Posted by Iglika Ivanova under BC, budgets, economic growth, education, employment, income distribution, inequality, poverty, public services, recession, social policy, taxation, unions, user fees, wages.
March 4th, 2012
Last Monday, BC teachers held a Day of Action in communities across the province to protest the BC government’s decision to legislate a contract and put an end to their collective bargaining process. I was invited to speak to teachers at the Surrey rally, where I had the opportunity to share some of my analysis of the BC Budget (which readers of the PolicyNote blog are familiar with) and debunk some myths around the economic and fiscal context in which the teachers’ bargaining process is taking place.
It was an honour to show support to teachers in my adoptive country because I owe so much to my own teachers back in Bulgaria. I literally wouldn’t be here today had I not had amazing teachers growing up. Through my own education experience, I’ve come to believe that great education is the most sustainable way to make change happen, to build a better future for everyone. And you can’t have great education without dedicated, hardworking and caring teachers.
And I was thrilled to be invited to the Surrey rally of all the great events happening around the province for personal reasons too: my in-laws are Surrey teachers.
The following is the prepared text of my remarks.
As a public interest researcher at the CCPA, I spend a lot of my time looking at issues of government finance and how they affect the quality of public services and in turn, quality of life for people in our province. In my brief remarks today, I want to share with you two rather disconcerting patterns that I have seen play out in BC over the last decade.
The first is a pattern in labour relations that the previous speakers already touched on. We’re increasingly seeing governments, both federally and in BC, who believe that wages need to be kept low for the benefit of economic growth (regardless of whether we’re in a period of economic growth, recession or a recovery).
The second pattern I want to talk about is the consistent underfunding of public services in this province, which includes education. We have seen a distinct withdrawal of government support from public services while more and more of the costs have been downloaded to families who need the services.
The net zero mandate public sector unions are facing now is a reflection of both of these patterns. So is last week’s provincial budget.
Let’s start with the budget. This year’s budget falsely claims that the proverbial cupboard is bare and that nothing can be done to meet any of BC’s most pressing social, economic and environmental challenges. What this really means is that the provincial government is asking us, asking the poor and middle class families to tighten our belts, to make sacrifices and wait for the economy to get stronger before our issues can be addressed.
But in reality, the cupboard isn’t bare. The constraints the government appears to be facing are neither economic nor fiscal. They are political.
The fact is that the BC economy is in recovery. Growth is not as strong as it was in the mid-2000s, but it is present. The economy is projected to grow by about 4% per year. Government revenues are growing along with the economy, also by about 4%. Government spending, however, is only growing by 2%. This means that effectively, the size of government is shrinking relative to the size of our economy. And this is not new — the size of government spending as a share of the economy has fallen quite dramatically over the last decade. In 2000, government spending was roughly at 22% of our economy, last year it was down to 20% and with this new budget, it is projected to fall further over the next couple of years. This may sound like small changes, but with the BC economy at over $200 billion per year, a 2 percentage point decrease (from 22% to 20%) amounts to more than $4 billion dollars per year.
So does the government have no money because the recovery is slow or is the crunch caused by government shrinking its size deliberately over the last decade? You tell me.
As it stands, the budget’s stated priority is to balance the books in time for the next election. You’ve all heard that the budget is in deficit this year, but how many of you know that the budget shortfall for this year is greatly overstated? The government has deliberately low-balled revenue forecasts and is hiding behind a convenient accounting artifact. Roughly half of the $2.5 billion projected deficit for 2011 is a product of accounting rules that require government to expense the full $1.6 billion HST transition funding repayment in the current year. This is despite the fact that BC negotiated a deal with the federal government to pay it over five years with no interest. So we are paying the bill over five years, but the entire amount is added to this year’s deficit estimate. The real budget shortfall is only $1.2 billion, half of which is fiscal padding in the form of a contingency fund allocation and a forecast allowance.
At $1.2 billion, our deficit is less than 1% of the provincial economy (it’s close to 0.6% to be precise).
The spin on this year’s budget is so-called “prudence” but in reality there is nothing prudent about failing to tackle the global climate crisis, reduce income inequality, adequately fund our schools, invest in community-based supports for seniors, or reduce BC’s embarrassingly high poverty rate. For all the talk of preserving core public services, the budget offers only meager increases to the ministries of health, education and social assistance that don’t keep pace with rising cost pressures and population growth. K-12 education funding, for example, needs to rise by at least 2% to keep up with inflation and maintain the current levels of service; more if the province wants to address the unmet needs in the system. Instead, we’re seeing what’s essentially a frozen budget, a zero increase, which effectively amounts to funding cuts on the ground.
Practically speaking, it’s not real fiscal constraints that stand in our way but a lack of political will. Our debt levels are very reasonable when considered as a share of our economy, and they are among the lowest in the country. We can afford to borrow a bit more at today’s record low interest rates to make capital and social investments that will make us all better off in the long run.
Our Finance Minister Kevin Falcon claims we have no choice, but he’s wrong. Our government has a choice.
Our BC government is by no means broke, and the net zero mandate for public sector bargaining is a political choice, not a reflection of an economic imperative to cut costs.
The choice our government is making is to ask us to tighten our belts and keep out wages low for the benefit of economic growth during the recovery. Once growth returns, the government has often argued, the benefits would trickle down to everyone and wages will rise as the economy grows. Our Premier made that point quite clearly in her radio appearance on the Bill Good show earlier in February.
But the focus on pursuing jobs and growth without regard to what type of jobs we’re getting hasn’t paid off for BC families.
The 2008 recession and the current slow recovery are taking place in the context of a 30-year-long stagnation in BC family incomes. We don’t hear this often, but median earnings for full time, full year workers in BC have actually fallen since the late 1970s, once inflation is taken into account. This means that over half of BC full year full time workers are earning less in real terms than their parents’ generation. That’s happened during a time when the provincial economy almost doubled in real terms, and real GDP per capita rose by 23%.
But it’s clear that the benefits of prosperity have not trickled down to the bottom half of the population. This raises a moral question about fairness and social justice, one that the Occupy movement brought to the forefront of the public debate just last fall.
But it also has a direct impact on the economic well-being of our province and our country. High inequality can diminish economic growth if it means that we are not fully using the skills and capabilities of all its citizens or if it undermines social cohesion, leading to increased social tensions. We must find a way to share prosperity more fairly.
This all starts with a solid and well-funded public education system. Accessible, high quality education from the early years all the way to post-secondary is the only way to ensure economic mobility in a modern society. Providing access to high quality education for all children is the greatest equalizer we have.
And this means treating the hard working women and men who teach our children with the respect they deserve and compensating them fairly.
There is no question that governments everywhere in Canada are facing pressure to balance their budgets. So far, efforts to reduce the deficit have disproportionately focused on cutting public sector jobs, wages and social programs. But we must remember that there are two sides to every budget – the spending side and the income or revenue side. The only proposals coming from the business sector are to cut government spending, but I think it’s only fair and reasonable to look at the other side too and consider government income.
Over the past decade, the BC government has reshaped the provincial tax system. As a result, BC now boasts the lowest personal income taxes for individuals earning up to $120,000 per year and one of the lowest corporate income tax rates in the country. The savings have been small for all but the highest-earning families and have largely gone unnoticed as user fees have risen, including MSP which is going up next year for the fourth time since 2009. And a number of public services have been scaled back or suffered from declines in quality due to underfunding.
But these tax cuts have done considerable damage to our collective capacity to care for one another and protect the environment. If we were collecting taxes at the same share of the economy now as we were in 2000, we’d have $2.5 billion more. Every year.
The way the government got people to support tax cuts is by hiding the consequences. Low taxes sounded like a good idea to be people. Good idea until such time that you or somebody you love needs the services that the tax cuts have starved. Until you see how big your child’s class is and how many kids with special needs are in it who don’t receive the supports they need to learn well. Until you have to get rushed into the overcrowded emergency room and treated in the hallway. Until you find out how long the waiting list is for your aging mother to be assessed for supportive housing.
This highlights a need for a public debate on a key question: do we really want BC to be a low tax society with low wages and frayed public services? Because this is where the government’s current budget is leading us.
At a time when BC families are already stretched by record high debt levels and a weak labour market, the way out of this economic slump lies not in lowering the wages and benefits of teachers and other public sector workers, but in having stronger and more accessible public services, starting with education.
Originally posted on PolicyNote.ca.
- Climate justice and the political moment in BC (April 5th, 2013)
- Absolving our Carbon Sins: the Case of the Pacific Carbon Trust (April 2nd, 2013)
- The dubious case for casinos (January 22nd, 2013)
- Marc’s Letter from 2040 (December 14th, 2012)
- State of the BC Economy (December 5th, 2012)