Friday, September 04, 2009

Campbell, Hansen fail the smell test

My first budget lockup was in March 1998, when the NDP government forecast a $95-million deficit.
Why didn't you cut a little more and deliver a balanced budget, then finance minister Joy MacPhail was asked?
"Because you wouldn't believe us," she replied.
She was right. And the Liberals might be heading toward that sad state.
In 1998, few believed the NDP. The New Democrats had won the 1996 election in part because of a pre-vote budget that showed a surplus for the current year and another balanced budget in the year ahead.
Neither claim was true. Eventually, the auditor general reported revenues were inflated by hundreds of millions dollars based on political direction.
The NDP government messed up in other ways before getting booted out in 2001, but the phony election budget put a stink on it from day one.
Now, the Campbell government is smelly. More than 70 per cent of British Columbians believe the Liberals "intentionally misled" voters about the province's finances during the election campaign, according to an Ipsos Reid poll.
Gordon Campbell promised right up to election day that the deficit this year would be $495 million and that the February budget was realistic.
But this week Finance Minister Colin Hansen presented a budget with a $2.8-billion deficit.
Campbell and Hansen said everything went wrong after the election. Up until May 12, the budget was a safe bet.
But within a week of the February budget, economists said it was wildly optimistic. The campaign didn't start until two months later.
Last week, Hansen said he knew nothing of any budget problems before the election. "Ministers do not seek advice from deputy ministers and ministry staff during an election period," he told the legislature.
In the lockup Tuesday, Hansen noted that the finance deputy minister did mention that revenues might be $200 million to $300 million less than forecast during the campaign. It was a "casual conversation," Hansen said.
Later that afternoon, he acknowledged more than one conversation.
He didn't ask questions about the shortfall, whether it was likely to get worse or better. Hansen said he believed a $300 million revenue shortfall was easily managed by cutting expenses.
Campbell then said he too he had been told the revenue budget looked suspect during the campaign. He couldn't remember when - May 7, maybe. His deputy minister told him spending could be cut to make up for the shortfall so he thought everything would be fine.
Boy, were they wrong. That's not surprising. When a budget is far off track just weeks into the year, big problems are coming.
Flash forward. On June 10, when cabinet was sworn in, Hansen still said the deficit would be $495 million.
But this week he revealed that he had been briefed by the ministry days after the May 12 election and told revenue was now off by more than $1 billion.
Hansen told the legislature that he still said the deficit target would be met on June 10 because by then he was confident B.C. would be getting $1.6 billion from the federal government for imposing the new harmonized sales tax.
Which raises more questions. The Liberals promised in writing during the campaign that they would not introduce the HST.
But Hansen said by "late May" - two weeks, at most, after the election, the province started negotiations with Ottawa on introducing the tax.
By June 10, after two weeks of discussions with the federal government, Hansen said he considered it a done deal. He was counting on the $1.6 billion from the federal government to cover the revenue shortfall.
So after rejecting the HST as bad for B.C. during the campaign, within four weeks the Liberals had committed to a deal with the federal government to introduce the new tax. No one outside of a handful of insiders was involved in the decision. No analysis or public or business consultation.
And a huge political interest in taking one-time cash for a budget bailout.
Even looked at in the best light, the explanations paint those involved as incurious bunglers, making policy on the fly based on short-term political interests.
Most British Columbians, the poll suggests, also believe they were dishonest.

Tuesday, September 01, 2009

Taking you into the budget lockup

I don't think the "mainstream media filter" is quite the evil that Sarah Palin and lots of other people make it out to be. Filters are highly useful. Someone like Vaughn Palmer can, by sorting out the irrelevant and misleading, consistently offer the information that is significant in a context that allows it to be understood. That's valuable.
But I also think it's useful to give people the option of going to the source and drawing their own conclusions. That's become easier, in terms of written information, thanks to the Internet and Google.
Sean Holman at is making quite extraordinary leaps in extending that kind of access to scrums, interviews and other non-written source materials. Instead of having to rely on press reports, you can watch the press conferences and interviews yourself and reach your own conclusions.
It's impressive stuff - check out his budget coverage, both written and video, here for examples.

The six things you need to know about this budget

From inside the budget lockup, six things you should know about the Liberals' latest effort.
First, the February budget has been revealed as bogus. The deficit is now forecast at $2.8 billion, not the $495 million Premier Gordon Campbell promised during the election campaign. (That would be a record splash of red ink.) The deficit is forecast to shrink to $1.8 billion next year and $1 billion the year after.
Second, most British Columbians are going to face tax increases.
This gets complicated. For starters, MSP premiums are going to increase by six per cent a year over the next three years. (At the same time, the MSP exemptions for people with low incomes will be increased. Generally, single people with incomes under $30,000 and families with income under $40,000 will get breaks.)
Then there is the HST. Finance Minister Colin Hansen's presentation pitched the benefits of the new tax. He promised more investment, job creation and cheaper goods for consumers.
Hansen announced exemptions and tax breaks intended to cushion the blow. The new tax won't apply to home energy use and municipalities and charities will get breaks.
People with a low enough income to qualify for the GST tax credit will also get an HST credit - a family with less than $25,000 in income will get $230 per person.
The basic personal tax credit will also be increased to $11,000 from $9,373, saving a typical taxpayer about $70. (Though the MSP increase will claw that back by next year.)
But most British Columbians will pay more because the new tax applies to so many things that were PST-exempt.
The PST now takes in about $5 billion a year. The new HST won't apply to most business purchases, saving companies $1.9 billion a year and reducing the province's take by that amount.
But even with that loss, the government says it will still take in $5.6 billion from the new tax - $600 million more than it gets from the PST.
That means consumers will be paying a lot more to provide the increased revenue and make up for the lost revenue from business. (The government's theory is that companies will pass some of their cost savings on to consumers.)
Third, there won't be too many more surprises this year. The government's efforts to cut or control spending have mostly been revealed - slashed grants to organizations across the province, limits on health spending that will mean longer waits. The discretionary grants have been chopped by 30 per cent - $354 million that won't be going out to communities for services and programs and care.
Fourth, the government has set the stage for a couple of years of further cuts. Health expenditures are set to increase at about six per cent a year.
But after a small increase this year, the government plans cuts to non-health spending in each of the next two years.
On an abstract level, that can sound appealing. But the Environment Ministry budget, for example, is forecast to be cut by 20 per cent by the 2011/12 budget year. That means job losses, reduced park access and other much less popular measures. The Children and Families Ministry budget is frozen for two years, even as social problems rise. Across government, about 1,400 jobs are to be eliminated over the next two years.
Fifth, about the only major expansion of government services will be the introduction of full-day kindergarten, which will be available across the province by 2011.
Sixth, and last, the wild ride is not over. The budget is based on the assumption that the recession has bottomed out. The government is projecting a 2.9 per cent slump in the economy this year, followed by growth of 1.9 per cent and 2.7 per cent in the next two years. That's based on a conservative approach to the forecast from a panel of independent economists. But it's also, as we've seen in the last 12 months, a risk.
Stay tuned.
Footnote: The budget forecasts continued tough times for the forest industry and provides little increased aid for communities dealing with the long-term impact of pine beetle devastation. It was generally praised by business groups and panned by unions and health and social service advocates.