The underlying cause of much of the economic malaise currently facing British Columbia is bad public policy says a new
study Returning BC to Prosperity released today by The Fraser Institute.
"The last decade stands in sharp contrast to BC's historical
economic performance. Given the province's natural resources,
access to foreign markets, educated workforce, and traditional
level of economic performance, the last decade has been ruinous
for our economy, and the results are unacceptable to most British
Columbians," says Jason Clemens, director of fiscal studies at
The Fraser Institute, and co-author of the study.
BC's Growing Prosperity Gap
British Columbia began the decade with real per capita GDP $367
greater than the national average, and ended the decade $3,471
lower. While Ontario and Alberta experienced tremendous growth in
real per capita GDP, 16.7 percent and 26.7 percent respectively,
British Columbia languished with a mere 2.1 percent increase in
real per capita GDP over the 1990s.
British Columbia's performance is even worse when disposable
income is assessed. The province began the decade with real per
capita disposable income $743 above the national average, within
close range of both Ontario and Alberta. It ended the decade with
real per capita disposable income $768 below the national average
and substantially below Ontario's and Alberta's levels.
Over the last decade, BC actually experienced a contraction of
5.9 percent in real per capita disposable income, while Ontario
and Alberta experienced modest growth of 1.0 percent and 3.8
percent, respectively. In other words, average British Columbians
had less real disposable income in 2000 than they did in 1990.
"In terms of per capita income, whether measured by GDP or
disposable income, British Columbia, over the course of a mere
decade, has gone from a position of economic leadership and
prosperity in Canada to a position of mediocrity," says Clemens.
"External and internal forces both weigh on the economy. However,
since British Columbians cannot influence what happens in the
outside world, it makes sense to direct attention to the domestic
policy and institutional environment," says Jock Finlayson of the
Business Council of BC, writing in the foreword to the study.
Government Spending and Taxes: The Root of the Problems
The root of BC's economic problems is poor public policy founded
on a belief in bigger government. "The road to recovery requires
a smaller, more focused government. It requires the provincial
government to limit itself to doing those, and only those things,
we actually need it to do," says Clemens.
The consistent increases in government spending fail to recognize
that many of the problems in the current system, particularly in
health care, education, and welfare, have little to do with the
amount of money spent and more to do with how we deliver
The main prescription for economic recovery in British Columbia
is for government to reduce spending and lower taxes. This will
mean reductions in core areas of government spending, including
health care, education, and social welfare.
"By reforming the way services are delivered, using methods that
have already been tested in other jurisdictions, services can be
maintained, and indeed improved, while spending is reduced," says
The reduction in government spending must be paired with major
reductions in personal and business taxes. The reductions should
aim to make the province's tax system more efficient and
competitive with competing jurisdictions.
Finally, the province should privatize Crown Corporations, with
the proceeds earmarked for provincial debt reduction, which in
turn would allow for greater tax relief. The following key policy
recommendations are drawn from each of the study's eight policy
Fiscal Policy: Government Spending and Taxation
- British Columbia must implement fiscal policies that reduce
the proportion of the economy consumed by government.
- Reduce the public service and allow the private sector to
provide more services.
- Implement a legislated program of debt reduction.
- Introduce a minimum 20 percent across-the-board reduction
in personal income tax-rates.
- Eliminate the top two statutory tax rates, formerly the
- Reduce business income tax rates with a target rate for
corporations of 8.00 percent.
- Immediately eliminate corporate capital taxes.
- Harmonize the Provincial Sales Tax with the GST.
- Over the longer-term, the province should implement a
broad-based flat tax.
Government spending is financed by tax revenues which are
ultimately driven by the performance of the economy. The best way
to ensure that government can provide the goods and services we
require is to promote economic growth through tax cuts.
Alberta is an example of the power of economic growth: The
province currently spends 19.8 percent of GDP, which translates
into per capita spending of $8426. BC, on the other hand, spends
25.5 percent of GDP but only provides per capita spending of
$7911. Promoting economic growth provides more prosperity for
individual British Columbians while at the same time enabling
government to provide the required programs without taking as
much out of the economy.
- Implement a three-year moratorium on all new regulations in
conjunction with a review of existing regulations, and enact a
sunset clause for all existing regulations.
- Prioritize regulations and apply a cost-benefit analysis
with the results made public.
- Introduce a regulatory budget along with the annual fiscal
- Repeal amendments made over the last decade to the
Industrial Relations Act, the Employment Standards Act, and the
Fair Wage Act.
- Rescind announced increases to the minimum wage and ensure
that minimum wages. maintain an appropriate relationship with
per capita GDP.
- Enact right-to-work legislation.
Natural Resources-A Focus on the Forestry Sector
- Privatize forests that are currently owned and managed by
- Repeal the Forest Practices Code and the Forest Renewal
- Eliminate the minimum stumpage fee and link stumpage fees
to world prices for timber.
- Co-ordinate land claim settlements with forest
"One of the biggest problems with state ownership of forests is
that neither government nor private companies logging on Crown
lands have any incentive to operate efficiently, to replant, or
to harvest prudently," says Clemens.
- Use private health contractors, both non-profit and
for-profit, to deliver health services.
- Negotiate a renewed Labour Accord.
- Eliminate reference-based pricing.
- Allow and encourage the privatization of health care
- Adopt a system of medical savings accounts (MSAs).
Elementary and Secondary Education
- Introduce flexible regulations and eliminate funding
discrimination for Independent schools.
- Eliminate catchment areas.
- Enact strong charter school legislation.
- Re-negotiate collective agreements, specifically for
non-teaching staff, so that they reflect market-based
compensation and maximize classroom resources.
- Implement a broad public voucher system for education.
- Introduce strong sanctions and immediate work
- Implement time limits for the receipt of benefits.
- Tougher sanctions against welfare abusers, including the
reduction and/or elimination of benefits, should be introduced
along with other reforms.
- Promote and encourage experimentation.
"Every province, including British Columbia, should pursue
initiatives proven to be successful in the United States. British
Columbia must aim to deal quickly, precisely, and compassionately
with welfare recipients and their problems," says Clemens
Industrial Development and Privatization
- End all direct and indirect subsidies to business.
- Immediately designate several Crown corporations as
candidates for privatization.
- Legislatively require all proceeds from asset sales be used
for debt reduction.
Given the international and Canadian experience with
privatization, several BC Crown corporations should be
immediately designated for privatization, including BC Hydro and
Power Authority, BC Ferry Corporation, BC Liquor Distribution
Branches, Insurance Corporation of BC, and BC Railway
"If British Columbia is to return to its traditional position of
economic leadership and prosperity then we need to dramatically
change the course of public policy in the province. The
centrepiece of such reform must be reduced government spending,
lower taxes for individuals and business, privatization of Crown
Corporations, and fundamental reform of the way in which we
deliver core services. Only such a dramatic change in policy will
cure the serious economic ills that plague the province,"