By Charles Lammam
and Milagros Palacios
The Fraser Institute
British Columbia’s new government has tabled its first budget, proposing to ramp up spending and shrink last year’s $2.7-billion surplus to almost zero, despite enacting a host of economically-damaging tax increases that the NDP campaigned on.
And the budget does’t include everything the New Democrats promised during the spring election campaign, meaning Premier John Horgan will likely either raise taxes further and/or run deficits (even though he promised not to run deficits during the campaign).
Charles
Lammam
Consider the significant increase in spending planned for this year. According to the tabled budget, program spending (all government spending minus interest on the debt) will reach $49.2 billion, 6.6 per cent higher than last year and much greater than both the rate of nominal economic growth (5.1 per cent), and the combined rate of population growth and inflation (3.2 per cent).
Crucially, over the next three fiscal years (2017-18 to 2019-2020), Horgan’s government plans to add a total of $4.4 billion in new program spending.
And these spending projections don’t include big-ticket campaign promises made by the NDP – such as $10-a-day daycare and a $400 renter’s rebate – that, if implemented, would more than wipe out the small projected surplus.
While Finance Minister Carole James said “you will see some of those in [next year’s] budget,” there’s actually little room in the budget for more new spending. The NDP projects razor-thin operating surpluses over the next three years, averaging just $244 million (or 0.5 per cent of total spending).
Of course, the government can follow through with these other promises but it must then either raise taxes more than what it signalled in the campaign and/or run deficits. But that would break a major campaign promise.
Milagros
Palacios
Either way, the government will have to prioritize and make tough choices. It can’t simply rely on strong economic growth to fill provincial coffers. While B.C.’s economy has performed better in 2017 than initially expected, that momentum is unlikely to carry forward to 2018 and beyond. In fact, the projections contained in the NDP’s budget for economic growth from 2018 to 2021 are the same as in the budget presented by the previous Liberal government in February.
Moreover, the expectations for increased revenue in the NDP budget, due to higher tax rates, may not come to pass. The expectations are based on a new higher top rate (16.8 per cent) for personal incomes over $150,000, a higher general corporate tax rate (12 per cent), and a carbon tax rate that will increase to $50 per tonne over the next several years.
All of these tax changes will discourage economic activity and likely dampen the amount of tax revenue the provincial government collects. In response to higher rates, high-skilled workers may work less and/or report less income. Businesses and entrepreneurs may invest, develop and expand less. More generally, the tax changes will make B.C. a less desirable place to work and do business, hampering the province’s growth prospects.
The budget signals the beginning of the NDP government and its agenda. Clearly, when it comes to its campaign promises, something will have to give.
Charles Lammam and Milagros Palacios are analysts at the Fraser Institute.
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