April 27, 2005

Campbell's Plan is Not Working

On April 27th Statistics Canada released its preliminary estimates of provincial economic accounts. The estimates will be revised in November and may be revised several more times over the next few years. The preliminary estimates contain both good and bad news for BC.

Focusing on the good news, the Campbell Liberals issued a news release quoting Premier Gordon Campbell saying: "For the first time in nearly two decades, B.C. is now Number One of all provinces in Canada again in economic growth, confirming that the BC Liberal plan to create new opportunity for British Columbians is working." In case the media missed the point, the Campbell machine distributed a jpg image for their use. BC's inflation adjusted GDP increased by 3.9% in 2004; that's not as good as the North West Territories 4.1% or as good as the 4.6% BC experienced in 2000, but 3.9% is higher than the province's long term growth of 3.0% and higher than most economists expected.

Campbell is wrong to try to claim credit for BC's growth. He is not responsible for low interest rates, high coal prices, the economies of India and China or the beetle kill that has accelerated the cut in the woods. However, if he wants to take credit for the good news, he should also take responsibility for the bad news. The personal savings rate in BC reached an astonishing negative 7.9%. British Columbians' personal spending is almost $1.08 for every $1.00 of income. It is not possible to explain all of that away by looking at the proportion of people in retirement who start to live off their savings. Part of that record low personal savings rate reflects incomes that are stretched to keep up with inflation, or in the case of public sector workers, incomes that are rapidly falling behind inflation. Personal savings have been on the decline as a percentage of income throughout Canada for more than 20 years, but BC has the worst rate in the country. Retail sales in BC have shown high growth, growth that exceeds inflation plus population growth, meaning that people are going to debt or exhausting their savings. To use one of Campbell's favorite expressions, "that is not sustainable."

Growth in real GDP is just one of the key indicators from the provincial economic accounts. Doing well in GDP growth doesn't necessarily mean that consumers have more money in their pockets. The indicator that counts most for BC families is personal disposable (after tax) income. In 2004 it was $22,364 in BC, and $23,203 for Canada. BC has been below the Canadian average since 1998 but it continues to rank third behind Ontario at $24,354 and Alberta at $26,884. What is troublesome is that BC's growth in personal disposable income is trailing the national average. In 2004 BC ranked 7th in terms of growth in personal disposable income. BC could lose its long time standing in third place and slip behind Quebec or Saskatchewan if the current trend continues. That is the exact opposite of what the Campbell Liberals claimed would happen as a result of tax cuts, and it is why many voters feel they are not sharing the good news. It is also one more reason why British Columbians are cashing in their savings faster than people in any other province.