April 27, 2005

Too Few are Benefiting

Gordon Campbell is reported to be annoyed over Carole James' TV ad in which she says "only the wealthiest benefited from his tax breaks". In a trivial sense the ad is not precise if one only looks at the reduction in income tax rates for all five tax brackets; however, Campbell changed much more than the income tax. Try not paying your MSP premium as if it were like ordinary insurance and you'll soon see that it is collected like any tax. In addition to increasing MSP premiums, the Campbell government increased the gas tax, and dozens of fees.

The shift from the income tax to more regressive taxes was so great that the Ministry of Finance changed its "sensitivity" analysis of the impact of a change in the GDP on government revenue. Page 30 of the 2003-04 budget documents said that there is a revenue effect of between $200 million and $300 million for every 1% change in nominal GDP, but page 44 of the 2004-05 budget documents changed that to a revenue effect of between $150 million and $250 million for every 1% change in nominal GDP. The lower range of $150 million to $250 million was kept for the 2005-06 budget. Why has government revenue become less sensitive to changes in the GDP?

MSP premiums of $108 per month for a family of 3 or more have to be paid whether you make $40,000 per year or $400,000 per year, but income tax is sensitive to changes in income. Personal income taxes accounted for 16.45% of total estimated provincial revenue for 2004-05 compared to 19.89% in 2000-01. MSP premiums accounted for 4.59% of total estimated provincial revenue for 2004-05 compared to 2.98% in 2000-01.

A freedom of information request to the Ministry of Finance asking for an explanation for the $50 million change in the sensitivity of revenue to changes in GDP resulted in a memo that said: "In general, government own-source revenues will grow in line with provincial economic growth. However, taxation revenue sources are likely to be more sensitive to changes in BC nominal GDP than other sources such as fees."

Under the Campbell government the tax burden shifted to low and middle income families in the form of increased fees and regressive taxes; a consequence of that is when the economy turns down, government revenues don't decline as much as they once did, and when the economy turns up, government revenues don't increase as much as they once did. James is correct to say that under the Campbell government "too few are benefiting from economic growth."