October 20, 2008

Campbell on Deficits

Premier Campbell announced that he'll be issuing an economic statement on Wednesday. Appearing on CBC Newsworld's "Politics" on October 20th following the Premiers' meeting on the economy, he was asked whether provincial governments were asking the federal government to rethink its deficit position. Campbell said he had to speak for himself, and then launched into an ideological rant against deficit spending. Guest host Susan Bonner then asked about the federal government offloading onto the provinces as it did when Paul Martin balanced the budget. Campbell said it was time to do things differently by eliminating unnecessary costs, eliminating duplication, eliminating trade barriers and liberating the economy. It looks like Campbell wants to ignore the global economic disaster and push his old agenda on barriers to internal trade as if that would protect BC against falling house prices, dramatic drops in real estate sales, abandoned construction projects, collapsed natural resource prices, slowing retail sales and increasing welfare rolls. He appears to think that BC is in an economic bubble that is isolated from the rest of the world, and that marginal measures are adequate to deal with the greatest economic crisis since the great depression. It was his kind of thinking that prolonged that recession.

In a few weeks Finance Minister Colin Hansen will release the Second Quarter Financial report, giving the state of the province's books from April 1st through September 30th and a look ahead to yearend. The Catch-22 this year is that the provincial election will be held on May 12, 2009, and the audited financial statements won't be available until late June or early July. British Columbians will be asked to go into the election trusting what the Campbell government says about its finances and the state of the provincial economy. The 2009-2010 budget will be tabled in the legislature on February 17th; unless there is a substantial turnaround in the direction of the economy, it will be difficult for the province to balance that budget, although we'll probably be asked to suspend disbelief and pretend that it is balanced. The surplus was sufficiently large in the early part of the current year, so as to make it believable that we'll finish in the black for the fiscal year that ends March 31st, but it is a stretch to think that there is room for any tax cuts or substantial spending increases without incurring a deficit. How likely is it that Campbell will share that bad news on the eve of an election, let alone admit that he'd repeat the kind of hatchet job he did on public services in 2002 if he receives a third mandate.

Some believe that Stephen Harper denied himself a majority government with his attitude towards arts and culture and with his lack of empathy with respect for what many Canadians are going through with the economic crisis. Campbell's natural arrogance is likely to lead him to make the same mistakes. A credible politician would say that BC has a structural surplus, but that doesn't mean running a surplus during periods of less than 1.0% economic growth (negative per capita growth).

The Campbell government is fond of comparing the number of people receiving income assistance since 2001 with the number under the previous government, although it denies that its harsh policies have anything to do with increased homelessness. That position makes the upward jump in the welfare rolls all the more surprising; it certainly isn't caused by a relaxation of the Campbell government's approach to those in need. In August 2008 (the most recent month for which statistics are available), there were 39,863 temporary income assistance cases, an increase of 6.6% since August 2007. The number of disability cases has been growing steadily and now stands at 67,362, an increase of 4.9% since August 2007. September was the first month BC saw a drop in employment. It is hard to say whether, like the early indications of the sub-prime mortgage crisis, the increase in the number of people on welfare is an indication of something going wrong with BC's economy. It is possible to say that the increase in the welfare rolls is not the only economic indicator that is heading in the wrong direction.

The Campbell government needs to get out of its state of denial, share what it knows and realistically plan for a few tough years. It is not good enough to say that the 2010 games will make life an economic paradise in BC. Tickets for the games are now on sale, so the Olympic organizing committee should be able to give a progress report on ticket sales to the US market. It is hard to believe that the combination of increased border security and daily doses of bad economic news will be good for ticket sales. On October 23rd, when over $1.4 billion in debt is due, the owners of the Whistler-Blackcomb ski resort may become the latest victim of the international financial mess. Wouldn't you think that a bright outlook for the 2010 games and the post-game years would make it easier for Intrawest to refinance? Perhaps they know something Campbell is not sharing with British Columbians, who will be on the hook for any shortfall the games suffer.

Some British Columbians remember the recession in the early 80s. BC took a nose dive that lasted five years. We are in the early stages of the current downturn, which could become worse. Cutting services and being hostage to economic dogma will not help British Columbians weather the storm.