Tuesday, November 02, 2010

Tough to see economic case for tax cut

Gordon Campbell's TV speech bombed, according to the one public poll done in its aftermath. Even the 15 per cent income tax cut wasn't a runaway success.
The Ipsos Reid poll, done for Global TV, found one-third of British Columbians disapproved of the tax reduction.
That still leaves a majority - 62 per cent - in favour of the tax cut.
But the fact that one in three British Columbians didn't think the tax cut was a good idea is interesting.
The Liberals have spent a decade arguing taxes are bad. "We think you make better choices about how to spend those dollars than the government can," Campbell said last week, sticking with a familiar theme. "You all want to have critical services but you know the individual issues that you face as a family, it's better for you to choose where you want your dollars to go."
It's just political talk, crafted to play well on TV. But Campbell did appear to suggest that if you want "critical services" you should pay for them yourself, rather than expect the government to collect taxes and ensure that health and education, for example, are available for everyone.
It's tough to draw too many conclusions from the poll. It could be that the one-third of British Columbians who think the tax cut is a bad idea just dislike Campbell so much that anything he proposed would be tainted.
Or they could be the people who won't benefit from the tax cut. About 40 per cent of British Columbians don't earn tp pay provincial income tax. For someone with $20,000 income, the tax cut is worth a little over $1 a week. (They will benefit from the low-income HST rebate of up to $230 a year.)
But it could also be that man people don't think a tax cut is a good idea when the government is running a deficit. Paying for the tax reduction means borrowing money our kids will have to pay back or cutting more services.
It is a puzzling bit of public policy. Campbell has said deficits are an abomination, but he plunged the province deeper in debt - the tax cut will reduce revenues by $568 million next year, more the year after.
And he once again justified the snap imposition of the HST by saying B.C. desperately needed the $1.6 billion the federal government was offering as an inducement.
But the government is booking $580 million of that payment next year - almost exactly the revenue lost because of the tax cut. The HST incentive payment doesn't look quite so essential as a result.
The tax cut also opens the door to an unending litany of what-ifs. The government is moving people with developmental disabilities out of group homes and programs that have been part of their lives for years to save $22 million. That wouldn't be necessary with the tax cut.
In September, Health Minister Kevin Falcon announced an extra $23 million in health funding that would help 33,000 patients get speedier treatment. On that basis, the money the government gave up could have helped hundreds of thousands of people to get better access to needed health care.
Campbell made a brief reference to the economic benefits. The theory is that people will spend the money they get as a result of the tax cuts (and that government won't cut its spending because of the reduced revenue).
Some of that spending will result in jobs and economic growth in the province. The cuts will pay for themselves
But the business case is weak. A Central 1 Credit Union "preliminary impact assessment" estimated the 15 per cemt cut would increase economic growth from 2.4 per cent to 2.5 per cent next year.
That, according to the budget documents, translates into about $20 million in additional government revenue, compared to the $568 million given up as a result of the tax cut.
Even the 62 per cent who welcome the tax cut must wonder about the decision-making process.
Footnote: The poll found 11 per cent of British Columbians had an improved opinion of Campbell after the speech; 43 per cent thought worse of him. Thirteen per cent said they were more likely to vote Liberal; almost half - 46 per cent - said they were less likely to vote for the Liberals.
So who thought it would be a good idea to deliver that speech on television?


Anonymous said...

Today's Number is...

Courtesy of The Tyee's Will McMartin:

In 2000, the year before Campbell became premier, the number of employed British Columbians -- that is, those with jobs -- stood at 1,931,300. In Sept. 2010, the comparable number was 2,318,600. That's an increase of 387,300, or 20.1 per cent over about nine-and-a half years.

By comparison, between 1991 and 2000 when the New Democratic Party was in power, employment grew from 1,577,500 to 1,931,300 -- an increase of 353,800 jobs, or 22.4 per cent over nine-and-a-half years.

Job growth when the NDP governed B.C. was about 2.4 per cent annually; under Campbell's Liberals, about 2.1 per cent.

All in all, it's hard to argue that tax rates over the last two decades have had much of an impact on provincial job creation.

Anonymous said...

Unless the stats are measured in proportion to population growth, this is surely meaningless. Does anyone have those stats?

Anonymous said...

Follow the link in the above post to get to "those stats" at BC Stats - the link is embedded in the quoted article.