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Tough Times Ahead For The BC Liberals

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The BC Liberals and particularly Premier Christy Clark deserve the praise they're receiving for their surprise electoral victory. After all, the Liberals reversed a double-digit deficit in the polls and ended up securing a majority government. This moment of jubilation for the Liberals and their supporters will be short-lived however, as the reality of governing in difficult times takes hold. The litmus test for the success of this government, which they themselves established, is the success of the economy and in particular, jobs.

The first and most immediate task for the government is ensuring a balanced budget this year. Much was made during the election about the need to stem deficits and the province's growing debt.

At the heart of the Liberal plan to balance the budget is constraining the growth in spending coupled with modest increases in revenues based on a growing economy and some tax rate increases. The Liberals have displayed some ability to control spending in the past few years but pressure for increases will mount.

One component of controlling spending has to be evaluating public-sector compensation. A recent study comparing wages in the public and private sectors in B.C. for comparable positions concluded that on average, public-sector workers in B.C. enjoy nearly a 14 per cent premium. This is on top of more generous pensions, an earlier average age of retirement, and markedly greater job security. A central part of constraining government spending in BC (and across the country) should be bringing the wages and benefits of public-sector workers in line with similar positions in the private sector.

However, the challenge for B.C. is more complicated than simply balancing the budget because the province's annual or operating expenses are separated from its capital or long-term expenses. So while the Liberals' 2013 budget forecasted a balanced operating budget, they simultaneously planned to increase the province's tax-supported debt by $4.2 billion. The Clark government must quickly enact a plan for a broad balanced budget including both operational and capital spending that means no additional debt.

A second challenge for the province is competitiveness, particularly with respect to taxes. Budget 2013 unwisely increased both personal and corporate income taxes (although the Liberals claim this is temporary) to help eliminate the deficit.

Unfortunately, the Liberals did not accounted for the changes in individual and business behavior that these tax increases will bring about, including reduced incentives for investment. In addition, many B.C.ers are likely to tax plan in such a way as to avoid or minimize the "temporary" increase. Given these behavioural changes and the impact on B.C.'s competitiveness, the best course of action would be to immediately reverse these "temporary" increases.

More critically however, is that the province must develop and implement a plan to offset the marked increase in business taxes associated with the re-introduction of the PST. Almost all of B.C.'s competitors have moved to a value-added tax (HST) which exempts business inputs and lowers the cost of investment and business development. The re-introduction of the PST coupled with the increase in the corporate income tax rate means B.C. is decidedly uncompetitive right now with respect to business investment and entrepreneurs.

Attracting high-skilled workers, businesses, and entrepreneurs while encouraging those already here to invest and expand their businesses requires competitive taxes. If the Liberals are to deliver on a sound economy with strong employment growth (i.e. jobs and opportunity), then an aggressive, purposeful plan for competitive taxes needs to be developed this year and implemented in Budget 2014.

A longer term fiscal challenge for the B.C. government along with every other provincial government is health care. Budget 2013 forecasted that health spending would consume a little over 52 per cent of total ministerial spending in 2013-14, which is basically the operating budget for the provincial government. Here Premier Clark should look to adopting health policies common in other countries with universal access health care (i.e. Netherlands and Switzerland) that lead to greater competitive pressures between suppliers and better incentives for patient decisions. The key is explaining to British Columbians that such changes do not mean reducing or even altering our commitment to universality.

Lastly, the success of the economy and the growth in future jobs and opportunities will be closely tied to energy policy. While the Liberal's estimates of job creation and revenues may or may not be realized, and environmental (and aboriginal) challenges remain, expanding natural gas production and exports will offer significant economic benefits to the people of British Columbia.

The Liberals must propose a resolution to the Pacific pipeline problem. Whether it is expanding the Kinder Morgan Trans Mountain pipeline, the construction of the Enbridge Northern Gateway pipeline (or both), it is important for Canada's prosperity. And Premier Clark must recognize that the window for B.C. to realize the profit from pipeline development is limited. One way or another, Alberta's oil will find its way to market. The only question is whether or not B.C. will benefit from the jobs and revenues attendant on allowing pipeline development, or whether others (North, South, or East) will.

The BC Liberals' victory should be recognized as a tremendous achievement. However, the more difficult task of governing the province must now become the priority. Balancing the budget, tax competitiveness, and sound policies to harness our natural resources can and should form the basis for prosperity and jobs in British Columbia.

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This column was written with assistance from Niels Veldhuis, Fraser Institute president.