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Taylor's Do It Ourselves Budget

After tax cuts, it's far less than meets the eye.

By Will McMartin 21 Feb 2007 | TheTyee.ca

Will McMartin is a veteran political consultant and analyst and a regular contributor to The Tyee. Read his previous columns here.

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Unveiling 2007 numbers

At first glance, B.C. Finance Minister Carole Taylor's budget for 2007-08 looks like a big-spending plan with billions of dollars allocated for health, education, housing, the environment, transportation and facility infrastructure, and a personal income tax cut.

But appearances can be deceiving, especially when it comes to B.C. budgets, and Taylor's planned expenditures for the coming fiscal year, upon closer examination, look very modest indeed.

The underlying message may be that the Campbell government, rather than solely addressing public policy challenges such as health and the environment, is going to allocate more resources -- through tax cuts -- so that British Columbians can solve them themselves.

Flying money?

Under Taylor's 2007-08 budget, spending from the Consolidated Revenue Fund (the government's main operating account) will grow by nearly $1.5 billion in the coming year, to $29.775 billion. The largest increases are for health, $885 million; post-secondary education, $124 million; and K-12 education, $123 million.

On top of that is new capital spending totalling more than $5 billion. The biggest beneficiaries are construction projects for B.C. Hydro, $995 million; highways construction, $922 million (through the B.C. Highways Transportation Financing Authority); post-secondary education, $857 million; and health, $819 million.

And finally there are tax cuts totalling $432 million in the coming fiscal period (and $630 million over a full fiscal year), most of which is for a 10 per cent reduction in personal income taxes to a maximum of $100,000 per annum.

Why, it looks like money is just flying out of the provincial treasury!

Wild health spending?

Not really. For example, the finance minister pegs this year's health increase at 7.3 per cent over last year -- just 6.4 per cent if the $100 million Innovation Fund is not included -- but either amount leaves B.C.'s two largest health authorities with operating deficits totalling $119 million.

The Fraser Health Authority, where chair Keith Purchase quit in protest a few weeks ago, faces a $65 million shortfall in 2007-08, while Vancouver Coastal, formerly headed by the fired Trevor Johnstone, anticipates a $54 million deficit.

(The fiscal plan also shows that Victoria will allow Vancouver Coastal to finish the current fiscal period, 2006-07, with a $40 million shortfall.)

Then, in the two fiscal years following the coming period, Taylor's plan forecasts very minor health-funding increases. In 2008-09, she outlines a spending hike of just $221 million (2.2 per cent), and then in 2009-10, a raise of $440 million (3.3 per cent).

Over these three fiscal years, Victoria's health expenditures are expected to grow from $12.182 billion to $13.798 billion -- a lift of $1.6 billion. That's an annual average of just 4.4 per cent per annum (about half of the 8 per cent yearly growth Taylor predicted last September).

But Taylor calculates this three-year increase -- using the now-traditional suspect arithmetic whereby year-over-year hikes are counted more than once -- at almost $3.7 billion.

You don't need a crystal ball to foresee the never-ending health debate certain to consume British Columbians in the coming months. The government will continue to claim that spending is out of control; the health authorities will rack-up operating deficits; patients will complain of deteriorating service; and health care providers will argue that they don't have the resources to do their jobs.

The big sponges

Combined, health, post-secondary education and K-12 education get more than $1.1 billion of the increase in Consolidated Revenue Fund spending. In contrast, all other government departments get a piddly net of $137 million.

Most ministries have small lifts in their 2007-08 budgets. For example, Agriculture and Lands gets $35 million; Transportation, $30 million; Public Safety and Solicitor General, $28 million; the Attorney General, $24 million; Community Services, $22 million; Environment, $20 million; and Aboriginal Relations and Reconciliation, $19 million.

Then there are a few which will experience funding reductions: Tourism, Sports and the Arts is down $80 million; Economic Development, $46 million; Forests and Range, $16 million; Children and Family Development, $6 million; and Energy, Mines and Petroleum Resources is losing $1 million.

Tax cuts equal housing?

"Building A Housing Legacy" is the sub-title for this year's budget, but even the listed housing expenditures seem picayune.

The government claims that it will spend more than $2 billion on housing initiatives over a four-year period (fiscal 2006-07 to 2009-10). But more than three-quarters of that total is attributable to the cumulative cost of the 10 per cent personal income tax reduction.

The theory, apparently, is that a personal income tax cut will leave more cash in British Columbian's pockets, which will in turn help people meet their mortgages, or make rental payments, or amass a down payment to buy a home.

Perhaps, but to claim the tax reduction as a housing initiative seems, at best, a stretch.

So, leaving aside the income tax cut, we're left with a four-year total of $476 million in new housing monies. Yet, of that amount, $101 million is derived from Ottawa, leaving B.C.'s contribution at only $375 million.

And, again, B.C.'s portion is spread out over a four-year period.

What is the actual amount of new monies Taylor is putting forward in her budget for fiscal 2007-08? Let's add it up. There is $8 million for year-round shelter beds; another $2 million for women and children transition houses; $33 million for a $50-per-month increase in the shelter allowance to those collecting social assistance; $11 million to convert social housing; $40 million to increase the Rental Assistance Program threshold; and $10 million to the Housing Endowment Fund.

That's $104 million in new monies the legislature will be asked to approve for the coming fiscal year. No matter whether that amount is sufficient or not, it's a far cry from Taylor's claim of more than $2 billion.

And, as a proportion of total spending from the Consolidated Revenue Fund, it's only two-fifths of one per cent.

Pale shade of green

Similarly, new expenditures for "climate change," the topic that dominated the government's recent throne speech, are almost microscopic. Taylor's budget states that Victoria will allocate $103 million in new funding for "Environmental Leadership," but that's a four-year total.

And of that tiny amount, $45 million is from Ottawa to promote hydrogen buses. Another $13 million are various provincial tax incentives.

That leaves just $45 million as new environmental spending initiatives by the provincial government -- over four years!

In the coming year, Taylor's budget outlines new environmental expenditures that cost a total of $14 million. Of that amount, $4 million is for the expansion of recreation opportunities in provincial parks; another $4 million is earmarked for a grab-bag of programs to improve air quality (retro-fitting diesel buses; encouraging people to replace their wood stoves); $1 million will buy hybrid vehicles for the government fleet; and $1 million is for awards to encourage municipal governments to "green" their communities.

The balance, a grand total of $4 million, will go toward "climate change." According to Taylor's budget documents, this amount will "support actions to reduce provincial greenhouse gas emissions and improve the assessment of the impacts of climate change on B.C."

Gee whiz, if $4 million will fix the province's greenhouse gas emissions, what's the fuss about?

Capital costs

As for the massive run-up in capital expenditures, there is no denying that $5 billion is a lot of money.

But, because British Columbia has adopted generally accepted accounting principles (GAAP), those costs will be amortized over each asset's useful life, and so a very small amount of the $5 billion is counted as an expense in the coming fiscal period.

Plus, since B.C. borrows most of the funds needed for capital projects (as do most jurisdictions), our provincial debt is forecast to rise from $34.4 billion in the current fiscal year, to almost $40 billion in 2009-10.

We're spending a lot of cash on construction, but they are one-time expenditures of borrowed money.

Do it yourselves

And that leaves Taylor's very sizeable reductions to personal income taxes as perhaps the most significant expense of all. The latest cut follows the 25 per cent across-the-board personal income tax decreases in 2001, and the B.C. Tax Reduction in 2005, which, according to the government, now make British Columbia "the lowest personal income tax burden in Canada for individuals up to about $108,000 in income."

Unexpected by most observers -- the next provincial general election will be in 2009, so they'll have little immediate political benefit for the Campbell government -- the tax cuts may instead offer a significant philosophical statement.

That is, the province is not going to take the lead in solving problems in health, in housing or with the environment, but will encourage individual British Columbians -- with additional dollars jingling in their pockets -- to find solutions themselves.

The immediate battleground will be health, of course. And that means we may yet have some interesting debates when the premier's "Conversation" gets well and truly underway.  [Tyee]

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