Time for Plan B

November 22, 2002

Time for Plan B

The last week of November will be marked by the release of several key indicators by Statistics Canada and by Finance Minister Gary Collins' Second Quarter Financial Report. Collins has no choice since the law requires that he report by November 30th complete with a revised forecast for the balance of the fiscal year which ends on March 31st.

When Collins presented his Second Quarter Report in 2001, the legislature wasn't sitting. Fall sittings didn't begin in accordance with the new legislative calendar until 2002. Perhaps that is why he produced last year's report on November 22nd, a week earlier. It is not that the sitting of the legislature gets in the way; it's just that he would have to face the opposition in question period if he released his report at the same time this year - not to mention that government has been busy with damage control over BC Hydro.

It was February 2002 before Collins released the government's full plan that shows how it intends to dig out of the biggest deficit in BC history; a deficit that it helped to create with $1.5 billion in income tax cuts and $790 million in corporate tax cuts. It is useful to review two key assumptions in that plan:

"After 2002/03, revenues will grow an average of 5.1 per cent annually, in line with the 4.6-per-cent average growth in nominal GDP. This reflects an expected turn around in the North American economy and a rebound in the provincial economy in part due to the tax reduction measures announced last year."

"Total spending will decline by an average 2.8 per cent per year after 2002/03. After addressing health sector compensation pressures in 2002/03, spending for the health and education ministries will remain unchanged in 2003/04 and 2004/05. Spending for other ministries will decline by $1.9 billion or 25 per cent over the three years."

On the spending side the plan calls for more pain starting in April 2003 - much more than anything seen so far. On the revenue side the plan calls for more than twice the rate of growth than BC has experienced in the last five years. Premier Campbell and Minister Collins bet everything on their assumption that reckless tax cuts would more than double the rate of revenue growth. Next week BC will see how the government is doing on its assumptions.

During the same week that Collins releases his report, Statistics Canada will release updates on employment insurance (Nov 26); employment, earnings and hours (Nov 27); and national economic accounts (Nov 29) and real GDP by industry (Nov 29). The much watched Labour Force Survey will be released on December 6th.

The Labour Force Survey has shown surprisingly strong employment growth for BC throughout 2002 even though other indicators are not as rosy for the BC economy; however, the last two months showed drops totaling 32,700 in seasonally unadjusted employment and a flat lining in the seasonally adjusted numbers. A drop in both measures on December 6th could immediately provide a basis for questioning the forecasts in Collins' Second Quarter Report. Other indicators for BC have declined since the summer. Before inflicting even more pain on families throughout BC with two more years of cuts, it is time to admit that tax cuts don't pay for themselves and a "Plan B" should be activated.