Province has the fiscal room to make lives better

Use surpluses for public’s benefit, says Alex Hemingway.

After analyzing the numbers, it’s clear that B.C. has the fiscal capacity to make significant reinvestments in the critical public services that British Columbians depend upon and want.

Investments are urgently needed in universal, affordable, high-quality child care, in affordable housing, on climate action commitments, on strengthening education and health care and on a comprehensive plan to reduce and eliminate poverty.

Some commentators question whether we can realistically afford such large public investments. What they far too frequently fail to ask is: what is the cost of inaction?

B.C.’s shameful poverty levels come at enormous economic cost: our research shows between $8.1 billion and $9.2 billion annually in lost economic output and other costs. Lack of affordable child care shrinks our economy by keeping thousands of young parents — mostly women — from working. We need a universal Pharmacare system because each year the B.C. economy wastes hundreds of millions of dollars on unnecessarily high drug costs.

New public investment is the best way to reduce this economic waste.

The government’s September budget update projects surpluses of at least $200 million annually over the next three years, contingency funds ranging from $300 to $600 million per year and at least $300 million per year for changes in forecast GDP growth. These amount to $1 billion annually over the next three years.

The budget update cautiously forecasts revenue relative to GDP so the surpluses over these three years will be higher. A consistent feature of the B.C. budget process under the previous government was underestimating budget surpluses — often by well over $1 billion, meaning necessary public investments were needlessly foregone.

We can afford to invest in critical public services.

The Canadian Centre for Policy Alternatives rejects this overly cautious approach to budgeting, which focuses too narrowly on producing an operating surplus and making the books look good for media headlines.

Ultimately, what matters for B.C.’s fiscal health is not whether a year ends with a budget surplus but the debt-to-GDP ratio (the debt relative to the economy’s annual income) and debt service costs (the debt interest payments relative to the size of the budget).

BC’s debt-to-GDP ratio is a manageable 16.2 per cent for 2017-18 — one of the lowest in Canada. Debt-servicing costs are at historic lows with just over five cents per dollar of operating spending servicing the debt. This leaves ample room for the backlog of important capital investments including those previously noted.

When measured as a share of the economy, provincial operating spending has declined markedly since the late 1990s. As currently budgeted, it will continue downward even with the new spending commitments in September’s budget update. Concretely, if B.C. dedicated the same share of our $270-billion economy to public operating spending this fiscal year as we did in 2000, we could make additional investments of about $6 billion per year.

There are critical needs to be met in B.C. and we can meet them. More fiscal room would come from boosting taxes on those who can afford it. The province’s fiscal situation is bolstered by two welcome tax measures announced in the budget update: restoration of the top tax bracket on individual income above $150,000 to 16.8 per cent and a one percentage point increase to the general corporate income tax rate (from 11 to 12 per cent). Together, these measures will raise a projected $579 million next year and help make our tax system fairer.

The 50 per cent reduction in Medical Services Plan premiums — B.C.’s least fair tax — is also welcome, but will reduce revenues by a projected $1.2 billion. As the new B.C. government moves toward fully phasing out MSP premiums, it should ensure that all forgone MSP revenue is fully replaced with fairer personal and business taxes. CCPA’s modelling shows we can replace every dollar so that a majority of B.C. households have a lower total tax bill and better-funded public services.

We can afford to invest in critical public services. What we should ask is if we can afford the continued cost of failing to act.