Clark Missed Tax Points
It is too bad that prior to their meeting on health funding, all premiers weren't asked to read the February 2011 publication of the federal Parliamentary Library, The Canada Health Transfer: Changes to Provincial Allocations. That excellent 12 page document might have stopped Premier Clark from making misleading claims about the $250 million loss BC will suffer when the federal government adopts its equal cash per capita health transfer formula. It is true that BC will lose $250 million in 2014 relative to the funding formula that is currently in place, but the change has nothing to do with how many seniors live in BC relative to other provinces.Currently transfers to the provinces for health care are on an equal per capita basis, but that equality depends on the including both tax points and cash in the calculation. In 2007 the Harper minority government amended the Federal-Provincial Fiscal Arrangements Act, adding Section 24.21 which stated that after March 31, 2014 there will be only cash transfers to the provinces on an equal per capita basis. When tax points are excluded from consideration in health transfers, every province except Alberta gets less cash per person. If equality on a cash only basis had applied this year, the transfer to BC would decrease from $881.64 per person to $828.52. The loss of $53.11 per person doesn’t sound like much until you multiply it by BC's population and see it translates to a reduction of $243 million, and more in every subsequent year. The biggest loser is Newfoundland and Labrador which (on the basis of this year's data) will see its transfers go down by $95.88 per person. Alberta will see its transfers increase by $223.40 per person, for a total gain of $844 million (estimated to be $949 million in 2014-15).
It is hard to see why Clark would take the loss due to the change in the formula and claim that it means devastation for seniors. How BC will handle the change is yet to be determined. There is nothing that ties the lost revenue to a necessary cut in care for seniors. Changing the equal cash per capita formula to reflect an age adjustment would mitigate but not reverse BC's loss, and the extent of any mitigation is uncertain. BC has a larger proportion of its population over age 65 than the Canadian average, 14.6% vs. 13.7%, but so do the four Maritime Provinces and Saskatchewan. Age adjustment would mean Ontario, Quebec and Manitoba would lose even more than they otherwise would in 2014. I doubt whether BC's Ministry of Finance produced a calculation showing that age adjustment is the determining factor on whether BC loses $250 million; I have submitted a freedom of information request for its calculation. Rather than shifting the focus to seniors, an honest explanation from Clark would have been to say that BC will receive less by way of cash transfers for health after 2014 because Harper thinks our tax base is capable of bearing more.
The per capita change that got attention with the first ministers meeting early this week has been law for five years. Many controversial changes are introduced years in advance to allow those affected to adjust; when the pain is felt, government can say nothing is new as a decision made long ago is simply being implemented. Provinces may have hoped that total federal transfers would increase enough to offset a large portion of the loss arising from the per capita change, but it would be foolish to think that any government would commit to increasing transfers at a rate higher than the 6% per year embedded in the last Health Accord.
It is understandable that Ottawa isn't too keen on increasing health transfers to provinces only to give them greater ability to cut provincial taxes and thereby take the political credit. The tax point issue dates back to 1977 when the federal government agreed to decrease its personal and corporate tax rates to make room for the provinces to increase their tax rates, thereby shifting fiscal room from one level of government to another and at least partly dealing with a perceived fiscal imbalance. Ever since 1977 the provinces and federal government have argued about the tax points, sometimes not counting them as a federal contribution to health care and often disagreeing over their value. The federal government recognized that the tax points are not of equal value to each province, hence it included some element of equalization in the health transfer formula. Whether the move to eliminate consideration of the tax points and go to an equal per capita cash transfer is good or bad, the change and debate on that point happened five years ago. Clark's handlers should have briefed her on that point and prevented her from mudding the waters, especially since she was the chair of the first ministers' meeting.
What is new in the federal government's position is the announcement by Harper and Flaherty that the federal transfers will come with no strings attached (other than those in the Canada Health Act) and that the total transfers will increase after 2016 by the rate of change in nominal GDP (with a guaranteed 3% minimum). That announcement requires amendment to the Federal-Provincial Fiscal Arrangements Act. The amendment will be debated but with his majority it is certain to pass. It is possible that the changes will be an issue in the 2015 federal election, but it is far too early to predict what will be important to voters three years from now.
January 14, 2012
Clark Threatens Seniors
Prior to hosting the Council of the Federation, a meeting of Canada’s first ministers from January 15-17, Premier Clark made media appearances recommending that future federal contributions to health care should include an age adjustment on top of the simple per capita formula put forward by Federal Finance Minister Jim Flaherty. She claimed that failure to take demographic differences into account would be "devastating" for seniors in BC. Clark's position is interesting since she supports capping the growth in federal health transfers at the growth rate of nominal GDP (real economic growth plus inflation), but she wants a larger share of those contributions for BC, at the expense of other provinces.There are three primary points to debate on the 2014 renewal of the federal Health Accord:
- Should strings be tied to federal contributions?
- Should federal contributions return to the old formula of a percentage of provincial expenditures, the current formula of a guaranteed 6% or a new limited growth formula (GDP growth)?
- How should total federal contributions be divided between provinces: equal per person or with other adjustments included, such as on the basis of age?
The current Health Accord included an agreement for the provinces to make progress in designated areas, including the reduction of waiting times for specified procedures, and to issue annual reports. Flaherty's position is the provinces can take the money and do what they want. That may be consistent with the Harper government’s view of federal-provincial fiscal arrangements, but it does nothing to assure that federal contributions will be spent on health care rather than megaprojects.
Cynics might argue that Clark and Flaherty understand that limiting the growth of government spending on health care simply results in health care continuing to increase as a percentage of GDP, but with the growth increasingly taking place in privately funded care, including care that was previously publicly funded. In BC we have the example of eye exams which were once covered under MSP but are now limited by age. More concerning is the growth in private clinics where patients essentially pay for access to a physician, and may pay for private surgeries even though such queue jumping is prohibited by the unenforced Medicare Protection Act. Growth in the multi-tier health system is certain as the public system erodes. The goal of limiting growth is only meaningful if it is accomplished by realizing efficiencies in health care whether it is publicly or privately financed. As shown by the experience of OECD countries, total health spending has increased as a percentage of GDP for the past forty years. No country has been able to stop it, and artificially limiting federal contributions will be like poking a balloon; it will just bulge elsewhere. (See exhibit 7A in a paper from the Kaiser Family Foundation.) Federal Budget Officer Kevin Page has estimated that limiting growth in federal contributions to growth in nominal GDP will shift over $30 billion in costs to the provinces. This means that the part of the change embraced by Clark will cost BC almost $4 billion over 10 years.
It is true that on the basis of the most recently available census data (2006), BC has a larger proportion of its population over age 65 than the Canadian average, 14.6% vs. 13.7%. BC also has a higher proportion over age 85, 4.0% vs. 3.7%. Provinces with lower proportions over age 65 are: Alberta (10.7%), Ontario (13.6%), Newfoundland and Labrador (13.9%), Manitoba (14.1%) and Quebec (14.3%). The other provinces have higher proportions; Saskatchewan, highest at 15.4%, would be the big winner with Clark's approach. If an age adjusted formula was agreed to by all the provinces, not a likely proposition given five provinces would lose, it would be unlikely to be based on the 2006 census. Population projections by Statistics Canada, using a medium growth scenario, show that by 2036 Canada will have 23.7% of its population over age 65 (3.7% over 85); BC will have 23.6% over 65 (3.9% over 85). In other words, in the long term projections show BC's age distribution approaching the national average. It is not at all clear that claims by the Ministry of Finance are true that an age adjusted formula would give BC $250 million more per year. (Remember these are the folks who claimed the HST would be revenue neutral.)
BC has more to gain if Clark were to argue for a federal funding formula that recognizes what has been shown in the rest of the world, health care will gradually grow relative to other sectors of the economy. When she reacts in horror saying that means it would eventually consume the entire provincial budget, she is trying to fool you. That would only happen if government continues with a tax cutting agenda which will inevitably result in more people paying out of pocket for access to medical procedures. That is nothing but an inequitable disguised tax, inequitable because it means access to care would increasingly depend on the size of a families' wallet.
January 2, 2012
Negative Clark Ad Misrepresents
The Liberals welcomed in the New Year by launching an attack ad against Adrian Dix. A similar stunt directed against BC Conservative leader John Cummins was followed by a jump in the polls for the Conservatives. It will be interesting to see what polls show after the latest ads run for a few weeks. Clark's newest negative ad makes selective use of statistics to misrepresent job growth, interprovincial migration, provincial taxes and NDP promises. In order to be effective, negative ads need to be rooted in some verifiable facts. Not only can nothing be verified in Clark's ads, but the claims can be shown to be false. They are reviewed and exposed below.It must be crushing for the egos of Moe Sihota, Joy MacPhail, Doug McArthur and Tom Gunton to see Premier Clark's latest negative ad describe Adrian Dix as "Chief political advisor" of the 1990s. Of course the reason for that attribution by Clark and her Liberal team is to associate Dix with their negative characterization of the 90s, to focus political discussion two decades ago and to avoid accountability for their record of lost trust.
Clark's negative ad cites the 2001 BC Progress Board report for its claim that BC was "dead last" in job growth; however, you can't find those words in that report. The ad misused the 2001 report's comment on the rate of change in the job to population ratio. Statistics Canada annual Labour Force Survey data show BC employment of 1.5775 million in 1991, 1.9197 million in 2001 and 2.2565 million in 2010. That means average annual compound job growth was 2.0% from 1991 to 2001 and 1.8% from 2001 to 2010. BC experienced lower job growth in 2011.
One of Clark's first actions was to eliminate the Progress Board. Its 2011 report showed BC to be in better shape in 2000 than in 2010; as shown in the table reproduced from the report, BC had a better ranking in every year from 1990 to 2009 than it did in 2010. The job to population ratio might not be as good an indicator as simple job growth because, as noted in the report, the ratio favours provinces with younger populations. A downward trend in the employment to population ratio may say more about changing demographics than it does about economic opportunities.
Clark's negative ad asserts that 50,000 people left BC for other provinces in search of work between 1998 and 2001 according to B.C. Stats provincial migration flow data. The actual data don't reveal why people come to or leave BC, but they show tens of thousands flowing both ways in any given year. Sometimes more people arrive from other provinces than leave to those provinces and sometimes the net flow is opposite. The quarterly data show a net interprovincial outflow for the first three quarters of 2011 (data for the fourth quarter won’t be available until March 2012). Those data also show net outflows from the fourth quarter of 1997 to the second quarter of 2003. From the fourth quarter of 1992 through the second quarter of 2001, BC had a net interprovincial inflow of 103,722. From the third quarter of 2001 through the third quarter of 2011, BC had just over half as much net inflow, only 55,256. As one tweeter said: who cares? The answer lies in the Liberals' repeated misuse of these statistics; they must care because misrepresentation of interprovincial migration data has become part of their mantra. Interprovincial migration is one component of population change, and the truth is people move both in and out of BC all the time. BC's population had an average annual growth rate of 2.2% between 1991 and 2001 and 1.3% between 2001 and 2010.
Clark's negative ad speaks about income tax cuts for average families and says "Dix wants to raise taxes again." The truth is the Liberals have shifted where they get government revenue. Personal income tax cuts have been substantially offset by increases in more regressive provincial taxes and fees; regressive taxes are those that decline as a proportion of income as income increases. For example, a family of four with a $60,000 income pays the same MSP premium tax as the same sized family with an income ten times larger. In 2000 the MSP premium tax for a family of three or more was $864 per year; effective January 1, 2012, the family MSP premium tax increased to $1,536 per year, an increase of 78% since the Liberals came to power.
It is not just hikes in the MSP premium tax that have clawed back income tax cuts. In each budget the Ministry of Finance includes a table that compares federal and provincial taxes by province for various benchmark families, for example a two income family of four making $60,000 and a similar family making $90,000. Comparing those tables between the last budget tabled by NDP Finance Minister Paul Ramsey in early 2001 with the last budget tabled by Liberal Finance Minister Kevin Falcon in 2011 shows how much various provincial taxes increased since 2001. The tables show the portion of the property tax that is set by the province so as to fund part of the education budget. For the $60,000 family between 2001 and 2010, the school property tax (net of the homeowner grant) increased by $128. The sales tax, provincial portion of the HST, increased by $458; the fuel tax by $53, and in 2011 that family had a carbon tax that it didn't have in 2001, costing it another $122. Those direct and indirect provincial tax hikes cost the Ministry of Finance's benchmark $60,000 family a total of $1,433. If that family uses BC Ferries it lost more, as it did from Hydro and ICBC increases. The BC Progress Board's 2011 report indicated that in terms of real personal disposable income per person, BC ranked third amongst the provinces from 1991 through 2007, slipping to fourth from 2008 through 2010.
Clark's attack ad is particularly mischievous with its claim about Dix increasing taxes next to its claim about personal income taxes. Dix said he would return corporate taxes to their 2008 levels; the same change that Premier Clark once promised to make if voters agreed to keep the HST. Dix has also said that he would restore a minimum capital tax on banks. Interviewed on CKNW by Bill Good, Dix said he is reluctant to consider personal income tax increases. He said any tax changes would be disclosed before the May 14, 2013 election. In declaring his intent to increase corporate taxes by returning to the level enjoyed after 7 years of Liberal government, he set out platform details 18 months ahead of the election. Early disclosure like that is unprecedented.
Clark's negative ad concludes by accusing Dix of committing to "billions in new spending". They claim Dix is the source for that figure by citing a list of dates next to his name, but nowhere on either the website which features the negative ad or on the Liberal caucus or party websites can anyone find a list of promises that add up to and support their assertion. The truth is that Dix is being moderate and driving down expectations. During his lengthy speech at the party’s December convention, he referred to the financial challenges facing the province and how that meant an NDP government would have to limit what could be accomplished in a first term. He has repeatedly said that prior to the 2013 campaign a list of commitments and how they will be financed. My advice is not to produce such a list until after the 2013 budget is tabled in the legislature. That will be three months before the May 14th vote, allowing plenty of time for voters to compare the NDP's vision for 2013-17 with that of the Clark Liberals.