B.C. Liberals take big gamble

Tuesday’s budget represents, by far, the greatest gamble the B.C. Liberals have ever embarked upon. Finance Minister Mike de Jong is handing back $1 billion to the voters. Medical Services Plan premiums will be halved for families whose after-tax income is $120,000 or less, starting next January. The full-year price tag is $845 million in forgone revenues.

The small-business income-tax rate has been cut to two per cent from 2.5 per cent, an annual loss to the treasury of $70 million. And the provincial sales tax on electricity will be reduced to 3.5 per cent in October, and eliminated by April 2019. This will cost a further $82 million when fully implemented.

In addition, the government has promised to extinguish MSP premiums at some point. That would entail a further revenue loss of $1.8 billion.

This might not look like a gamble. Indeed, the Liberals must hope they’ve found an election-winning strategy. But it comes at a price.

To forgo these revenues and keep the budget balanced, as de Jong promises to do, expenditures must be severely restricted.

Over the next three years, annual spending will be increased by only 1.7 per cent on average. That’s less than required to meet inflation and population growth.

And most of the extra money in the year ahead goes to just three areas — health (4.6 per cent lift), education (3.8 per cent) and social services (8.4 per cent). The remainder of the budget is cut by five per cent.

Moreover, government ministries have been through a decade of prolonged restraint. The effects are visible everywhere: Inadequate child-protection services; a shortage of GPs and clinical specialists; poor mentalhealth care; lack of affordable housing; and perhaps the ultimate indignity, the release of an accused drug dealer because no sheriff was available to bring him to court.

This is the Liberal gamble — that voters will place more value on money refunded to them than on higherquality services. We’ll find out in May’s election whether this risk pays off.

But the budget reveals another fact that has significant political implications. Revenue growth remains disappointingly low. Natural-resource receipts are half what they were a decade ago.

Personal income-tax revenues, in real terms, have grown only modestly since 2007. And the upsurge in property-transfer-tax revenues that occurred in 2016 (and boosted last year’s surplus) is not projected to continue. It is from this depleted base that the finance minister is planning to withdraw a further $1 billion.

From the NDP’s perspective, this is a huge challenge. Like the Liberals, the party is committed to eliminating MSP premiums. But NDP policy also calls for more generous government spending.

Where is the additional money to be found? With ministries already pared to the bone, there are only two options: Raise taxes or run deficits.

Traditionally, the NDP has favoured higher taxes on corporations and upper-income families. But realistically, those tax bases won’t carry enough freight to get the job done.

It would take a doubling of the corporate income tax, for example, to pay for the elimination of MSP premiums and add two extra points to spending. No one would propose such a tax increase.

Does that mean a return to deficit financing? Our economy is already outperforming most other provinces. If we start borrowing now, where does it end?

The budget math, then, favours the Liberals. They can pay their way, just.

The NDP, in contrast, has some heavy thinking to do. If it is to deliver on its principles, it must escape the financial straitjacket that its opponents, and the economy, have constructed.