How Liberals Will Balance the Budget

Brace yourself for some world class bragging and boasting by the provincial government.  Finance Minister Gary Collins is set to forecast a balanced budget for the 2004/05 fiscal year, and the high-fiving and backslapping by Liberal MLAs will be worthy of a winning Super Bowl team.  

After running record deficits for three years, the government will be back in the black.  But before the champagne corks start popping and some one dumps a bucket of Gator-Aid over Gordon Campbell's head, let's look at how the government got itself into the deficit mess, and how it got itself out of it.

To the surprise of many, the NDP had produced balanced budgets in 1999 and 2000; in fact the surplus of nearly $1.5 billion in 2000 was the largest ever recorded in British Columbia.  In 2001 the incoming Liberal government quickly destroyed any chance of a third year in the black with huge tax cuts.

Tax cuts failed to produce boom

Tax cuts had been a major campaign promise, and the Liberals delivered.  Deficits wouldn't be a problem, they promised, because the tax cuts would spur such a wild economic boom that the government would be awash in increased revenue.  Too bad the economy doesn't actually work that way.

Instead of producing rosy economic times and rapidly rising government revenues, the tax cuts blew a $2 billion hole in the budget.  Then came 9/11 and a North America-wide economic slowdown.  The economy tanked, and in 2001 British Columbia's economy went into recession for the first time since the 1980s.

This year the provincial budget will finally be back in balance.  Here are six reasons why Finance Minister Collins will be smiling when he tables his budget forecast for 2004/05:

1) The US economy has finally pulled out of the doldrums.  British Columbia's economic fortunes are highly dependent on those of its biggest trading partner.  The province may again trail the rest of Canada in economic growth this year, but the good news south of the border is good news for us.

2) We like to smoke, drink, and gamble, and we'll pay for it.  Taxes on cigarettes will go up $40 million; higher mark-ups on beer, wine, and liquor will raise another $55 million.  New casinos are sprouting up everywhere-even Vancouver wants a piece of the action.  Government gambling revenues will be 50% higher in 2004 than in 2000.

Thank you Ottawa
  
3) It's a federal election year.  Transfers for health, education and equalization payments are rising.  Paul Martin just gave the provincial premiers $2 billion for health care; further increases can be expected in the federal budget.  Mr. Martin wants to elect more Liberal MPs in British Columbia, so more federal goodies will come this way before we go to the polls.

4) People need to stay warm.  The demand for natural gas is soaring across North America, and British Columbia has lots of it.  Oil patch activity reached record levels last year; in just one month the sale of drilling rights netted $418 million.  The provincial government now takes in more money from the oil/gas industry than it does from forestry.

5) Robbing from the poor to give to the rich is not illegal for governments.  The tax cuts of 2001 mostly benefited the well off; now the poor are being robbed to pay for them.  The beleaguered Ministry of Children and Families faces another $70 million in service cuts, and on April 1 thousands of people struggling to survive on welfare will have their benefits cut off.

6) Tax cuts don't pay for themselves, but tax increases sure do.  Over the last two years, provincial taxes and fees have increased by $1.1 billion.  For middle income earners any benefit of the 2001 tax cuts has been clawed back by increases to sales taxes, gasoline taxes, medical insurance premiums, rising tuition, and a raft of new and increased fees on everything from fishing licenses to firewood in provincial campgrounds.

Yes, the budget will be balanced for the coming year, but for most British Columbians there's little cause for wild celebration.

Paul Ramsey is a former NDP MLA and Cabinet Minister.  He now teaches at CNC and is a Visiting Professor in the Political Science Program at UNBC.