Surplus not a windfall up for grabs
Finance Minister Carole James says last year’s budget surplus of $2.74 billion shows her predecessors were pursuing an “unbalanced” policy. I wonder how many economists would agree with her.
Arguably, the B.C. Liberals took the right approach. They ran deficits in bad years, surpluses in good years, and balanced the budget across the economic cycle.
Following the 2008 recession, they posted four deficits in a row, for a total of $5.077 billion. Once the economy improved, they posted four years of surpluses, totalling $5.489 billion. (I’m not counting the 2017 budget, because it was never approved.) This is a classic example of balanced fiscal management.
Now, it can be argued that Christy Clark and her colleagues made a political error by taking this route. Had they spent more of last year’s surplus, they might still be in office. Instead, the money went to pay down the debt.
Nevertheless, they left behind a strong position that will carry forward into the current year and beyond. James is now implying this future windfall is up for grabs, and indeed that it should not have been amassed in the first place.
That is a strange, and worrying, message for a finance minister to embrace. One of the critical questions facing James and her colleagues is whether they have learned from the past.
When the NDP were last in power, they recorded just two surpluses and eight deficits, the latter exceeding the former by $7 billion in total. And the economy wasn’t to blame.
During the period in question — the 1990s — annual GDP growth averaged a robust 2.7 per cent in B.C., with nothing resembling the brutal downturn of 2008.
The harsh truth of budget-making is that surpluses don’t just happen. They require enormous discipline, imposed throughout a term of office and not just on occasion.
Most of the groups that lobby governments, particularly NDP administrations, urge ever more spending. It takes an equal effort in the opposite direction just to stand still, far less gain ground.
We’re seeing the truth of that in Ottawa. Prime Minister Justin Trudeau and his colleagues are making a right mess of the federal budget — massive deficits without an end in sight.
But Trudeau didn’t set out in a deliberate manner to run up huge debts. He simply failed to make fiscal management one of his priorities, running instead as an antidote to Stephen Harper’s perceived miserliness. That’s all it took.
James might believe she laid down a marker by suggesting she wouldn’t spend all of the surplus. For what difference it makes, I’m sure she means it. And she has the strongest ministry in government at her back.
But it will take more than that to quiet a caucus with 16 years of promises to honour. For that matter, it will take a lot more than that to rein in Green Party bedmates whose grip on financial reality is tenuous at best.
Premier John Horgan has a critical role to play here. When a premier and his finance minister are on the same page, anything can be done. When they’re not, look out.
James has said she’ll release a budget update on Sept. 11, and a full budget next February. That gives her six months to prepare for the onslaught ahead.
And it will be an onslaught. B.C.’s revenue streams are fickle. Our resource receipts are still well below their 2007 level.
To have a reasonable chance of balanced budgets throughout her term of office, James needs a safety cushion, meaning a surplus next year of at least $1 billion.
Anything less risks a sea of red ink further down the road. That would validate an indictment the Liberals dearly want to bring: That NDP governments cannot be trusted to manage the public purse.