December 9, 2002

BC Stalls under Gordon Campbell

Employment is almost the same in BC today as when Gordon Campbell and his band of 77 MLAs swept to power. Statistics Canada reported that on a seasonally unadjusted basis 1.9864 million people were employed in BC in May 2001, and 1.9879 million in November 2002. The difference over that period of 18 months is 1,500 or less than one tenth of one percent. The picture is worse for full time employment which is now more than 30,000 lower than 18 months ago.

Statistics Canada's seasonally adjusted numbers were 1.9679 million for May 2001, and 1.9973 million for November 2002, an increase of 1.5% over 18 months. Seasonally adjusted numbers are useful for use in econometric models and for some statistical comparisons, but no amount of manipulating the data with averages and ratios will convert seasonally adjusted numbers into real jobs for real people. The hard facts are that the same number of people are working now as were working 18 months ago.

Shortly after the election, Premier Campbell announced such surprisingly large tax cuts that one business group referred to it as "Christmas in July". This Christmas 2002 many people will find nothing but lumps of coal in their stocking. The tax cuts were supposed to stimulate investment and increase jobs to such an extent that they would pay for themselves. Instead tax receipts have plummeted only to be offset by $770 million in equalization payments from the federal government, and increases in regressive taxes like MSP premiums, user fees and the sales tax. Any real growth, or even any increase in federal grants for health care, will be offset in the future by reductions in the equalization payments. That puts government revenues in the same position as someone struggling to get off welfare.

The day before British Columbians learned that jobs were going down and unemployment was going up (the opposite case from the rest of the country), the Campbell government revised its website and added a graphic with the caption "Positive Economic Indicators". When you click on that don't expect to see the real story on what is happening in BC. Clicking on the "economic indicators" graphic on top of StrategicThoughts.com takes you to the page Statistics Canada periodically updates with key indicators for each province. Those indicators show mixed results. Examining the economic indicators throughout calendar year 2002, reveals that optimism in the first six months has turned to concern in the fall. Perhaps that is why forecasts of BC's economic growth are again being lowered.

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November 29, 2002

Campbell's Fiscal Plan in Trouble

The most devastating news in the Second Quarter Financial report is that income tax revenues are now expected to be $600 million less than forecast last February. That is an enormous change from the $50 million less than forecast that was in the First Quarter Report. How's that for tax cuts paying for themselves? (income taxes were cut by $1.5 billion)

Half of the drop in income tax revenues is due to an adjustment for the previous tax year. While government might complain about the adjustment, a windfall positive adjustment of more than twice that was received in 2001-02 due to underpayments from the federal government during the NDP years. That positive adjustment was delegated to a footnote in last year's report.

On top of the $600 million drop in personal income tax revenue, corporation income tax revenue went from $779 million in the budget to $924 million in the First Quarter Report and then plunged to $664 million in the Second Quarter Report. In the three months between the First and Second Quarter Report, corporation income tax revenue dropped $260 million! How's that for tax cuts paying for themselves? (corporations received $790 million in income, capital and sales tax cuts)

This year's budget claimed BC would suffer a $4.4 billion deficit but that forecast included a $750 million fudge factor otherwise called a "forecast allowance". When the fudge factor is stripped away, this year's deficit was forecast to be $3.65 billion. The First Quarter Financial Report lowered that estimate to $3.265 billion but the Second Quarter Report put it back up to $3.5 billion - a loss of $235 million. Only in the mind of Finance Minister Gary Collins can losing $235 million get translated into a positive news release with a spin about being on target. The enormous loss in income and corporation taxes didn't produce an even bigger loss between the First and Second Quarters because equalization payments from the federal government are expected to increase from $285 million forecast in the First Quarter Report to $770 million according to the Second Quarter Report - a gain of $485 million.

The news release issued by Collins ignores the failure of tax cuts to pay for themselves as evidenced by plunging revenues and bigger handouts from Ottawa. It focused on claims about spending being under control. In fact, spending is $256 million less than forecast in February's budget due to two items - less spending on welfare and lower debt servicing costs (despite increasing debt).

On February 18th, less than three months from now, Collins will present the 2003-04 budget together with the Third Quarter Report for 2002-03. Of course, that presumes that Collins will still be the Finance Minister after any cabinet shuffle. Whoever is the Finance Minister in February will be required by law to present an updated three year outlook. The Campbell government has focused on balancing its budget by 2004-05 based on the assumption that revenue will grow by 5.1% starting in 2003-04. The assumption referred to revenue from taxation, not revenue from bigger federal government handouts. If the 2002 Second Quarter Report is any indication, the Campbell fiscal plan is in trouble.