province's softening economy in November while delivering the quarterly update. The economy was still growing, but not as fast as expected. The prediction had been pulled back from 3.3 per cent growth to 3.1 per cent. Manufacturing shipments were down by 2.1 per cent. Exports had dropped by 4.1 per cent, the worst performance in Canada, she said.

"Our export numbers are showing something is happening in terms of our relationship with the United States," Taylor said. The high Canadian dollar was affecting lumber, tourism and manufacturing. Natural gas revenue had fallen $164 million since the February 2007 budget. Forest revenue was down $88 million.

The high dollar, the low demand for B.C. resources and low prices all conspired against the provincial economy, Taylor said. The housing index in the United States, a major user of B.C. wood, was at a record low. "This isn't a story that's going to very quickly change."

That appearance, however, was Taylor's first since she announced she was leaving provincial politics. Stories about economic foreboding were overshadowed by questions about the minister's sunny future and what was then a possible Vancouver mayoral bid.

Budget day blues

Plod ahead to budget day, Feb. 19, 2008. Again Taylor offered a cautious outlook, though it was largely ignored in stories about the "green" budget with its centre piece carbon tax that will raise the price of gas by a couple cents a litre this year.

"We are not completely insulated from the world around us," that day's Hansard recorded Taylor saying. "We do expect B.C.'s economic growth to slow somewhat this year. For 2008 we are forecasting growth of 2.4 per cent. That is somewhat less than in recent years."

The province would fare better in bad times than the United States and the rest of Canada, she said, but it was worth being cautious. She kept a $750 million "forecast allowance." Along with spending and capital contingencies and the planned surplus, the budget had over $1 billion of what she characterized as "prudence" and others might call wiggle room.

"The budget that was brought down was a good one," said BCBC's Finlayson. The economic forecast was cautious and there is room in the budget for things to slide a bit. "I think that was a sound strategy."

As the economy slows, he added, some areas of the province will be affected worse than others. Urban areas of the Lower Mainland, Southern Vancouver Island and the Okanagan are more shielded from problems in the United States and the rest of Canada. Areas in rural B.C., where jobs depend more on extracting resources for export, will be hit much harder, he said.

Finlayson said most business owners would agree the provincial government has done a good job, but he'd like to see more focus on the economy. "The government's agenda has had a strong focus on non-economic issues over the last couple years," he said.

Boom not shared

NDP finance critic Bruce Ralston said the Liberals need to do more to warn people of the coming hard times.

"I'm sure they're not going to accept responsibility for the downturn," he said. "I think the premier wants to continue the boosterism theme."

The Liberals campaigned in 2005 on the strong economy, for which they claimed credit. That makes it hard for Premier Gordon Campbell to admit things are going sideways, said Ralston. "I think it's a deliberate strategy. I don't think he wants to give any credence to that idea, because rightly or wrongly he thinks it will be politically damaging."

Even during the boom, he said, little was done to share the benefits. Top earners have seen large jumps in their earnings, but most people have not, he said even as the government fees for many things have gone up, as have the prices for goods and services.

"People may be employed, which is a good thing, but their real capacity to get ahead hasn't increased," he said. "I think if you ask the average person, 'have the fruits of the boom been shared equally,' I think lots of people would say, 'no,' and I think for good reason."

Now that the economy is cooling, he said, B.C.'s Liberals appear to have few ideas to offer. Aside from the 2010 Winter Olympics, little is being done to boost economic activity in the province, he said. "Once the crowds go home, what is there?"

There is any number of things the government could do to address the faltering economy, he said. More money could be spent helping municipalities already devastated by the failing forestry industry, he said. As local economies shrink, local governments will need help maintaining services.

More could also be spent encouraging regional economic development. Construction is one of the strongest parts of the B.C. economy right now, but it too is expected to slow. As it does, Ralston said, people could be moved to public infrastructure projects.

Finally, he added, much more could be done to reduce poverty.

Cuts follow cuts

Finance Minister Taylor has acknowledged the coming downturn, but there is little in the budget to suggest the government is preparing for it.

One might, for example, expect that as people lose their jobs there will be higher spending for welfare. In fact the numbers of "employables" receiving "temporary assistance" benefits is already increasing after years of decline.

And yet February's budget predicts the government will spend $6.3 million less on temporary assistance in 2008-2009 than it did this year, with a further $4.8 million drop the next year. It's not until the 2010-2011 fiscal year that they predict a slight increase in spending in the area.

Similarly, as the economy slows, many people will likely choose to return to school. But instead of increasing spending on post-secondary education, Advanced Education Minister Murray Coell recently announced he's saving $16 million by cutting college and university budgets by 2.6 per cent.

Even in the boom times, B.C. has developed a huge housing crisis with 15,000 or more people homeless. Yet BC Housing's budgets for public, non-profit and co-operative housing will receive a slight bump for 2008-2009 before declining again in each of the two following years.

The Health Ministry's performance measure for the "number of people with a mental disorder and/or substance addiction receiving housing with supports" says it is setting a baseline in 2007-2008, meaning it is figuring out how much housing it is already providing. The plan for the next two years calls for nothing more than an "increase over previous year" culminating in a 20 per cent total increase by 2010-2011.

"What one would expect during a period of economic growth is that the government would lay the basis for future prosperity using the financial resources made available to it during good times," Ralston said in his Feb. 20 response in the legislature to the budget, according to the day's Hansard.

"As things shift downwards, the degree to which the government will be tested is the degree to which the government has prepared for the inevitable downturn and built upon the natural and human assets of the province, in order to provide some protection from that downturn."

He concluded, "We haven't seen that kind of leadership from the government. This budget, as we head into an economic downturn, doesn't have much to offer."

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