Opinion

B.C. needs to look at own fiscal issues

Many British Columbians watched with fascination the hand-wringing and arm-twisting that went on over the U.S.’ dealing with the so-called fiscal cliff.

Some in B.C. will criticize Americans for their profligate spending, blaming George Bush and his wars, or Obama and his welfare state. With no wars to pay for, and a more responsible financial system in Canada, we in B.C. appear to have much less to worry about when in comes to our financial situation. We would be wrong.

Under Obama, the U.S. debt-to-GDP ratio is nearly 24 per cent in a $14 trillion economy. Its population is nearly 330 million people.

B.C. also has a debt to GDP ratio of 24 per cent, and it will rise to nearly 28 per cent by 2015. B.C.’s population is about 3.8 million and total economic activity of around $212 billion in 2012. Total public debt in B.C. in 2012 is expected to be around $50 billion dollars. We spend too much, borrow too much and are on track to spend and borrow much more in the next few years.

The numbers for B.C. are not promising. Health care alone consumes 85 per cent of all the taxes collected in B.C.  When education and social programs are included the percentage rises to 126 per cent of tax revenue. Without federal transfers, that are the result of oilsands and natural resource activity elsewhere, and extra fees and surcharges placed on B.C. residents, B.C.’s $2.5 billion 2012 deficit would be closer to $6 billion.

Government economic growth projections are based on assumptions about the U.S. and Asian markets in 2013/2014 that are unrealistic.  The U.S., China and Europe are currently devaluing their currencies in a mad downward dash to protect exports and support zero interest rate policies. This has the effect of increasing the relative value of the Canadian dollar which will slow the export of B.C. lumber and minerals.  Rosy projections for improved B.C. export markets are just that — rosy projections.

B.C.’s labour participation rate is about 65 per cent. That translates into about 2.5 million people working in the province and 1.34 million people who do not work. While this looks promising at first blush, the actual “productive” population, individuals in private enterprise who provide taxable revenue is actually closer to 1.95 million people when the 534,000 federal and provincial employees in B.C. are taken into account.  This means that for each worker in the productive (private) sector, there is nearly one person who is either not working, or relies entirely on tax revenue for their wages or other support. This ratio will get worse as the population ages.

Current levels of spending in B.C. are not sustainable.  It is unlikely global economic conditions will improve enough in the near term for B.C.’s economy to grow faster than the rate of inflation. Public sector payrolls and benefits in healthcare, social programs and education will continue to burden the private sector for the foreseeable future. Fewer and fewer people will contribute less and less to the productive economy.  Changing this course will be painful for B.C.

Against this sobering outlook, B.C. will be faced with an election in May 2013. Despite the challenges of the botched HST and declining resource markets, the Liberals have done a reasonable job keeping the B.C. economy on track.  While Christy Clark seems incapable of articulating sound economic policy, her government has managed to keep taxes and discretionary spending under control, which has saved B.C. from the fate Ontarians are facing today.

Damning the Liberals with faint praise may be the best we can do, but anyone who imagines the NDP would better manage the B.C. economy is deluded. History tells us the NDP is more likely than not to lead B.C. into another “lost decade.” Increased program spending and higher taxes on the shrinking, productive sector is a recipe for economic decline.  This has been the experience in Ontario, Manitoba and Quebec in the last decade, and something B.C. experienced in the 1990s under the NDP.

The NDP are guided by the oxymoronic principle of “democratic socialism.” In staying true to their principles, the NDP will significantly increase both taxes on individuals and spending on programs.  The merit of each can be debated however based on the math alone, B.C. simply cannot afford either – and therefore cannot afford another bout of the NDP.

Mark Walker is the publisher of the Penticton Western News

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