BC Slams Lid on Education, Revisits Carbon Tax

The British Columbia government is sticking to its plan to balance the budget before the May 2013 election, but it will raise taxes and increase the debt to do it.

The plan also includes selling $707 million worth of government assets, including the liquor distribution services, to the private sector.

"Politicians will be judged by what they do," Finance Minister Kevin Falcon said while presenting the budget to reporters and stakeholders at Victoria's conference centre. In most years since 2001 the government has exceeded its budget targets, sometimes by large amounts, he said.

The one exception was the 2009-2010 budget that was presented as balanced ahead of that year's election, but was off by $1.3 billion and turned into a deficit afterwards. "Nobody is happy to be off, especially by that amount," said Falcon.

He made the observation as he presented a budget with another election on the horizon. It includes a $968-million deficit for fiscal 2012-2013, more than double what was projected in May 2011, followed by a return to surplus in 2013-2014 of $154 million.

Public assets for sale

To get there the government will cancel a cut to the small business tax rate, keeping it at 2.5 per cent instead of dropping it to zero as planned. It will also raise the corporate tax rate one per cent to 11 per cent, starting down a path NDP leader Adrian Dix had proposed of rolling back corporate tax cuts.

The change on the small business tax rate will raise about $540 million over two years, while budget documents say the corporate tax increase will raise $49 million in 2013-2014, though it won't be in place until April 1, 2014.

"If we are doing better... the corporate tax increase will come off the table," said Falcon. "My goal is we won't have to do that, but we're putting it in as an extra measure of prudence."

The government also plans to raise $475 million by selling "surplus assets" such as parking lots or unused building sites. "Additionally, government has recently announced its intention to sell its liquor distribution warehousing facilities and associated distribution services to the private sector," the budget and fiscal plan said, though the government had not in fact previously made that announcement.

Falcon said 40 per cent of the non-strategic, surplus properties included are in the education system. Others include a parking lot near the legislature and a property that had previously been intended for a hospital in Surrey.

When the government sells the liquor distribution system it will make sure union workers are protected in the deal, he said. "It's an opportunity for us to get out of a business we don't need to be in."

Debt, taxes up

The plan sets the forecast allowance, intended to allow for economic volatility that will affect the province's books, at a lower level than in recent years at $200 million for 2012-2013 and $250 million for 2013-2014.

It also sets aside $300 million for contingencies and new programs in the year ahead of the election.

In 2013-14 the province's total debt will be $62.7 billion, or about 18.2 per cent of the provincial GDP. That's an increase of $2.3 billion from the $60.4 billion projected in May 2011.

Teachers are in negotiations with the government right now and other public sector unions have their contracts coming up in the next year. The budget anticipates no increases as a result of those negotiations. Said Falcon, "There is no money in this plan for additional wages, in case anyone had any doubts about that."

The budget raises Medical Services Plan premiums, a tax of a type that B.C. is the only province to levy, by four per cent. It had previously raised MSP premiums by six per cent in each of the past three years.

It also creates tax credits for children's fitness and arts up to $300 that match similar federal credits, a $10,000 credit for first-time new home buyers and a $1,000 home renovation tax credit for seniors.

Falcon said the planned July 1, 2012 increase to the carbon tax will go ahead, but the government will review the tax before deciding whether to make changes to it in next year's budget.

Political responses

NDP finance critic Bruce Ralston said the government is wrong to cut the budget for universities, colleges and training at a time when it's clear there's a mismatch between British Columbians' skills and the jobs of the future.

He said he's skeptical when Falcon says the government will balance the budget next year. "I think these targets are unrealistic," he said, noting Falcon had recently expressed doubt about balancing and the federal government recently delayed balancing its budget. "They're set on a political timetable that's driven by two by-elections that are upcoming and by the fact that there'll be an election in 2013."

A prudent government would hold onto properties it already owns that may be needed in the future, rather than sell them off, he said. "This is a very short-sighted solution designed to meet the very short-term needs of the government."

BC Conservative leader John Cummins released a statement blasting the budget as the kind of thing the NDP would deliver. "The core features of this budget are ballooning debt levels, higher taxes and growing spending masked by accounting tricks," he said.

"The [Premier Christy] Clark Liberals are raising taxes on the most productive part of our economy -- small businesses," he said. "By cancelling the planned reduction of small business taxes, with only a month's notice, they are killing jobs and reducing investment in British Columbia."

He said it's "smoke and mirrors" to claim a balanced budget for 2013-2014 while also increasing the debt by $5.1 billion. "Even if the government is calling it a surplus, the government is spending more than it is taking in."

Green Party leader Jane Sterk said she's concerned about the plan to review the carbon tax. "It seems to me like that's a clear indication from this government that they're going to back down on their commitments," she said. "I would not at all be surprised to see the outcome of that be the removal of the carbon tax."

Nor does there appear to be a plan for what to do about catastrophic climate change, she said, noting the government hasn't even added money for fighting forest fires though they are predicted to increase. "Clearly their investment in natural gas is going to make it impossible for us to meet any kind of greenhouse gas reductions."

The government is promoting trade of non-renewable resources when it should instead be doing things to build resilience into local economies, she said.

The government has a history of overestimating revenues, said Sterk, who was among the first to point out the problems with the 2009 budget. "It seems to me they're still vulnerable on that," she said, predicting that the "real overstatement" will be in next year's pre-election budget.

Tax more: BCFed

"I think this was a great budget for the one per cent, which is what this government's very good at serving, and a terrible budget for middle class and working people in this province who will get more pain and no gain out of this budget," said BC Federation of Labour President Jim Sinclair.

There are millions in the budget for people buying a second home, but no money for teachers and other public employees, he said. "Giving money to people who have money already doesn't create a better place to live," he said. "Invest in people. Stop investing in companies. They're not paying back."

Miserly budgets are largely a result of past tax cuts, he said. In 2000-2001, from every dollar of GDP, 22 cents was used for hospitals and schools. Now the figure is down to 19.1 cents per dollar of GDP, he said.

The difference amounts to $7 billion this year. "That's enough to pay for all the things we need to do in this province."

Iglika Ivanova, an economist with the Canadian Centre for Policy Alternatives, noted the government accounted for the $1.6 billion it has to pay the federal government for getting out of the HST all in the 2011-2012 fiscal year, even though the payments will be spread over five years.

"It's serving a political purpose," she said, adding it helps the government say 'no' to employees and others looking for more money. "It's making the deficit in this year look worse than it is and it's making over the next four years look better than it is."

A finance ministry official said the amount was accounted for in last fiscal year because that was when the contract with the federal government was broken and the liability for the transition money was taken on.

The credit for children's art and sports sounds good, but works out to a maximum of $25 per child, Ivanova said. Meanwhile people who buy recreational homes will be eligible for up to $42,000. "That's who benefits," she said.

The government should be judged on results as the finance minister suggests, she said. However the measures should include things like the poverty rate and the recent Ombudsperson's report on the state of seniors, she said. "What about these outcomes. What is the government doing about them? Nothing."

Taxing small business

The government's reneging on dropping the small business tax rate to zero drew a mixed response from business advocates.

"I think it's a very appropriate strategy," said John Winter, president of the B.C. Chamber of Commerce. "Small business taxes at the current level is a good level to be at... Small businesses should be able to live at 2.5 per cent."

Dropping the rate to zero, which Manitoba has done, was the government's idea, he said. "I don't think anybody was asking them to do that."

The president and CEO of the Vancouver Board of Trade, former BC Liberal MLA Iain Black, said his organization gave the budget a B grade overall and a C for tax competitiveness.

"We're concerned about the taxation piece," he said, noting the lack of certainty around the provincial sales tax is very worrying.

"They don't have a lot of cards to play financially at the moment," he acknowledged, and praised the government for being restrained in its spending. "Especially in a political climate where they're a year away from an election, it would be very easy to open the bank and just go nuts."

Elise Rees, the chair of the board of trade's finance and budget comittee and a partner at accounting firm Ernst and Young, said the government should be clearer on its intention with the corporate tax rate.

"I'm concerned about the lack of certainty when you put out a potential corporate tax rate," she said. "Many businesses make long-term capital investment decisions and the minute you have something that's potential the business community automatically builds that into their forecast... It could be a detriment to long-term investment until we get that certainty back in two year's time."

Shachi Kurl, the director of provincial affairs for B.C. and the Yukon for the Canadian Federation of Independent Business, said breaking the promise on the small business rate is a problem. "That's not good enough from our members' perspective," she said.

She welcomed the news that the government is reviewing the carbon tax.

Costs on future generations

Advocates from other groups criticized various things that were either in or missing from the budget.

David Mirhady, the president of the Confederation of University Faculty Associations of B.C., said the cut to post-secondary education comes as other provinces look at increasing their investment in the sector.

"We're going to see a shifting in costs for post-secondary education from the government to students and their families," he said.

He was also critical of Clark's plan to increase the number of international students coming to B.C., saying they cost universities a lot to educate and aren't the source of revenue the premier envisions.

Lew MacDonald, the coordinator of the B.C. Health Coalition, said the recent announcements about seniors weren't reflected in the budget. "It's such an important issue it deserves mention in the budget," he said. "There's no indication of it."

By not spending money on home and community care, the government adds costs elsewhere, he said.

Reid Johnson, the president of the Health Sciences Association, said his members are being asked to accept a wage freeze that amounts to a cut when you consider the rate of inflation. Meanwhile the government is introducing credits that benefit private construction companies, he said. "They're going to reduce the pharmacists' wages in order to pay for this."

"This government lacks a vision and direction when it comes to the environment and putting forward solutions to climate change," said Ian Bruce, climate change specialist for the David Suzuki Foundation.

Putting the carbon tax on hold sends a poor signal, he said.

"It just seems like there's a lack of vision from our government right now," said Ben West, healthy communities campaigner for the Wilderness Comittee. It would have been easy to target tax credits for homeowners to green energy projects, but the government chose not to, he said. "It's completely off the radar it seems as far as this government's concerned."

At the same time the government is basing the economy on fossil fuels, he said, noting there'll be an environmental price to pay. "We're putting huge costs on future generations," he said.

[Tags: Politics.]