February 20, 2003

Off Track with Budget Gamble

The revised estimate for 2002-03 (the audited results will not be available until July or August) shows less tax revenue than originally budgeted. Last year's budget forecast for personal income tax revenue of $4.854 billion was revised on budget day 2003 to an estimate of $4.216, a drop of $638 million. It is hard to reconcile that kind of massive error with claims about job growth and higher wages. Weren't any of those people paying taxes? How can the government claim that its plan to balance the budget remains on track when revenues are so far off target?

Last year's budget called for 5.1% revenue growth in order to be "on target" in 2003-04, but the 2003 budget lowered that to 4.1%. The shortfall was made up with higher taxes, but higher taxes and less spending have the effect of further lowering economic growth. Government attempts to argue that its revenue is really up 5.3% in 2003 once a one time $300 million personal income tax loss is taken out but that ignores the fact that $254 million of the "growth" is due to new and higher taxes. The government's explanation shows that it considers higher taxes as equivalent to growth.

The party that opposed gambling when they were in opposition revealed that it is counting on a 60% increase in gambling revenues from the time it took office to the time it next goes to the polls. Many would say that the Campbell government has thrown the dice with many of its policies.

The 2003 budget calls for $675 million in spending cuts relative to last year. Cuts to program spending are an even bigger $928 million since debt servicing costs are forecast to increase by $253 million in 2003-04. Cutting program spending by almost $1 billion in 2003-04 will be very painful, and there is no end in sight as the plan calls for a further cut of $737 million the next year! That's the track taken by the Campbell government.

Imagine what the Business Council of BC would have said if an NDP government had run a $3.5 billion deficit. Not one word of concern or criticism has passed the lips of their spokesperson when Finance Minister Gary Collins said that this year's books will close with that record deficit if we are lucky and $3.8 billion if we aren't. Not to be timid, Collins forecast a deficit of $1.8 billion for 2003-04, or $2.3 billion when a $500 million "forecast allowance" is included. Regular budget observers will immediately notice that this year's fudge factor is $250 million lower than the $750 million that was used to get an inflated estimate of $4.4 billion for the first guess at last year's deficit. Fudging targets so as to look good with subsequent performance is an old trick but it doesn't work well when the "forecast allowance" is clearly identified.

Claims that the government is on track for a balanced budget lack credibility except for those who believe that even greater tax increases will be announced next year. The backbenchers who had to be pacified with the "heartlands" strategy will continue to feel the heat as their constituents suffer from less service and more tax.

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February 18, 2003

Budget 2003: Shifting the Burden

In addition to a record deficit, Tuesday's budget showed that the Campbell government is shifting the tax burden from the top to the bottom. Regressive taxes are up; progressive taxes are down; the government depends on federal equalization to meet last year's target. The Minister of Finance claims that he is on track to balance his budget by 2004-05, but he forgot to mention that he increasingly depends on handouts from Ottawa to make up for failed growth. The original promise was to balance the budget by having tax cuts pay for themselves; instead we have handouts to the provincial government from Ottawa combined with cuts to people by the provincial government. That's not the image that was painted in the New Era Document.

Once upon an election Gordon Campbell and Gary Collins said that tax cuts would pay for themselves, then they hiked tuition fees, increased tobacco taxes, raised MSP premiums, added to the sales tax, increased fees for driver licenses, camping, fishing and dozens of other activities, and increased the gas tax by 3.5 cents per litre. What Campbell and Collins actually did was to cut the tax burden for high income earners and pay for it with increases for middle and low income earners. They shifted the burden from the top to the bottom by replacing a progressive income tax with regressive premiums, taxes and fees.

In fiscal year 2000-01 the personal income tax raised $5.976 billion. Collins estimated that it would raise $4.854 billion in 2002-03 but in November his second quarter financial report revised the estimate downwards by $600 million to $4.254 billion. He then had the gall to issue a news release saying that everything was on track. If anything was on track it was because his error was covered by a $770 million federal equalization payment (reduced to $668 million in the 2003-04 budget). They didn't say anything about that in the New Era Document!

In 2002 the budget said that a key assumption for balancing the budget by 2004-05 was for revenues to grow by an average of 5.1 per cent annually after 2002-03. In the February 18, 2003, budget documents the Finance Minister admitted "Revenue growth of 4.1 per cent is forecast in 2003/04." The only way Collins could defend his $3.5 billion deficit for 2002-03 was to say that it was lower than his previous estimate. Note that Collins lowered his "forecast allowance" for 2003-04, thereby giving less room for error.

It is interesting to compare some of the sources of revenue from 2000-01 with the budget estimate for 2003-04.

Revenue source Consolidated Revenue Fund	Actual 2000-01 (millions)	Budget 2003-04 (millions)	Difference (millions)
Progressive taxes:
Personal income	$5,963	$4,722	-$1,241
Corporation income	$1,054	$755	-$299
Corporation capital tax	$459	$101	-$358
Subtotal:	$7,476	$5,578	-$1,898
Regressive taxes:
Social service (sales tax)	$3,625	$3,995	+$370
Fuel	$715	$866	+$151
Tobacco	$460	$635	+$175
MSP premiums	$894	$1,410	+$516
BC Lottery Corporation	$562	$725	+$163
Subtotal:	$6,256	$7,631	+$1,375
Natural Resource Revenue	$4,199	$3,396	-$803
Contributions from the federal gov.
Canada health and social transfer	$2,619	$2,763	+$144
Equalization	0	$675	+$675
Other	$517	$554	+$37
Subtotal:	$3,136	$3,992	+$856
Total (includes items not shown here)	$27,848	$26,000	-$1,848

This table clearly shows how the Campbell government has shifted the tax burden. Income and corporate capital tax accounted for 26.8% of total revenue in 2000-01. The 2003-04 budget shows the Campbell government reduced that to 21.5% of total revenue. The regressive taxes identified here accounted for 22.5% of total revenue in 2000-01; the Campbell government increased the share of those regressive taxes to 29.4% of total revenue. This calculation does not include the new regressive fees such as a $75 driver's license. On top of the increase in regressive taxes and fees, they lowered the amount of income tax paid by high income earners relative to middle and low income earners.

At the same time government has been shifting the tax burden to the bottom, it has been busy cutting services most used by middle and low income British Columbians. Nowhere is that more evident than in the Ministriess of Human Resources, of Children and Family Development, of the Attorney General and of the Solicitor General. Cuts to those ministries combined with school and hospital closures produced the political pressure that gave us the "heartland" theme as government attempts to woo back the alienated Interior of BC.

In 2002 each Ministry tabled three year service plans. This year we can look at the updated plans and see that government has not backed off from planned cuts. The budget for Ministry of Children and Family Development supports both adults with developmental disabilities in the community living program and children in need of protection. The 2002 plan called for cutting services by 23% between 2002-03 and 2004-05. The revised plan that was tabled with the 2003-04 budget calls for cutting community living services from $631 million in 2002-03 to $553 million in 2003-04, to $512 million in 2004-05. The revised plan calls for cutting child protection from $815 million in 2002-03 to $770 million in 2003-04, to $631 million in 2004-05. Mental health services for children and youth were identified for cuts in last year's plan, but the Ministry changed its method of reporting so as to include those services in a larger total in 2003-04. That is consistent with the way the budget for adult mental health services was hidden in last year's budget.

The cuts to each Ministry deserve attention but budget day produces an information overload. Over the weeks ahead particulars of each ministry's cuts will be amplified as the plans are implemented. This year the government withheld the revised service plan for the Ministry of Health on the basis that it received information from the federal government too late for budget day. We know from earlier statements that the Ministry of Health's statements about actual expenditures are not accurate since health authorities are running deficits that are not fully disclosed in the province's estimates of actual expenditures. That information may come out in estimates debate. It is almost certain that the long awaited information on changes to Pharmacare will come out over the next few days. That and dozens of other changes will receive far more attention than a public relations campaign wrapped around calling the Interior the "heartland".