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The Progressive Economics Forum

Another BC economic plan

Last night NDP Opposition Leader Carole James delivered her own televised address to the province, following on the Premier’s underwhelming address last week. This was a much better effort from James, with the speech probably aimed square at tomorrow’s two by-elections in Vancouver. With the BC election is still seven months away, this tit-for-tat game could get quite interesting by May, although both parties are boxing themselves in by promising tax cuts and balanced budgets as we head into a recession. More evidence on how conservative fiscal policies have come to dominate the public discourse.

The NDP would maintain all of the tax cuts promised by Campbell last week and would go one further in eliminating the BC carbon tax (which James insists on calling a “gas tax”, probably due to some internal polling that says carbon taxes are more favourable with the public). The NDP’s distorted line about the carbon tax is repeated here:

The Premier’s new gas tax is hurting families, it’s hurting small businesses, and it’s making a difficult economic situation even worse. And while you pay the tax, big polluters are let off the hook.

Well, the carbon tax is, among other things, a 2.3 cent per litre gas tax, and since it was introduced gas prices at the pump have come down about 40 cents. And on average the bottom 40% get more back in credits than they pay in carbon tax. And big polluters are actually covered (although there are a few areas with non-fossil-fuel emissions outstanding, but it is not as simple as being let “off the hook”). So the parts I don’t like about the carbon tax, recycling revenues into corporate and personal income tax cuts, are what James would keep, while the tax itself would be gone.

But it gets better. James articulates the need for major public infrastructure investments:

If there’s one infrastructure program we need first it’s a green infrastructure program that builds transit and helps average families retrofit their homes. That’s my priority. And it’s a priority that will create economic activity and green jobs.

In addition, she would fast-track spending to seismically upgrade schools and build new affordable housing, specifically:

I would start building 2400 affordable housing units, and 1200 new units every year until every British Columbian has a roof over their head.

James then outlines some action on education:

I would end cuts to college budgets and bring back student grants. I would expand graduate student scholarships, and cut student loan interest rates by 50 per cent.That would help make post-secondary education and training an option for all families, regardless of their financial circumstance…

All good stuff, and poignant given that universities in BC are in budgetary crisis mode, and Simon Fraser University is contemplating eliminating faculty positions and whole programs, something that has never happened before.

Finally, a package for rural BC will be introduced, including some un-green infrastructure spending (expanding a highway in the Interior), a ban on raw log exports, community infrastructure (the hockey arena in Hazleton needs a new roof), and a rural economic development fund. Somewhat vague on the details (promises to add value and diversify rural BC go back decades) and somewhat questionable in direction.

The biggest macro concern with James’ plan is to insist on a balanced budget, and that promises can be achieved by “eliminating government waste”. It is hard to imagine huge budget savings there since the public sector was gutted during the Campbell government’s first mandate. The real loophole is due to modern accounting rules, which expense infrastructure spending over a few decades in the operating account, so an extra $2 billion in infrastructure spending affects the budgetary bottom line by a fraction of that. So let the infrastructure projects roll.

Some of these dynamics, in reference to Campbell, are argued by Paul Beaudry and Jon Kesselman in an oped in today’s Sun. They comment on the foolishness of balanced budgets in a recession, and also flag the incentive to cut non-capital spending while increasing capital spending:

The government’s concern over avoiding a deficit thus inclines it to cut non-capital spending while boosting capital spending. But does this spending bias make any policy sense? Non-capital spending includes all the staffing, supplies, and utilities needed to operate schools and hospitals — so why build more infrastructure if the funds to operate them effectively will be constrained?

Equally troublesome, many expenditures classified as “current” in fact contribute to the most essential determinant of the B.C. economy’s long-term prospects, namely workers’ skills or “human capital.” Constructing more college buildings, for example, will do little to augment long-run economic potential if constrained operating budgets reduce supplies in labs, cut teaching staff and restrict course choices.

All of that said, the baseline surplus for 2008/09 is very large, though it is getting whittled down by tax cuts and the deteriorating economic situation. The real question is what would happen in 2009/10? The potential for a nasty recession may dash balanced budget ambitions for both Campbell and James, so perhaps they should arrange an entente that frees both up to run a deficit if things get bad, rather than play “who’s more fiscally conservative” (OK, that’s never going to happen). But if James were to win, and a deficit was necessary, we would never hear the end of it from BC’s corporate media. A lot can change between now and May, and I’d like to avoid a repeat of the federal election when all major parties repeated their commitment to balanced budgets.

Enjoy and share:

Comments

Comment from Stuart Murray
Time: October 28, 2008, 12:46 pm

Also on the horizon is collective bargaining immediately following the Olympics, which will dominate economic policy in the two months preceding and following the bargaining deadline and in the process overshadow an entire budget. There will be a whole lot of stuff going on relating to the recession, bargaining, and election promises leading into the 2010 budget.

None of this would change as a result of a change in government. Unless someone out there wants to argue that provincial government policy affects the economy, starting in 3…2…1…

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