Where's the Prosperity?

Many British Columbians believe that the provincial Liberal government has given the province a radical makeover; government spending has been slashed, tax burdens reduced and a host of crown corporations privatized. Unfortunately, as the economy continues to lag, many have begun to associate these reforms with a stagnant economy. There is a reason for the lack of prosperity: the above reforms have simply not taken place. In fact, government spending has increased, tax relief has been largely reversed, and privatizations continue to be the exception rather than the rule.

Let’s start with government spending. According to the latest report from the Office of the Auditor General of British Columbia, total direct government spending in 2000 (the last full year of the NDP’s tenure) was $25.8-billion. In 2001, the Liberal’s first year in office, spending increased by $1.7-billion -- 70 percent of which went to health care and education. In 2002, the Liberals increased spending again, this time by $2.3-billion. While the growth of government spending slowed in 2003, total direct spending is expected to be $30-billion.

All told, the Liberals have cranked up spending by 16 percent ($4.2-billion) since the NDP left office.

What has most certainly taken place is a reprioritization of spending. Health, and to a lesser extent, education, are consuming more and more provincial dollars, which means less is available for other areas. This is not, however, a phenomenon unique to B.C., as most provinces are grappling with increasing health costs.

What about those radical tax cuts? In their first six months in office the BC Liberals did reduce personal income taxes, business taxes, and a host of other taxes in an attempt to make B.C. more attractive for investment and more tax competitive. Unfortunately, the next three years witnessed major tax increases, including MSP premiums, sales taxes, property taxes (twice), tobacco taxes (three times), the gas tax, liquor mark-ups, and a host of other minor taxes. These tax increases have curtailed the effect of the original tax cuts.

More importantly, British Columbia remains uncompetitive when compared to Alberta. Our top statutory personal income tax rate is still nearly 50 percent higher than Alberta. Our corporate income tax rate (13.5 percent) will be well above Alberta’s (8.0 percent) in 2006. British Columbia has yet to fully eliminate corporate capital taxes, which do not exist in Alberta. And finally, British Columbia continues to charge sales taxes on business inputs (with the exception of machinery and equipment) while Alberta has no sales tax.

The gap between perception and reality is equally as large in regard to privatization. Contrary to the commonly held belief of large-scale privatizations, the Liberals have done very little. British Columbia maintains the third largest crown corporation sector among the provinces. In many of these cases there is no compelling reason for government involvement. The lack of reform has been clearly demonstrated in the recent u-turn in the privatization of BC liquor stores. In fact, the only privatization to date is the sale of BC Rail, which is still in progress.

Part of the problem may be that BC’s own Minister of Finance, Gary Collins, believes reforms have taken place, “British Columbians continue to enjoy…the lowest or second-lowest overall tax burden in Canada” (Times Colonist, Tuesday, February 2, 2004). Not according to the data. In 2003, British Columbian families, along with their counterparts in Quebec, share the latest Tax Freedom Day in the country on July 2. Even when we exclude natural resource revenues, Tax Freedom Day in British Columbia falls on June 25th and is the second latest among the provinces (only Quebec’s is later).

British Columbians are growing weary of our poor economic showing. One of the key reasons the province’s economy continues to struggle is due to the absence of genuine reform. Simply put, the Liberal government has done little to restore BC’s competitiveness. The path to economic revival lies in the types of reform the Liberal government has so far avoided: actually reducing spending, aggressive tax relief and allowing private business to deliver the goods and services British Columbians demand. Unfortunately, as an election nears, it is highly unlikely that such policies will be enacted.