The Folly of Balanced Budget Laws in BC

The news is out. Due to declining natural gas prices, the BC Liberal government is projecting a budget deficit of $1.14 billion this year — $173 million more than expected. And while the government still insists that it plans on finding enough savings to balance next year’s (election year) budget, I think it’s a safe bet to predict it will fail in that endeavour too. A 2013 deficit means it will have to amend its own balanced budget law for the third time since 2009 — a pattern we have grown achingly familiar with here in British Columbia.

A little history. In 1991, BC’s Social Credit government introduced the province’s — and the country’s — first balanced budget legislation. Later that year, there was an election, and the victorious NDP repealed the law. The government ran deficits for several years. During their second term, however, the New Democrats decided to take a stab at fiscal responsibility and passed a balanced budget law of their own that set a 2004 deadline for ending deficits. To everyone’s surprise (largely due to greater-than-expected energy exports), the NDP passed a pair of surplus budgets well ahead of schedule by the end of its stint in government.

Shortly thereafter, in 2001, the New Democrats suffered a crushing defeat at the polls courtesy of the Liberal Party — elected on a platform of massive tax cuts. The Liberals repealed the NDP’s balanced budget law so as not to impede the fulfillment of their election promises, and managed to turn a record-breaking surplus into a series of record-breaking deficits. In place of the previous legislation, they passed their own law requiring a return to balanced budgets by 2004 — the same deadline originally put in place by the NDP.

The Liberals met their deadline and chugged along happily in the black for several years, until the financial crisis hit. In 2009, they realized that they could not realistically deliver a balanced budget in the midst of the worst global recession since the 1930s, so they amended their own legislation to allow themselves two years of deficit spending. Later that year (after an election), they amended the law yet again to increase their deficit window by an additional two years.

And that more or less brings us up to the present, with the Liberals’ self-imposed four-year window closing fast.

Any observer of BC politics in full possession of the faculty of memory will rightly ask: what is the point of laws requiring governments to balance their budgets if they simply repeal or amend them whenever convenient? How is this any different from traditional fiscal policy without such laws?

Perhaps we must recognize that there is no shortcut to fiscal enlightenment. At their best, balanced budget laws showcase the self-serving hypocrisy of politicians from across the spectrum. At their worst, they can jeopardize vital social programs and transform recessions into depressions. Governments need the flexibility to occasionally run deficits. Making them jump through legislative hoops to do so serves no purpose.

It is up to us, the electorate, to define the confines of this fiscal flexibility. Not by demanding that overly simplistic and easily circumvented rules be drafted, but by educating ourselves on the context dependence of fiscal and economic policy — i.e. when it is and is not appropriate to run deficits — and voting accordingly. There is no easy way of going about it. With fiscal policy, as with everything else, we are responsible for holding our leaders accountable.

So if, as I suspect, the Liberal government fails to balance its budget on target next year, let us pray that it mercifully, once and for all, puts a bullet in BC’s distracting two-decade experiment with balanced budget legislation.

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One thought on “The Folly of Balanced Budget Laws in BC

  1. Pingback: Some Thoughts on the BC Budget | Song of the Watermelon

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