What a difference a year and a half makes. In May 2009, Gordon Campbell had just won an historic third term as premier of British Columbia. Now a recent opinion poll not only puts him as Canada’s most unpopular premier, but also the least popular premier in B.C.’s history.
Has he really done that bad a job?
British Columbians are upset with the way his government introduced the harmonized sales tax. However, regardless of how British Columbians feel about the HST (full disclosure: we’re in favour of the HST), it is important to take a step back and reflect on the entirety of Premier Campbell’s fiscal policies.
Despite currently being a very unpopular premier, Campbell has done the best job among Canada’s 10 premiers of managing provincial fiscal policy. More importantly, his fiscal policies helped reverse B.C.’s dismal economic performance in the 1990s.
As the public disdain with Premier Campbell plays out politically, B.C. cannot afford to halt the progress made to date. Critically, the province must continue on with the pro-growth fiscal record that Campbell has introduced since 2001.
A new study, Measuring the Fiscal Performance of Canada's Premiers
, published yesterday by the Fraser Institute, highlights Campbell’s successful management of the province’s finances. The study measures the relative performance of Canadian premiers at managing key aspects of fiscal policy during their time in office. Among 10 Canadian premiers, Campbell performed the best with a score of 89.1 out of a possible 100.
Campbell achieved his first place standing by managing the growth in government spending in a relatively sustainable manner and showing more restraint than all other premiers. Campbell’s spending record is best illustrated by comparing average spending increases to economic growth. During his tenure, he kept average growth in program spending (4.4 per cent) just slightly above the average rate of economic growth (4.1 per cent). No other provincial premier had a more prudent spending record.
With prudent increases in government spending, Campbell was able to enact significant tax relief. In fact, one of his greatest fiscal achievements while in office was a complete revamp of B.C.’s tax system.
Shortly after coming to power in June 2001, Campbell implemented major tax cuts on both personal and corporate income and scheduled additional cuts thereafter. Specifically, in his first budget (2001), Premier Campbell enacted a 25 per cent across-the-board reduction in personal income-tax rates, followed by more cuts in 2007 and 2008. The result was a significant improvement in incentives for British Columbians to work, save, invest, and be entrepreneurial.
His 2001 budget also reduced the general corporate income tax rate to 13.5 per cent from 16.5 per cent (effective in 2002); later reductions dropped the rate further to 10.5 per cent in 2010. Thanks to these and other business tax cuts (i.e. elimination of the corporate capital tax) B.C. now has a more competitive business tax regime.
Controlling government spending has also allowed Campbell to better manage government debt. From 2001/02 to 2009/10, Campbell’s government generally balanced the books and on average recorded a small surplus (0.13 per cent of GDP). Over the same period, it reduced B.C.’s net debt to 15.7 per cent of GDP in 2009/10 from 18.5 per cent of GDP in 2001/02.
Tangible evidence of Premier Campbell’s fiscal performance can be found in the dramatic economic turnaround that has occurred in this province since the 1990s. While B.C. has come a long way since its “lost decade,” past success should not breed future complacency.
Going forward, it will be more difficult to restrain the growth in provincial government spending with a looming sea change in age demographics and with health care spending eating up a larger portion of government resources.
The province must stay focused on implementing sound economic policies, especially those that increase the productivity of B.C. workers. Increased productivity may not seem that exciting for the average person, but the results lead to higher personal incomes and higher living standards.
To increase productivity, the province should make tax rates on middle and upper income earners more competitive. It should also remove the tax barrier to the growth of small businesses. Currently, small B.C. firms face a significant tax penalty as they grow. That penalizes business expansion, an important contributor to job creation and increased productivity.
Given the heated backlash from the HST and speculation of a possible resignation, we don’t know what the future holds for Premier Campbell. But we do know that to date, Campbell has pursued better fiscal policies than other provincial leaders. His successor, regardless of political stripe, should follow his lead.