What’s missing from the BC “housing budget”? The housing.

BC Budget 2007 is a “housing budget” that does not build much housing.

The budget commits to a mere 250 new social housing units over two years – a far cry from the 2,000 per year that was built back when the federal and provincial governments were in the game (before 1993). At this pace, it will take 17 years to house the homeless of Greater Vancouver, and that is not taking into account estimates from the Pivot Legal Society that homelessness could triple by the time of the 2010 Olympics.

There are a number of housing initiatives in the budget, most of which are fine as things go, such as more shelters year-round for the homeless, and an expansion of the rent supplements announced last fall. But the total amount of expenditures is quite small and spread very thinly.

For every dollar of housing expenditures in the three-year fiscal plan, there are four dollars in income tax cuts. And tax cuts are the real centerpiece, which makes BC Budget 2007 perhaps the most cynical document in recent memory because it counts the tax cuts as a substantial part of its housing plan.

The stated rationale is that tax cuts will make it easier for everyone to pay for their housing. This is an astonishing claim. For example, my house doubled in value over the past five years, and I already will pay no tax on the resulting capital gain. Yet, not only did I win the housing lottery through sheer luck, I am rewarded with a tax cut that I did not ask for (and that is small enough that it will not be noticed). In fact, I do not recall anyone, business groups included, who did call for tax cuts in this budget.

If the $1.5 billion in tax cuts over three years had instead been allocated to building new social housing, we could have almost eliminated homelessness. Instead, we have a budget that not only fails to deliver new social housing, but will be taking 750 existing social housing units and converting them to supportive housing for seniors. This is robbing Peter to pay Paul. And it is reminiscent of the game the provincial government played a few years ago, taking federal money for low-income social housing and using it to build assisted living spaces for seniors.

One can only conclude that the provincial government really does not care about homelessness. Even the 250 new social housing units over two years are funded out of $50 million in federal dollars. The province is going to take $250 million out of the 2006/07 surplus to park in a fund that will pay for $10 million of new initiatives per year, although it is not at all clear that any of this money will fund new social housing.

Much of the housing effort in the budget is for the benefit of the middle class: provisions to keep granny in her single-family home (a measure that actually makes housing for families with children less affordable); a waiver of property transfer tax for first-time homebuyers, up to a ceiling of $375,000. In addition, the expansion of the home owner grant for homes up to $950,000 in value means a person living in a $900,000 home will be spared $570 per year in property taxes.

Tax cuts aside, the fact of the matter is that provincial coffers are bursting with surplus cash. On top of $3 billion surpluses in each of the past two years, the 2007 budget will also close in the $2-3 billion range. The budget document only admits to an underlying surplus of more than $1 billion, but extremely conservative assumptions about revenues hide much more than that (this game was invented by Paul Martin but has been the main story of BC budgets for several years now). In fact, the government forecasts that revenues will decline in 2007/08 in spite of projections of solid economic growth.

While almost all of the media attention will be on housing, some other developments are worth noting. There is the first decent increase in health care spending in years, which was announced back in January. The key fact in health care spending is that the budget needs to increase by 5% per year in order to keep up with inflation, population growth and population aging. Over the past five budgets, the average increase has been under 4%. Thus, the 2007/08 increase of 7.3% is welcome and will help address the pressures that we are seeing in emergency rooms and elsewhere.

But there was no commitment in the budget to stable multi-year funding. For 2008/09 and 2009/10, the increases are 2.2% and 3.3% respectively, so expect health authorities to continue feeling pinched. More money could be coming, but the budget document repeats the same bogus claims that health care spending is unsustainable and that “alternatives” (read: private care options) will be needed.

The areas that fared the best in the budget did not make the press release. In post-secondary education, there was a 6% increase in 2007/08, though no reduction in tuition fees as many student advocates had hoped for. And the Ministry of the Environment got a 10% budget increase, mostly for conservation measures. The budget contains $4 million over three years to get the ball rolling on climate change, but we may need to wait until next year for some firm financial commitments.

Also noteworthy was an increase in social assistance benefits. For single employables, long stuck at $510 per month, the shelter and support portions were increased by $50 each, for a new monthly total of $610. People with disabilities or barriers to employment will also get the $50 increase in the shelter component, but oddly, not the support portion.

Child care is also taking a hit, following the federal elimination of Martin’s early learning and child care program. The loss is $105 million for a host of programs related to early childhood development, child care and programs for special needs kids. That the specific budget (and cut) for child care was not precisely spelled out in the budget documents speaks volumes about its importance to the government. And remember that last year’s gimmick was a “children’s budget”.

Like last year’s “children’s budget” that did not build early learning and child care spaces, Budget 2007 is a huge disappointment, a gaping mismatch between rhetoric and reality. The provincial government seems to have got enough of the message to make housing the theme of the budget, but not so much as to really do something meaningful about it. This reflects a worldview that places so much faith in the market, that even when the market clearly fails, government should not step in, apart from some token measures on the margin.

6 comments

  • The report in today’s National Post begins as follows: “Five-figure earners in British Columbia will pay the lowest income tax in the country after the province’s Finance Minister yesterday pledged a significant tax cut thinly disguised as ‘the most aggressive housing strategy British Columbia’s ever seen’.”

  • A few updates:

    I had to delete an obnoxious comment but it did raise one issue that I should clarify. The comment figured that if health care spending increased five percent per year than at some point it must consume the entire income of the province.

    Not so. What matters is the spending on public health care as a share of GDP. As long as GDP growth is on average five percent per year (or more), then annual health care spending increases of five percent will be stable (or declining) as a share of GDP.

    The 25-year historical average GDP growth in BC is 5.7 percent (nominal). And even during the so-called “lost decade” of NDP rule, when the economy was apparently destroyed, GDP growth averaged 5.1 percent. Thus, if history is any guide, health care spending is sustainable at 5% per year.

    For more on the math behind health care see this post:
    http://progecon.wordpress.com/2006/11/07/will-an-aging-population-bring-health-care-to-its-artificial-knees/

    Second, Lynell Anderson of the BC Child Care Advocates emailed a clarification based on some new information:

    “Just a brief note to try to clarify the cuts to child care included in the 2007 budget.

    “The exact cuts to child care cannot be easily determined directly from the budget documents*. ECD, child care and Special Needs are combined and, together, reduced by $105 million (as commentaries have noted).

    “However, in a separate fact sheet issued on Feb 19 07 (“For the Record”), MCFD confirmed widespread projections that the 2007/08 child care budget would be reduced to almost $250 million**, a reduction of $140 million from 2006/07 – an amount equal to the reduction in dedicated federal transfers for 2007/08.

    “Putting these 2 pieces together means that ECD/Special Needs are increasing by $35 million (140 – 105), and that only child care is being cut.

    “On a separate but related note, various estimates show that over $100 million of the $140 million in this year’s child care budget has not been spent on child care programs. This means that the province would have to restore less than $40 million of its previous reductions to child care funding in order to maintain existing child care program funding levels and avoid downsizing CCRR’s, operating funds and capital spending.”

  • This might not be related directly to this post, but what do you think about funding for hospitals through fee for service? Basically they recieve revenue just like the private sector, and not through predetermined budgets. Apprently this is going on in the UK.

  • Do you mean fee-for-service just like we pay doctors now, or fees charged to patients? I’m guessing the former.

    It could work, I suppose, though it looks like it would make things even more complex. I’m not sure what the UK evidence is – any suggestions on sources?

  • Hospital funding system blamed for waiting lists:
    Pay for each procedure rather than grant ‘bulk’ budget, medical association head says

    The Vancouver Sun
    Wed 31 Jan 2007
    Page: B5
    By: Jonathan Fowlie

    Hospital waiting lists could be drastically reduced — if not completely eliminated — if provinces were to change the way they fund the health care system, Canadian Medical Association president-elect Brian Day said Tuesday.

    “The funding system we have is perverse in the public system,” Day told the Vancouver Sun’s editorial board Tuesday, while talking about his vision for the future of hospital funding.

    Day said hospitals are now paid a bulk fee for all services — as opposed to a specific amount for each procedure — and therefore do not have any specific incentives to get as many patients treated as quickly as possible.

    Under the system he is proposing, which is being used in Britain, hospitals would be paid for each procedure they perform, meaning administrators would be forced to become more efficient in order to preserve a healthy stream of revenue.

    Day said patients who undergo surgery become cheaper to care for with each day they spend recovering in hospital because, as they get better, they require less equipment and less direct attention from staff.

    Under the current system, he said, a hospital has no incentive to quickly discharge a patient because there is no extra revenue attached to bringing in a new patient, and because it is cheaper to care for a recovering person than to fill that same bed with someone who is about to begin a cost-intensive procedure.

    Day said if revenue was tied to each procedure, hospitals would be encouraged to streamline the process and ensure people do not stay longer than necessary.

    “This is all about measuring outcomes, defining quality and defining outcomes,” he said. “This will, I think, emancipate the good managers.”

    He explained the inherent competition will help to push everyone to become more efficient.

    Day said the idea was introduced in Britain three years ago.

    “The British are on track to eliminate wait lists by 2008,” he said, touting the success of the structure.

    What’s more, he added, Canada is the only country in the Organization for Economic Cooperation and Development to almost exclusively fund the health care system through a global budget.

    So far, the Canadian Medical Association has yet to endorse Day’s proposal, though the B.C. Medical Association is behind it and the provincial government is getting ready to give it a try.

    Health Minister George Abbott told The Vancouver Sun in an interview last week that he finds Day’s proposal to be intriguing and hopes it will be tested somewhere in B.C. in the next year.

    While Day spoke at length Tuesday about the merits of the procedure-based funding system, he was careful to point out it does have its limitations.

    “This is not a panacea for all things in the health care system,” he said, explaining the aging population is going to put a heavy burden on the entire health care system. “There is a limit to what society is going to be able to fund. Society is going to have to decide what they want from health care.”

    I read it in this article, not sure of any sources as of the moment, or any studies done to see how affective it is.

  • The fact that Brian Day is the advocate and that George Abbott finds it intriguing would make me pretty skeptical.

    Here’s what we posted on Brian Day in the past, to give you a flavour of why:
    http://progecon.wordpress.com/?s=%22brian+day%22

    And some background on the BC government’s so-called Conversation on Health:
    http://policyalternatives.ca/Reports/2007/01/ReportsStudies1530/index.cfm?pa=BB736455

    That said, I would not dismiss anything out of hand. I’m open to seeing any credible studies on the topic, and I’ll post what I find.

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