Sunday, September 18, 2005

Budget puts debt payment before service gains, tax cuts

VICTORIA - The Liberals launched their minibudget with the normal political spin, proudly proclaiming “Improved Support for Seniors at Heart of Budget Update.”
There was good news for seniors, with an extra $242 million earmarked over the next three years for income and housing supports and long-term care improvements. The main benefits will flow to those with the lowest incomes.
But there was better news for corporations, although it didn’t make the headlines in any press releases. They got another 11.5-per-cent tax cut, a benefit worth almost $360 million over the next three years.
The tax cut came out of the blue. It was never mentioned during the election campaign (but then the Liberals never mentioned plans to cut corporate and personal income taxes by 25 per cent during the 2001 campaign).
And the business community - while generally keen on paying less in taxes - hadn’t placed tax cuts high on its wish list, focusing instead on land use, labour and regulatory issues.
The theory is that lower taxes will encourage businesses to locate here. But even before the latest cut, B.C. had the third lowest tax rate in Canada, after Alberta and New Brunswick. The province was already competitive.
The other big budget commitment, like the tax cut, was not even hinted at in the election campaign.
The government budgeted $100 million this year for a First Nations New Relationships Fund, supporting its effort to build a more effective working relationship.
The Campbell government was already well advanced on its new relationship project during the election campaign, but kept the effort - which is worthwhile - under wraps. First Nations have been promised shared decision-making on land use issues, a chunk of the revenue from development and broad recognition as partners by the provincial government.
The $100 million is intended to help First Nations develop the skills and institutions needed to take on their expanded role. No one is sure what that means; the budget promises a plan by spring.
The biggest news in the budget may lie in what wasn’t there.
Taylor’s minibudget acknowledged that the budget introduced in February underestimated government revenues by about five per cent. That means the government had an extra $1.8 billion available to spend on programs, or to fund tax cuts. (That number is still far too conservatives, and understates the likely year-end surplus by some $500 million.)
But the Liberals only increased program spending by another $400 million in the minibudget, with new tax cuts consuming another $400 million.
The Liberals’ overwhelming priority remains paying down the debt., not cutting taxes or improving services. Last year 75 per cent of the surplus money went to debt repayment; the minibudget means a similar commitment is likely this year.
Debt repayment makes sense, as one part of a balanced approach to the finances of the province - or a family.
But the government, by making it the top priority, is running counter to the wishes of British Columbians. A legislative committee on the budget held consultations last year, and reported that the public wanted most of any surplus funds spent to improve health care and other services.
That’s reasonable. B.C.’s debt is relatively small, and easily manageable. Paying it down makes sense, but not at the expense of useful tax cuts, or improved health care. Most people balance their eagerness to pay down their mortgage against the needs of their family today.
The needs exist. A small share of the money going to debt repayment could allow hundreds of hip and knee replacements, or a reduction in MSP premiums, or more money to prepare for the long-term impact of the pine beetle.
The government had decided that paying down the debt is more useful than a grater commitment to any of those.
The budget now goes before the legislature, for the first real scrutiny any government financial plan has received since the Liberals questioned the Dosanjh government’s 2000 budget.
That alone is something to celebrate.
Footnote: The budget includes no money for a teachers’ pay increase. But while the government says it hasn’t worked out a pay mandate for the next round of contract talks with government workers, which start later this year, the budget numbers suggest something like two, two and two is planned. Expect some serious conflicts.

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Anonymous said...

"(but then the Liberals never mentioned plans to cut corporate and personal income taxes by 25 per cent during the 2001 campaign)"

Personal income tax cuts for lower and middle income earners was part of the '01 campaign. The BC Libs were slaughtered in the '96 election for promising tax cuts for the rich.

The media gave Campbell & Co. a free ride in '01 when they were playing coy (so coy that PW has forgotten all about it) about the tax cuts for higher income earners... Kinda like the free ride they are giving now to new Speaker Barisoff over his legacy of inaction and court reprimands in his last cabinet post... or the free ride the media are giving the budget vis-a-vis the "structural deficit" used to justify so much pain (ie: where's that huge fiscal reserve?).

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