The highlights in Tuesday’s provincial budget were politically well chosen. The government promised $6 billion over 10 years for more affordable housing. A new child-care subsidy worth $1 billion over three years was announced, and the Ministry of Children and Family Development received a major funding lift.
Understaffing in long-term care facilities has been addressed, and medical services plan premiums will be phased out by January 2020.
Perhaps most importantly, the budget is balanced. These were all central planks in the NDP platform.
The question, though, is how those initiatives will be paid for, and whether the government’s expansive fiscal policy can be sustained.
A comparison with the last B.C. Liberal budget is revealing. Over the next two years, Finance Minister Carole James is projecting an eight per cent increase in spending. Most of that comes in the current year, with a whopping growth rate of six per cent — well above the anticipated GDP increase of 2.3 per cent.
By contrast, in their last budget before the provincial election, the Liberals forecast a spending increase over the following two years of just 2.7 per cent. Arguably, it was this excessive frugality that ended 16 years of Liberal rule.
Yet there is cause for concern here. Tight fiscal management was required to get back to a surplus after the 2008 recession. Can we afford the kind of aggressive spending James has in mind?
Her budget surplus is just $219 million. Although funds have been set aside for unforeseen contingencies, that’s a very slim margin in a province with notoriously volatile revenues.
But more significant are the measures required to achieve it. If this budget spends more, it also taxes more.
First, a new payroll levy will take effect next January. While small businesses are exempt, large companies will pay at a rate of 1.95 per cent.
James estimates this will raise $463 million in the current year, and $1.85 billion in 2019. In effect, almost all the cost of eliminating MSP premiums has been placed on the shoulders of employers.
Second, revenues from the carbon tax, which is forecast to raise $1.5 billion this year, will no longer be returned to taxpayers in the form of offsetting cuts in other taxes. All of this money will be retained by the provincial treasury.
Questions have been asked about just how revenue-neutral the carbon tax really was under the previous government. Nevertheless, these two measures, combined, will raise $3.35 billion — close to the amount by which James plans to increase spending. That is how the budget is balanced.
Questions can also be raised about the regressive nature of some of these choices. Previously, MSP premiums were reduced for families earning less than $42,000, and phased out entirely at lower income levels.
Now everyone has their contributions wiped out, the richest one per cent included. James called this “progressive,” but that’s a debatable claim. Ability to pay is no longer a factor.
Again, it’s likely companies will pass on some or all of the payroll tax to consumers in the form of higher prices. But that also makes no provision for ability to pay.
Likewise, the carbon tax draws no distinction between high- and low-income earners. Collectively, these are well outside the traditions of social-democratic thinking.
In short, this budget repairs some of the damage inflicted during years of fiscal hardship. And it introduces a more humane note long overdue.
However, it is a concern that significant tax increases are required. James is just getting started. If she’s raising spending six per cent at the beginning if her term, what will she do as the next election approaches?
This is the kind of urgency that minority administrations feel compelled to employ. The preferred strategy is to start off slowly, and save the good news until closer to the next election. But in James’s case, the next election might be just around the corner.
If it isn’t, and her government lasts a full four years? Then more tax increases will likely be necessary to finance a splurge of late-term spending.
