Some Thoughts on the BC Budget

budgetFive months ago, I predicted that the Liberal government of British Columbia would fail in its effort to balance the 2013 budget. Notwithstanding this week’s boastful headlines to the contrary, the jury is still out.

I will not assert, as many others have done, that the surplus is purely fictional, but rather that, for the time being, we just don’t know. So many variables are at play, and the projected surplus is so razor-thin — $197 million in a $44 billion operational budget — that we will have to wait until well after the May election before we can be sure whether or not the government was massaging the numbers. (This in itself is good reason to take seriously the proposal by three independent MLAs to change BC’s fixed election date from the spring to the fall starting in 2017.)

But such uncertainty over the ontological status of the surplus does not mean that I am at a loss for words. Yesterday’s budget contains many features both good and bad (okay, mostly bad), so let’s take a look-see.

First of all, there is the accounting trickery. About $150 million dollars in program spending that would normally find itself in this year’s budget has instead been moved to last year’s. That’s most of the surplus right there. While malfeasance of this kind might not warrant such grown-up terminology as “fraudulent” (or perhaps even “malfeasance”), I think “fishy” is more than appropriate. Furthermore, the wiggle room offered for the forecast allowance and contingencies is considerably lower than what some would call prudent, and revenue from natural resources is alleged to be exaggerated.

Then there are the asset sales — the magnitude of which veteran columnist Vaughn Palmer cannot recall ever having seen before. Sales of government assets obviously do not provide a sustainable route to fiscal responsibility. They are one-time only.

What this indicates is that the Liberals are so desperate to show off a balanced budget merit badge in an election year that they will do just about anything. That includes some major spending cuts on environmental and other initiatives (no surprise there) and increases to regressive taxes like MSP premiums (par for the course).

Somewhat unexpectedly, however, the Liberals are also looking to steal the NDP’s thunder by marginally increasing personal income taxes on the rich and nudging up the corporate tax rate.

Well well, look who finally joined the Comintern!

Could it be that demanding a tiny little bit more from those who can most afford to pay does not violate the laws of nature after all, that even a party so business-beholden as our glorious Liberals suffers the occasional impulse to offer policies people actually want? They had better be careful! Election year or no, this could set a dangerous precedent.

In conclusion, this will likely be the BC Liberal Party’s last budget for at least four years — hopefully more — and they have mostly squandered the opportunity for an honourable legacy by tabling a pretty bad one. But it’s not all bad. Credit where credit’s due and all that.

As for the surplus, time will tell.

The Point of Taxes

Taxes

What follows is my submission to BC’s Select Standing Committee on Finance and Government Services. Any other British Columbians interested in influencing next year’s budget have until October 18 to do so by clicking here.

Taxation has three major purposes: raising government revenue, redistributing wealth, and discouraging “bads.”

The first is the most obvious. Taxes — “the price we pay for civilization,” in the words of Oliver Wendell Holmes Jr. — provide for such crucially important public goods as health care, education, welfare, parks, and transportation infrastructure. However, cuts that have taken place for more than a decade here in BC have left us unable to adequately deal with the urgent problems we now face as a society, like climate change, child poverty, and rising health costs. The only feasible solution — an unpopular solution to be sure, but a necessary one — is to raise taxes.

This directive leads to two reasonable follow-up questions: which taxes, and on whom? To answer, we must consider taxation’s other two purposes.

In order to effectively achieve their redistributive aim, taxes must be progressive, that is, they must apply at a higher rate to the rich than to the poor. In BC, however, according to a report by the Canadian Centre for Policy Alternatives (CCPA), the rich pay a smaller portion of their incomes in overall taxes than the poor, as a result of the government’s increasing reliance on regressive measures like sales taxes and MSP premiums. In order to solve this problem, corporate and upper-tier income taxes must be increased dramatically. Even middle-tier income taxes will probably have to be increased moderately. And while it may not be practical to eliminate regressive taxes entirely (in the short term anyway), they can at least be lowered — provided that revenue is recouped via a progressive tax shift.

Finally, taxing “bads” rather than “goods.” Taxation can be used to introduce socially beneficial incentives, one example of which is BC’s carbon tax. There are two major problems with our carbon tax, however (as well as several other minor problems). First, it is not nearly high enough to effectively get us where we need to go in terms of greenhouse gas emissions. And second, according to another CCPA report, it is regressive, thus violating the redistributive criterion for good tax policy. Fortunately, both problems are easy to fix. All we need to do is to continue raising the carbon tax rate year after year — probably quite drastically. And the CCPA recommends devoting fully one half of carbon tax revenue to a tax credit for people with low and moderate incomes (considerably more than what we currently do), so that on average, they would actually gain from carbon taxation.

I urge you to deal with taxes in the 2013 budget in a way that is mindful of the three purposes I have outlined. Over the long term, I agree with the CCPA that the government must set up a Fair Tax Commission to gauge the public’s true priorities on how and why we raise revenue. Only then will we as a province gain momentum on the road to equity, sustainability, and the common good.

An Open Letter to Kevin Falcon

Dinner with Kevin Falcon

Kevin Falcon

Minister of Finance

Government of British Columbia

Dear Mr. Falcon,

During your budget speech yesterday, you announced that BC’s carbon tax will be frozen, and its place in our economy reexamined, after its final scheduled increase later this year. Forgive me if I am being presumptuous, but given the tepid support for environmental measures sometimes demonstrated by segments of your government, I fear that the future of the carbon tax may be in jeopardy.

May I suggest instead that you use the opportunity to make it better? This goal, should you choose to pursue it, can be measured by two vital criteria: effectiveness and fairness.

In order to be effective, a carbon tax, rather than being eliminated or frozen at $30 per tonne of carbon dioxide equivalent, must be increased. Quite drastically in fact. Having hardly made a dent in BC’s emissions at present levels, the tax should probably rise to somewhere in the neighbourhood of $100 to $200 per tonne at the very least. Moreover, it should be expanded to cover the roughly 25 percent of emissions (such as natural gas flaring) not currently included.

As for fairness, this can be achieved by compensating — overcompensating even — for any negative impact on those with low incomes. All else being equal, consumption taxes tend to be regressive — that is, they tend to cost the poor a higher portion of their incomes than the rich. According to research done by Marc Lee of the Canadian Centre for Policy Alternatives, BC’s carbon tax does not adequately address this concern. He suggests that fully one-half of carbon tax revenue be channelled into a tax credit for low- and middle-income households (with the remainder going to fund public transit and other environmentally friendly investments).

Another approach is the “fee and dividend” system advocated by climate scientist James Hansen among others, according to which all revenue would be returned to the population on an equal per capita basis. The benefit of this kind of carbon tax is that while the poor would individually pay the least in “fees” (in absolute terms, not as a portion of their incomes) because they emit the least carbon, they would get back just as much as the rich in “dividends.” In other words, this system has a built-in mechanism to make sure that most of those with low incomes come out ahead.

So please consider preserving and strengthening BC’s carbon tax. If you are concerned about its apparent revenue negativity in these tough fiscal times (another drawback pointed out by Marc Lee), a few tweaks could easily turn it into a money maker. What is a tax, after all, if not something that raises revenue? I personally would not miss the cuts to corporate and upper-bracket income taxes that were designed to offset costs to taxpayers, and neither would the majority of British Columbians who do not benefit from them.

The problem of climate change is one whose urgency is growing by the year. Now is not the time to get caught up in some fabricated tax revolt. Now is the time to get serious.

Sincerely,

David Taub Bancroft