Also see comments on the reckless tax cuts by clicking here and
comments from the Auditor General on the last years of the NDP by clicking here.

July 23, 2001

Political distortion of structural changes in the BC Economy

Most students have enough understanding of the industrial revolution to know that the relative importance of agriculture declined as manufacturing increased. Today, many economies are witnessing the decline of manufacturing as the service based economy, particularly information based services, rise.

BC Stats, formerly part of the Ministry of Finance and now part of Management Services, has produced an excellent online tutorial on the BC economy. It should be mandatory ready for all politicians, particularly for the Premier and Minister of Finance. I say this with some hesitation as some publications, like the last NDP budget, are starting to disappear from the Ministry of Finance website. Let's hope that the primer on the BC economy never meets that fate.

Politicians have occasionally been accused of using misleading statistics to sway public opinion. That habit can be very dangerous when the politicians gain power and continue to believe their distortions. An example of this was seen in the slide presentation made by Finance Minister Gary Collins to the last pretend cabinet meeting. Minister Collins is so proud of his slides that they have been made available on the Ministry of Finance website (pdf file).

With numerous references to the growth in per capita real GDP, the Minister of Finance attempted to argue that lost opportunities under the former government has cost BC dearly. What Minister Collins didn't discuss was that the service economy (including such things as information technology, insurance and banking, tourism, and film production) grew to reach 75% of the total BC economy by 1999. From 1990 to 1999, BC's population grew by 22.4%. During that same time, in constant 1992 dollars, the goods producing side of the economy (forestry, mining, agriculture), grew by only 8.5%. From 1990 to 1999, the service producing side of the economy jumped by 35.5% - well ahead of population growth. This information is available from a section of Collin's own ministry where BC Stats has web-posted information from Statistics Canada.

Minister Collins took a structural change that has been going on in BC for well over a decade and portrayed it as the failure of the previous government. If the Campbell government actually believes this rhetoric, it may well make fundamentally flawed decisions. The truth is that some parts and some regions in the BC economy did very well over the past ten years. Other parts and other regions suffered badly. Much of that suffering was caused by technological change that enabled a handful of workers to run automated mills and by external markets that turned the Japanese economy from a miracle to a basket case. Some of the change was caused by coming to grips with what constitutes sustainable forestry. If the Minister doesn't have time to read all of the BC Stats tutorial, he should at least read the page on the structural change while making sure to click on the figures that bring up various graphs. Those graphs are far more informative than his little slide show to cabinet.

It is time for the Campbell government to stop fighting the last campaign, to stop swallowing their own rhetoric and to seriously look at the changing structure of the BC economy. The new economy demands high quality public services. But government might want to create an illusion to justify cuts to health and education that have been made necessary by dramatic tax cuts that really don't pay for themselves.

You will find it buried rather deeply on the government websites, but starting at the Ministry of Finance site you can eventually get to what amounts to a non-confidence vote in the dramatic tax cut from the British Columbia Economic Forecast Council.

Of the sixteen members on the council, 7 declined to revise their growth forecasts for the province after the tax cuts. A further 7 made such small revisions that it would be difficult to determine whether they were within measurement errors. One forecaster, William Tharp of M. Murenbeeld & Associates, increased his 2001 growth forecast by 0.1% and his 2002 forecast by 0.8%. Another, John DeWolf of CCG Consulting, increased his 2001 growth forecast by 0.4% and his 2002 forecast by 1.3%.

Excluding the two optimists from the panel, the average uplift from the tax cut is 0.1% in each of the next two years. That would amount to about $20 million for growth in provincial revenue. Even if the most optimistic forecast is used, DeWolf's, the increase in provincial revenue in 2002/2003 would amount to less than $400 million compared to $1.5 billion in tax cuts. At the time of the election, flight instructor, now Finance Minister, Collins and Gordon Campbell assured us that the tax cuts would pay for themselves. All of the members of the British Columbia Economic Forecast Council (appointed by the province), disagree.

The Economic Forecast Council was established by legislation as part of the implementation of recommendations of the Auditor General's report, A Review of the Estimates Process in British Columbia.

No wonder Collins is now claiming that there is a structural deficit and we cannot afford programs like Pharmacare. With one news release they lost at least $1.1 billion per year (at 5% the present value of that is $22 billion) - with no significant return other than big bucks in the pockets of the top tax payers.

Premier Campbell has created a board of 16 business people plus the president of UBC with two primary objectives:

"1) To provide advice on whether the province is achieving its goal of improving British Columbia's competitive position by establishing an ongoing means to measure and benchmark British Columbia's economic progress over time and relative to other jurisdictions; and,

2) To identify issues of importance to the future economic prosperity of British Columbia and to advise the Premier on strategies, policies and actions necessary to improve the performance of the provincial economy and its social policy supports."

The predominately male Premier's Progress Board is made up, with two exceptions, of presidents, CEOs and board chairs from BC businesses.

You need not abandon public discussion of measuring progress to this unrepresentative group. Neither do you have to accept a definition of "economic progress" that might come from a Campbell. Start thinking of what is important to you when you think of whether BC is making progress as a province or not. Then think of what quantitative indicators exist to measure that progress and compare it to other jurisdictions. You can get some good ideas by looking at the United Nations Human Development Index.

The Premier's panel is receiving $300,000 in government funding which many may view as an unnecessary grant to a business lobby. The People's Progress Board will have to contribute as unfunded volunteers. Please email your ideas and suggestions to me.