November 24, 2008

Second Quarter Outlook Worse to Come

There's a lot in common between the Campbell government's spin following the release of its Second Quarter Financial Report, and the position taken by all political parties in the October federal election - denial! In the federal election no political leader was willing to talk about the pending federal deficit, although they all must have had a good idea that deficits were inevitable, especially Prime Minister Harper. We are seeing that movie all over again with the Campbell government pretending that it can balance the 2009-2010 budget that it will release in February, and Carole James not uttering the "D" word.

The Second Quarter report reveals very little that anyone who reads a newspaper didn't already know. Revenues are down primarily because of drops in revenues from personal income tax, business income tax, the sales tax and natural resources. Housing starts and sales are down as are growth projections for the overall economy.

The question is what is the Campbell government going to do? Difficulties with accelerating capital spending are evidenced in the Second Quarter Report which indicates that capital spending is down in several areas relative to what was indicated in the First Quarter Report due to difficulties in timing. B.C. has an enormous inventory of potential public sector capital projects: earthquake protection for schools, residential care facilities, and the Northeast rapid transit line should be high priorities. Contrary to popular belief it is not easy to spend billions. Major capital projects require planning and engineering work before any construction workers are hired. More than a month after Campbell promised to accelerate capital spending we still haven't had a single announcement. There aren't shelf-ready projects with all the lengthy preparation work completed. If we are lucky and the downturn is over in 18 months, accelerated projects would see work commence about the time recovery begins. If we are unlucky, and we are at the beginning of the kind of decade-long stagnation that Japan experienced, work needs to begin on a long list of projects that will be necessary to stimulate the economy. One way or the other, increased capital spending is not likely to have a big impact in 2009.

What can have a big impact is assurances that the government's operating budget won't be cut so as to force the budget to be balanced because of a blind commitment to ideology. The balanced budget requirement in the Budget Transparency and Accountability Act can be eliminated with a quick stroke of the legislative pen. British Columbians need to know that health and education won't be cut, that there won't be a repeat of drastic cuts to child protection services and that homelessness won't increase.

In 2001 Campbell campaigned as if he could do all things for all people, and he did a reversal after his victory with one of the most draconian restraint programs in BC history. There is no reason to believe that provincial finances won't be considerably worse in 2009 than is let on. After the May 12th election, would a third term Campbell government suddenly behave like the unpopular, service cutting 2001 Campbell government?