Clark Can't Punt (Again)
Some politicians are great campaigners, but not so good when it comes to governing. Often there is little correlation between the skills required to win a nomination, to win an election and to do the job.During the Liberal leadership race, George Abbott said it would take the remainder of the term to try to restore trust in the Liberals. Subsequent polls support the argument that the "liberal" brand name is hopelessly tarnished, a reason John Cummin's BC Conservatives are nearly tied with Clark's Liberals.
Having gotten this far, Premier Clark can't just tread water and do photo-ops for 15 months until Election Day, May 14, 2013. Like it or not, some hard decisions have to be made. While she toyed with breaking the set election date, she punted some decisions forward. Opinion polls showing the Liberals behind closed the early election option and events now require decisions on controversial issues before voting day.
Of course the 600 pound gorilla is the HST. Having risked her early political capital on defending the unpopular tax, Clark is now held accountable for why transition rules can't be produced, six months after the tax was rejected. Some pundits say government's delay is consistent with its expert panel, but they don't say whether that panel took its advice on how long it would take to restore the PST from the Ministry of Finance. Many issues split along party lines, but the HST turned some Liberal supporters against their former party. Delaying implementation of the referendum result benefits corporations (Liberal donors) to the tune of $2 billion per year and aids government with $600 million per year in excess revenue beyond its original claims. With details like that on who wins and who pays, it is no wonder that the Liberals have a trust issue.
Shortly after taking over Gordon Campbell's remaining term, Clark punted the BC Hydro rate increase controversy to a review lead by Rich Coleman. That review criticized the definition of self-sufficiency in the so-called Clean Energy Act and said:
"Changing the definition of self-sufficiency to use average water without additional surplus energy would substantially reduce the need for new clean energy supply and BC Hydro would not need to begin sourcing of additional clean energy until 2016 or beyond depending on increased demand. If the definition of self-sufficiency is not changed, BC Hydro will need to begin sourcing new clean energy as early as January 2012."
Premier Clark's government has yet to act on that key observation in the review she commissioned.
Facing the possibility of more hikes in BC Ferry fares beyond cost-of-living increases, Bill 14 (2011) was passed to authorize the review of BC Ferries that was released January 24th. The Liberals, and million dollar CEO David Hahn, like to characterize BC Ferries as being in chaos in 2000, but the report of Ferry Commissioner Gord Macatee said (p. 76): "The financial sustainability of BC Ferries is at considerable risk." Not to understate the point, he provided a table showing the need for $2.5 billion in capital improvements over 12 years plus $58 million per year in operating deficits beginning in fiscal year 2013-14. To made matters worse for Premier Clark, he noted the legislation that authorized his report in lieu of the required four year price cap "imposed a price cap of 4.15% on all routes for the first year of PT3 (April 1, 2012 – March 31, 2016) and deferred a final price cap decision for the remaining three years of PT3 to September 30, 2012 pending the outcome of the review …" In other words, all the issues raised in the report, punted from 2011, come home for a decision before September 2012. Clark will have to cut services, increase subsidies or increase fares beyond sustainable cost-of-living increases. She can't postpone her decision until after the 2013 election.
Some of the 2012 decisions Clark must make are determined by events rather than legislation. The June 2011 Stanley Cup riot saw Clark in photo-ops demanding immediate justice and public embarrassment for rioters, complete with televised trials. With 18 vacancies in provincial courts and a backlog of cases that threatens to see hardened criminals released due to delays, Clark is hard pressed to explain why she is further delaying the courts with her demand for TV coverage, and why she can't fill the judicial vacancies. She's gone from a cheap photo-op sweeping up broken glass and expressing anger at rioters to being the one responsible for delaying justice by posing unrealistic demands and inadequately funding the courts.
You might think Clark would try to take political advantage of the broken negotiating framework with the BC Teachers Federation (BCTF). To her disadvantage Clark has a history as former Minister of Education when she frequently went out of her way to poke a finger in the eye of the BCTF, and oversaw legislation that was overturned by the Supreme Court years later when, ironically enough, she had returned as Premier. Most commentators agree that the impasse with the BCTF will lead to legislatively imposed working conditions in lieu of a contract, but the government's previous contract breaking episodes haunt it. The Hospital Employees' Union won a victory in the Supreme Court of Canada that can be interpreted as imposing an obligation on government to engage in good faith bargaining before resorting to legislation. It is likely that any legislation to deal with the BCTF will wind its way to the Supreme Court where the government will have to prove that it fulfilled its obligations. That blunts the ability of the Clark government to take political advantage of the situation.
Clark cannot escape the requirement to produce two budgets before the next election. On February 21st a budget for the fiscal year starting April 1, 2012 (provincial budgets always start on April Fools' Day) must be tabled, and another budget must be tabled on February 19, 2013. Each of those budgets must project for two years beyond; so expectations for 2013-2015 must be disclosed on February 21, 2012, and expectations for 2014-2016 must be revealed on February 19, 2013. The federal cuts to health care will have to be revealed in each of those budgets; the shift to equal per capita funding effective April 1 2014 will cost BC $250 million, offsetting the two year 6% annual increase to 2016 promised by Flaherty. Contrary to optimistic forecasts in the May 2011 budget, the next two will also have to realistically project natural gas prices and investment income, a revenue reduction in excess of $300 million. That hit to the bottom line is before the government shows the effect of not taking in $600 in excess HST revenues. Voters may recall Premier Campbell's claims before the 2009 election that the deficit would not exceed $495 million, only to learn it was six times that months after the vote when he announced the HST. This review of government revenue expectations suggests a deficit for 2013-14, the fiscal year that overlaps the next election, yet Finance Minister Falcon and Premier Clark insist on the same sham the Liberals put forth before the 2009 vote. That nonsense will further challenge their credibility.
Campaign slogans, like Clark's job plan promises for 2015 after the next election, are easy to make. It is much more challenging to meet measurable targets that can be considered before the election. Clark can't punt all of the difficult issues beyond May 2013; she is required to make some decisions that will have consequences before the vote.
January 18, 2012
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.