Transcript
Speaker: I'm Jane Williams. This is the Red Eye Podcast. You can hear our live broadcast on Saturday mornings from 10 till noon at 100.5 FM in the Lower Mainland.
Speaker: On the podcast today, economist Mark Lee joins us to talk about the BC budget tabled this week. British Columbia's Finance Minister, Brenda Bailey, said that the budget she brought down on Tuesday wasn't an austerity budget.
Speaker: However, key spending areas have been given very small budget increases spread over the three-year fiscal plan, which will mean real cuts to services. In addition, the BC government's tax increases will hit low and moderate income households.
Speaker: In their analysis released Tuesday, Mark Lee and Andrew Longhurst say that while the budget appears to have dodged austerity on the surface, it lays a financial burden on the poorest in BC.
Speaker: Mark Lee is an economist with the Canadian Centre for Policy Alternatives, and he joins me today to talk about this week's provincial budget. Hello, Mark. Hi, Jane.
Speaker: Let's start with just your overall impression of the budget. What did you think of that budget as you sat there in the lockup and and heard it come down? Yeah, I mean, I think my high level all remark is that this is the budget that managed to piss off everyone. You know, the people who are very concerned about the deficit and debt got a much larger deficit than they were expecting. The people who hate taxes saw tax increases. A lot of the unions and NGOs who want stronger social spending were disappointed by what happened. in there. So it's almost like the government is a little bit adrift right now. They don't really know what they want to do, and they weren't even able to pick a lane and sort of stick to it.
Speaker: So I'm very concerned that this budget panders to the folks who were yelling loud about the provincial deficit and accumulation of debt, and essentially puts the burden of adjustment on the poorest households in BC, and that the budget didn't ask the wealthiest people in the province to contribute more. it didn't ask rich resource corporations that are making billions off of the exploitation of BC's natural resources to pay more back to the crown. So I think overall BC is a very wealthy province in terms of the resources we have, the excellent infrastructure we have, the people who we've invested in through our education system. We have all of these things going for that. All of that generates our annual income or gross domestic product. And the job of the provincial government is to ensure that that translates into collective well-being. And I think the government is is frankly failing on that at a number of fronts. We did not address any of the core crises that are facing the province right now. So it's very much a disappointing budget.
Speaker: Now, the budget aims to cut 15,000 public sector jobs by the end of the three-year plan. Where are those job losses going to take place? Well, there's not a whole lot of detail on that. They did specify that 2,500 jobs would be in what they call sort of core public services, essentially the civil service bureaucracy in Victoria or some of the regional offices around the province. And the remaining 12,500 are in the broader public sector. So this could be teachers, you know, it's probably not likely to be nurses or healthcare, but you never know, it could be in some areas like that. It could they're just talking the other day about allowing automatic renewals for driver's licenses online. So it's It could be the loss of jobs at ICBC. It could be loss of jobs in BC Hydro. ah We're going to have to wait and see exactly what that entails. But certainly it's a concern if you're shedding the institutional memory of government and you know folks who've been there
Speaker: for a long time. you know I think there are ways in which you can do things like early retirement and rely on attrition to achieve some of that objective. But the way things are lining up and the overarching fear about debts and deficits and and that kind of stuff, I think is going to lead to to real job losses. And that will undermine the capacity of the provincial government going forward.
Speaker: And I guess because the biggest sectors are healthcare and education, the biggest sectors in the provincial budget, that's presumably where those job losses are going to be centred. Yeah, i mean, 40% of the expenditures that the BC government makes are healthcare alone. Another 20% is education. And then social services is just over 10%. And then the rest is just all the other stuff that provincial government does from transportation, policing, economic development, and so forth. So the challenge in some of those areas is that In healthcare, care for example, you have an aging population, <unk> you have population growth, although that is mitigated in the last couple years. You have healthcare-specific inflation, higher salaries for doctors being a a large one of the last few years, but other healthcare-based. workers as well. So it's generally assumed, and we've done research around this ourselves, that you know you need expenditures to grow by about 5% to 6% per year, just to stay level in terms of the number of services that you're providing to British Columbians. So if you're getting an increase of only 2%, and the increase for the current fiscal year at the end of March is only 0.7%, that inevitably means real loss of services in the overall system.
Speaker: What's been the impact on the budget of the elimination of the carbon tax? Yeah, I mean, no one really seized on that apart from us in the aftermath of the budget. But, you know, this was sort of ah an election decision that the EB government made. And then they just rammed it through in April, put a $2.4 billion dollars hole in the budget. And what they did to claw back some of that is they eliminated what's called the Climate Action Tax Credit. And this is a billion dollars that was going to low and modest income households. So, It had grown over the years, but it had become a fairly important income transfer because those low-income households don't tend to burn that much carbon, right? They're not driving massive SUVs. They're not heating ginormous homes. So they were net beneficiaries. They got a lot back more in that income transfer in the tax credit. than they paid in the carbon tax.
Speaker: So that was lost. And then in addition to that, we are seeing some tax increases. So partly we have this increase in the bottom bracket of personal income tax, and that's kind of rolling back the personal income tax cut that Gordon Campbell brought in 2008. as part of the carbon tax framework. Because at the time, the rule was revenue recycling. Every dollar they took in carbon tax was going back out the door, either as these income transfers or as tax cuts.
Speaker: So, you know, i think what we haven't seen is folks who are higher income contributing more to make up that loss of revenue for the carbon tax.
Speaker: So the people at the bottom end of the income spectrum, then they've had taxes on their income tax bracket increase. They've also lost that transfer. Now, you'd mentioned ah at the top that they were really hit. Is there anything else in the budget that affected them?
Speaker: Now, I will say that there is a tax credit related to provincial income tax that was increased. And this was ostensibly to offset some of the increase in the personal income tax brackets.
Speaker: However, when you add that to the loss of the Climate Action Tax Credit, they've also increased provincial sales tax, not at the overall rate or percent of tax, but they've expanded the base to cover what are called professional services. So, you know, anything that you can't drop on your foot is a service. And so there are a lot of these services that were essentially untaxed in the provincial tax system. So that is another increase in taxes that's not being compensated for that increased tax credit. Yeah. So, I mean, overall, it's not a great picture for low income households.
Speaker: What's going to be the climate impact of that tax being eliminated? Well, I mean, the whole thing around carbon pricing and carbon taxes, you know, we were supposed to start it slow and then it increased over time. And I think it was just getting to a level where we were starting to have real impacts. You know, more British Columbians were buying electric vehicles as as new, more were installing heat pumps. You know some of that was assisted by various subsidies that the province was providing as well.
Speaker: But overall, we had this sort of fiscal orientation. in BC that was pushing us on the road, on the pathway to being more sustainable and reducing our greenhouse gas emissions. The government has essentially walked back all of that. And when you add in the fact that the government is actively promoting new liquefied natural gas plants and increases in the natural gas sector,
Speaker: It's basically like like the government has given up on climate action entirely. So that's, you know, it's really disappointing when we think about the future. And, you know, to some extent, the politics of the day suggests that no other governments care about climate change. So why should we? But I mean, that's a very cynical ah way to look at that. and And that's a wealthy part of the world is essentially failing to live up to its promises and its obligations, I think, to future generations. So again, also very disappointing.
Speaker: The Vancouver Sun's headline for Budget Day was, finance minister delivers a sea of red ink and tax increases. What about that sea of red ink? Is provincial debt really too high?
Speaker: Yeah, i mean, the Vancouver Sun has been, you know, yelling and screaming about this. And I think it's unfortunate that the provincial government let that narrative really influence their decisions.
Speaker: It is true that in the last few years, BC's deficit has been there and there has been an increase in the total provincial debt. We can't deny those facts. However,
Speaker: BC was starting in a very, very good position. We have still, even after these deficits, the lowest level of debt relative to our GDP of any province in the country compared to Alberta. And we all know that Alberta is special because of its oil reserves.
Speaker: you know If you look at it over time and you look at the ups and downs of surpluses and deficits, i mean what you find is that this deficit you know relative to GDP, it's about 2% of GDP. I would argue that's appropriate. i mean We're in the midst of a trade war with the Trump administration. we have a major housing downturn on our hands. And as economists, we think that good fiscal policy is that when the economy turns down, it's important for governments, federally and provincially, to go into deficit because essentially they're providing additional resources that support demand in the overall economy. That can turn around very quickly, as we saw you know in the early 2000s, the last time The Vancouver Sun was like obsessed about debt and deficits. And that's because the economy grows, you know, on average, the economy grows about 5% per year. And in really good years, when the economy is booming, and it's like 7 to 12% just within the last 25 years. Those are like some of the the top years you've seen. So that means that that fiscal balance turns around very quickly, and we shouldn't be overly concerned about it Now, the second part of the increase in debt is for capital spending. So the government has been increasing in capital spending. It's been building new schools. It's been building new hospitals. It's been investing in infrastructure from freeways to transit. These are good things that boost our overall capacity. as a society to to produce income in the future. And in terms of the budget, while there's debt associated with, you're also creating assets that have value that need to be balanced in that side of the ledger. And the folks at the Vancouver Sun never talk about the assets. They never talk about the relative to to GDP. They're just obsessed with arguing with large numbers. like look Look how much this number has increased from this year to this year, and it's so bad. I mean, it's just terrible argumentation. So, I mean, always consult a good economist before you listen to the Vancouver Sun about BC's debt and deficit.
Speaker: Now, we know that BC, along with the rest of Canada, is becoming more and more unequal in terms of wealth distribution. Was there anything in this budget that addressed that?
Speaker: No, I mean, this budget worsens income distribution in the province, and precisely because the market distributes income very unequally. And then the provincial government and the federal government as well, we we can't take them off the hook, but the the provincial government... reduces inequality in two ways, through the tax system because of progressive income taxation, largely, which puts a ah higher ah responsibility for people who have ah higher incomes. And then by spending that money in public services that benefit everyone and infrastructure that benefits everyone. So that's how we get from the broad kind of wealth and GDP to collective well-being.
Speaker: And the BC government has slipped on that front. And, it you know, it has reduced the benefits that are going low-income households. And it's going to reduce the services that are available low-income households. Higher-income households, you know, they have additional resources. They can buy extra services on the private market. And they'll probably benefit more from reductions in taxes than any losses in services that they're going to see. So, you know, really we should be concerned about how this affects people at the bottom of the income ladder.
Speaker: So overall, would you say it was an austerity budget then despite what Brenda Bailey said? We're calling it a hidden austerity budget, right? You know, the the minister comes out and says, this is not an austerity budget. And immediately you think, yeah, this is an austerity budget, right? And it's hidden austerity because a number of the core spending areas were actually given budget increases, but they're relatively small, like smaller than is needed to maintain much less increase those services. And in addition, the impact of those tax increases is going to hurt low and moderate income households. So I think that the burden of austerity definitely falls on the poorest in BC.
Speaker: Well, thanks so much for talking to to me about it, Mark. Good to talk with you again. All right. Take care. I've been speaking with Mark Lee, senior economist with the Canadian Center for Policy Alternatives. You can read the budget analysis he co-authored with Andrew Longhurst at policyalternatives.ca.
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Speaker: I'm Jane Williams. Thanks for listening.
