NDP may break campaign promise with big spending budget

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Appeared in the Vancouver Province, September 15, 2017
NDP may break campaign promise with big spending budget

John Horgan’s NDP government this week tabled its first budget, which ramps up spending and shrinks last year’s $2.7 billion surplus to almost zero, despite enacting a host of economically damaging tax increases that the NDP campaigned on.

And yet, the budget does not include everything the NDP promised during the election campaign, which means Premier Horgan will likely either raise taxes further and/or run deficits—he promised not to run deficits during the campaign. More on that promise in a moment.

First consider the significant increase in spending planned for this year. According to the budget, program spending (all government spending minus interest on the debt) will reach $49.2 billion, 6.6 per cent higher than last year and much greater than both the rate of nominal economic growth (5.1 per cent) and the combined rate of population growth and inflation (3.2 per cent).

Crucially, over the next three years (2017/18 to 2019/2020), Premier Horgan’s government plans to add $4.4 billion cumulatively in new program spending beyond the spending proposed in the Liberal budget in February.

And these spending projections do not include big-ticket campaign promises made by the NDP—such as $10 per day daycare and a $400 renter’s rebate—that, if implemented, would more than wipe out the small projected surplus.

While Finance Minister Carole James said “you will see some of those in [next year’s] budget,” there’s actually little room in the budget for more new spending. The NDP projects razor thin operating surpluses over the next three years averaging just $244 million (or 0.5 per cent of total spending).

Of course, the NDP can follow through with these other promises but it must then either raise taxes more than what it signalled in the campaign and/or run deficits, but that again would break a major campaign promise.

Either way, the NDP will have to prioritize and make tough choices. It can’t simply rely on strong economic growth to fill provincial coffers. While B.C.’s economy has performed better in 2017 than initially expected, that momentum is unlikely to carry forward to 2018 and beyond. In fact, the projections contained in the NDP’s budget for economic growth from 2018 to 2021 are the same as the February budget earlier this year.

Moreover, the expectations for increased revenue in the NDP budget, due to higher tax rates, may not come to pass. Specifically, the expectations are based on a new higher top rate (16.8 per cent) for personal incomes over $150,000, a higher general corporate tax rate (12 per cent), and a carbon tax rate that will increase to $50 per tonne over the next several years.

The problem is that all of these tax changes will affect behaviour in ways that discourage economic activity and likely the amount of tax revenue the provincial government collects. In response to higher rates, high-skilled workers may work less and/or report less income while businesses and entrepreneurs may invest, develop and expand less. More generally, the tax changes will make B.C. a less desirable place to work and do business, hampering the province’s growth prospects.

This week’s budget signals the beginning of the NDP government and its agenda. Clearly, when it comes to its campaign promises, something will have to give.