Excerptcize

It has been a big week from a political standpoint; Parliament reconvened with a Speech from the Throne on Wednesday and Federal Finance Minister Jim Flaherty tabled his governments latest federal budget on Thursday. Before taking a look through the federal budget, I would like to take some time to examine the BC Provincial Budget that was unveiled by Provincial Finance Minister Colin Hansen on Tuesday.

The first thing to always remind oneself of when paying any heed to a budget, whether it is a provincial or federal one, is that it is a hybrid of a policy document and a political one. A good example of this fact can be found by reading through the 2010 Budget Highlights. Only once in that document does the word ‘deficit’ appear, and that is as an axis label in this graphic:

BC Provincial Budget: 2001-2009, with 2010-2014 forecasts

Well, at least they used the word once! This graphic does get to the crux of any budget; is there a surplus or a deficit and how big is it? For the fiscal year of 2010/11 a deficit of $1.715 billion dollars is projected.  This is a figure that is 38% lower than last years deficit of $2.775 billion and represents about 1% of provincial GDP*. The budget forecast sees that deficit dropping to $945 million the next year (45% less than the projection for this year) $145 million in 2012 and turning to a surplus of $410 million by 2013. Considering the depth and breadth of the just now turning around recession, especially in the US housing market (the primary destination of much of BC’s forestry products) I’d say these numbers look rather good on balance. My very limited economics sense tells me that with interest rates as low as they are now and no strong signs pointing towards a spike in inflation an even higher short term deficit could be in order. All and all though, these forecasts seem reasonable to me.

Next, let’s take a look over the goodies contained within the budget. ‘Goodies’ are new spending announcements or reallocations for very specific programs. These specific allocations will serve as the basis for a whole years worth of generic talking points: “Our Government believes in X, that’s why we created the Y program in this years budget, funding it with Z dollars over the next year(s).” Every single one of these expenditures may be warranted, and perhaps many deserve more funding,  and none of this suggests that these programs should be cut. I just feel it is important to remember the political aspect to them. So what are the goodies? By far the largest share of funding increases comes in the form of a $2 billion dollar increase from the 2009/10 budget levels for healthcare over the next three years, with over half of that number going directly to health authorities for front line expenditures. Pivoting off of the just finished Olympic Games, $30 million in new funding was announced for youth participation in sports, and another $30 million for provincial art investments. The LiveSmartBC program, designed to assist homeowners in improving energy efficiency, returns with $35 million in funding. A big item in the budget, for homeowners with kids at least, is the new ability to defer payment on property taxes until one sells their home. It’s hard to put a price tag on this item, but I imagine it will prove to be extremely popular. The last ‘goody’ I can pick out easily is a grant of up to $200 for homeowners outside of the Lower Mainland and the Victoria area.

In contrast to the ‘goodies’ are the budget cuts (slashes if you are a member of the opposition), and the biggest by far is to public sector jobs, as that workforce will be trimmed by 3500 full time jobs during the next three years, over a 10% reduction from current levels of 31,000 employees. Additionally, in upcoming public service contract negotiations, the government will operate from a “net zero” stance. That is, any wage increases must be offset by savings attained through additional bargaining. The only other big set of cuts that I can see come in a reduction of services for the disabled and those on welfare. A total of $26 million will be removed from covering things such as dental work and birth control for these groups. I cannot support these cuts; in relative terms of the budget there are rather small, but to those affected I imagine the outcomes are quite large, and when can expect to incur many public health expenses in the future due to these cuts. As for the cuts to the public sector, I instinctively dislike them, but really don’t know enough to say that they aren’t needed.

Reactions to those job cuts are as good a bell weather of general feelings on the budget as any, so let’s use those. On the one hand you have Jim Sinclair, the president of the BC Federation of Labour, dismissing the governments claims that funding of key public services would be maintained in light of the job cuts, and slamming the entire budget as “a disaster for British Columbians and a missed opportunity to actually put real resources and real money into solving our problems.” On the other hand, I find Harvey Enchin, who strikes me as deficit hawk/scold, writing for The Vancouver Sun and only finding spending increases, egregious tax hikes on cigar smokers, and only noting offhand and towards the end of his column that there are indeed 3500 public service jobs on the chopping block. The argument to the centre path is often lazy and uninformative, but I find value in it here. While I would certainly not term this budget a “disaster” as Jim Sinclair does, I would agree that there probably are some missed opportunities for spending to promote growth. NDP leader Carole James loosely suggests her government would do so by boosting spending to post-secondary education and research and development. These sound like good enough things in the abstract, but some more detail from the official opposition would be much appreciated. Enchin’s fussing and worrying about the deficit and increases to the debt (which both seem rather modest in my estimation) seem overwrought to me. He worries that Minister Hansen’s budget is based on a forecast that sees economic growth; he feels this is unadvised for some reason. This, despite the fact that the budget operates from an estimate of 2.2 percent growth in GDP, while the Economic Forecast Council has forecast an average of 2.9% growth this year. If this Monday’s quarterly economic report is anything to go by, an even higher estimate could have been warranted, as the economy grew by over five percent in the first quarter of this year.

On the whole, this budget strikes me as a ‘steady as she goes’ strategy that fails to fully take advantage of the post-Olympic platform it had. Now would have been an excellent time to gain some positive PR by announcing affordable housing and other initiatives to assist the most economically disadvantaged in the province. My biggest personal issue is with the property tax deferment that is now available to homeowner’s with children. In essence this is a low interest (no interest?) loan, and with many families being hit extremely hard during the ongoing recession this is not a bad thing. But what of all those families who rent in this fair province? With home prices in the Lower Mainland being the highest in the country, I imagine that we have a higher than average rate of families who are renters, although I am having some difficulty finding an actual figure to support that claim. Regardless, in any city a substantial portion of those who need the most assistance during an economic downturn will be part of the renting population. A program extending such a benefit to those families that do not own their home would seem to be in order.

When in a deficit situation, there are really only two ways to get out of that scenario; reducing outlays (or the growth of outlays) and increasing revenue (either through increased taxation or generating higher economic activity). This budget does both of these things, but only in slight ways, although where the revenue increases will come from is somewhat disguised. To be fair though most of the forecast revenue comes in the form of continued economic growth, and I see no reason why this will not be the case. I suspect that Minister Hansen has somewhat shrewdly based his forecasts on a rather conservative economic forecast. Should revenues turn out to be higher then forecast he will be able to placate camps who opposed this budget from both the left and the right, by producing a lower deficit than forecast and announcing a few modest spending initiatives. This budget may just leave the Liberals with some winning political cards come the fall.

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