Thank You Ottawa!

A rising torrent of federal transfers is behind the $1.3 billion surplus unveiled last week in finance minister Carole Taylor's 2005-06 mini-budget.

And yet, neither the BC Liberal government nor the New Democratic Party opposition seem aware of, or are willing to acknowledge, Ottawa's growing beneficence.

The BC Liberals attribute Victoria's windfall to policies — tax cuts for businesses and high-income individuals, and a reduction in red-tape — implemented since they took office four-and-a-half years ago. Those initiatives, they say, stimulated private-sector investment and economic growth, which in turn boosted the revenues flowing into the provincial treasury.

The New Democrats charge that the projected surplus derives from BC Liberal spending cuts to vital public services, and say that global forces beyond the province's control — such as soaring commodity prices and historically-low interest rates — have lifted government revenues.

While there is some truth (and much that is untrue) in each of these conflicting theories, both the BC Liberals and NDP appear oblivious to the real benefactor behind BC's massive surplus: the federal government.

Don't credit spending cuts

Let us begin in 2000-01, the fiscal year that ended just six weeks before the May 2001 general election, when the BC Liberals won a massive legislative majority. That fiscal year, preceding the arrival of the BC Liberal government, had Consolidated Revenue Fund (CRF) revenues of $23.7 billion, and expenditures of $22.4 billion.

Five years later, Taylor's mini-budget for 2005-06 pegs CRF revenues at $28.3 billion, and expenditures at $27.0 billion. (Taylor has set aside a CRF contingency of $320 million, which may or may not be spent before year-end; but her budget counts it as an expense, and so does this analysis.)

As the table below shows, CRF revenues and expenditures between 2000-01 and 2005-06 grew by a near-identical amount, $4.559 billion and $4.594 billion respectively. Consequently, where the NDP recorded a CRF surplus of $1.3 billion in their final year in office, the BC Liberals' projected surplus in the current period is nearly the same.

Table 1 -- Consolidated Revenue Fund, 2000-01 to 2005-06 ($ millions)
	2000-01	2005-06	Increase
Revenue	$23,745	$28,304	$4,559
Expenditure	22,444	27,038	4,594
Surplus	1,301	1,266

(SOURCES: Public Accounts 2004-05, Consolidated Revenue Fund Supplementary Schedules, p. 5; and Estimates, Fiscal Year Ending March 31, 2006 (Presented to the Legislative Assembly September 14, 2005), Schedule J, p. 200.)

Let's quickly dispense with the expenditure side of the equation. As shown above, CRF spending under the BC Liberals will have grown by nearly $4.6 billion during their first five years in office. It is true that social services expenditures — notably income assistance and child welfare — and some other areas of government operations have experienced real declines in funding since 2001, but health and education spending are up by about $3 billion and $1 billion respectively. (The actual figures will not be known until next summer.)

New Democrats and others may have wished that the Campbell government's expenditures were greater in certain areas, but it is clear that spending cuts did not produce the $1.3 billion surplus expected in the current fiscal year. Indeed, the growth in overall expenditures merely matches the growth in revenues.

Ottawa's beneficence

So, we turn to the revenue side of the ledger, for that is where the real story of the current surplus is told.

In 2000-01, Ottawa's transfers to BC represented 11.6 cents of every revenue dollar received in the Consolidated Revenue Fund. This year, according to Taylor's mini-budget, the comparable figure will be 17.5 cents of every revenue dollar in the CRF. That's an increase of more than 80 percent in just five years, from $2.751 billion to $4.959 billion. By comparison, all other CRF revenue sources grew by less than 12 percent.

Table 2 -- Consolidated Revenue Fund, Revenue Soources, 2000-01 to 2005-06 ($ millions)
	2000-01	2005-06	Increase
Taxation	$13,881	$14,800	$919
Natural resources	3,750	4,359	609
Other	1,863	2,409	546
Crown corporations	1,500	1,777	277
Federal Government	2,751	4,959	2,208
TOTAL	23,745	28,304	4,559

(SOURCES: 2005 British Columbia Financial and Economic Review, p. 96; and Estimates, Fiscal Year Ending March 31, 2006 (Presented to the Legislative Assembly September 14, 2005), Schedule J, p. 200.)

The picture becomes clear when looking Table 2, which charts the real-dollar growth of CRF revenue components from 2000-01 to the current year, 2005-06. By the end of the current fiscal year, taxation revenue is expected to have grown by $919 million; natural resource revenue, by $609 million; Crown corporation contributions, $277 million; and "other" (which includes MSP premiums, motor vehicle licences and permits, fees and licences, asset sales and more), up $546 million.

The total increase expected from these four revenue sources will be $2.35 billion. Federal transfers alone, over the same period, are forecast to have climbed by a near-identical $2.2 billion.

In other words, Ottawa's beneficence is responsible for almost half of the total increase in the Campbell government's revenues. Or, looked at another way, since the BC Liberals took power, the growth in federal transfers is about equal to the growth of all other revenue sources.

Where's the new economic activity?

A final word on Victoria's taxation revenues under the Campbell government. During their five years in office, the BC Liberals have instituted cuts to personal and corporation income tax rates because such measures, they say, "pay for themselves" and stimulate economic growth.

It might be expected, therefore, that revenues initially lost through such cuts have been offset by gains due to an expansion in economic activity. Such is not the case.

In 2000-01, personal income taxes generated $5.96 billion, while the estimate for the current year is $5.84 billion — a drop of $479 million. Over the same period, corporate income tax revenues grew from $1.05 billion to $1.22 billion — an increase of $161 million.

The combined revenue from personal and corporate income taxes, therefore, is $319 million less than it was the year before the BC Liberals won election to government. If income taxes have not generated any revenue gains, where has the $919 million in increased taxation revenues come from? Four main tax sources are responsible: revenue from the "social service" (sales) tax is up $587 million; "property transfer" tax, up $388 million, "property" tax, up $265 million, and "fuel" tax, up $200 million.

Windfall blows from the East

Given the nature of politics, Carole Taylor and the BC Liberals likely will continue to claim that their policies have produced a windfall surplus of about $1.3 billion — and possibly more — in 2005-06. And it is just as likely that opposition New Democrats will maintain that any such surplus was gained on the backs of less-fortunate British Columbians.

But the truth is that Ottawa, after drastically cutting transfers to provincial governments in the mid-1990s, turned the spigots wide open at the turn of the century, and federal dollars have been pouring into Victoria's coffers.

Tyee regular columnist Will McMartin is a political consultant who has been affiliated with the Conservative, Social Credit and BC Reform parties.