Friday, July 10, 2009

Budget bad news and big cuts ahead

I resent being treated like I'm stupid. Sure, I'm capable of dumb moments and bad decisions, but, mostly, I'm a responsible, competent person.
That's why the release of the province's public accounts - the final version of the financial statements of the last fiscal year - was irksome.
There are four things to take away from the event.
First, the province avoided a deficit in the fiscal year that ended March 31. The surplus was small - $58 million by the government's reckoning, $8 million, according to the auditor general.
But a surplus, even if tiny, is important for the government's legitimacy.
Second, the government is finally inching toward honesty about the budget projection of a $495-million deficit for this fiscal year.
It's bogus. The revenue assumptions are hopelessly, blatantly optimistic. The expenses were based on million in cuts that had not been identified.
Within a few days of the February budget, it was being questioned. Before long, economists were suggesting the real deficit would be more than $1.5 billion.
No way, said Premier Gordon Campbell, throughout the election campaign and after. The deficit will be $495 million.
No, said Finance Minister Colin Hansen, even weeks ago. We'll meet the budget.
Finally, the government is acknowledging that's just not going to happen.
Hansen said everything changed on June 24, when the federal government sent new tax revenue estimates. Corporate taxes, especially, will be much lower than expected.
I'm a fan of Hansen. He's smart and sensible, and as health minister his command of issues was impressive.
But his claim that up until June 24 he thought the budget was still realistic is just baffling.
Housing starts were way below the budget assumptions. GDP growth was lower. Natural gas prices a fraction of the budget projections. Welfare rolls were climbing. Within two weeks of the budget day, a reasonable person would acknowledge it was wrong.
Third, the bad forecasting is going to be used to justify deep cuts in services and programs.
After the 2001 election, the Liberals brought in a 25-per-cent income tax cut on their first day in office, a $12-billion hit to the budget. That created a revenue crisis and set the stage for a budget focusing on cuts to programs and services.
Now the botched budgeting and determination to keep the deficits small is creating another crisis.
The budget already included cuts to eight of the 19 government ministries this year. Programs and jobs would have to be shed. And the budget was introduced without an actual plan for achieving all the savings.
Even health authorities were being pushed to find $320 million in spending cuts to keep within their funding.
Hansen confirmed the government has also targeted grants to organizations and is prepared to cut deeply.
That's bad news for communities. Grant support economic development efforts and social service delivery and seniors' support and organizations that educate children about drug risks. The services are close to the community and generally delivered in a cost-effective way.
Now, more than three months into the fiscal year, those organizations face surprise cuts, or even the elimination of provincial funding, Hansen said.
Government should always ensure money is being used effectively.
But the Liberals have had eight years to winnow weak or duplicate efforts. These cuts will do real harm.
And fourth, the public was cheated in the election campaign. Campbell's claim that the deficit would not exceed $495 million and that the budget was credible were not true.
But they prevented a real debate on how the province should respond to the recession. (The New Democrats were complicit; they chose to accept the budget numbers and use them as the basis for their own plans.)
British Columbians were sold a pig in a poke. When the real budget is finally released in September, expect a pretty ugly beast to emerge from the sack.
Footnote: How deep will the cuts be? The government has already cut help for people on income assistance who need literacy upgrading or other support to get off welfare and into a job. Job cuts are already planned in some ministries. It's an odd strategy when other governments have accepted the need for simulus spending.


Gazetteer said...


I, also, have been a fan of Mr. Hansens.

In fact, I've long thought that if he were to become the next leader of the provincial Liberals that he might be able to turn it into a true 'big tent' party that even folks like myself could vote for.

Now, I'm not so sure.

Especially given his 'solution' to the burgeoning budget that he helped hide - this line-by-line $5K correction business that will do nothing except cripple small social service agencies while he just smiles and says, go ahead, to things like the (still to come???!!!) $400 million roof raising of BC Place.


zahm said...

There are many interesting points in your article that are worth considering. keep up the good woork. very enlightening indeed.

medical alert necklace