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$500 million away from balanced books

After almost getting itself above water on the fiscal front, the B.C. Liberal government now finds itself again mired in a financial quagmire.

After almost getting itself above water on the fiscal front, the B.C. Liberal government now finds itself again mired in a financial quagmire.

This year's budget has ballooned to almost $3 billion, and the government's plan to balance the books by 2013 require finding an additional $500 million.

Finding that kind of money isn't going to be easy. There is little sign revenues flowing to government are going to increase any time soon, as a faltering U.S. economy and a European debt crisis threaten to smother significant economic growth for at least a year, if not longer.

So the question becomes: Do the B.C. Liberals raise taxes or cut program spending in order to balance the books?

Either option is fraught with political peril, but I suspect cutting government-funded services and programs is a more dangerous path to follow for Premier Christy Clark as she steers her government towards the next election.

Her predecessor, Gordon Campbell, had used up all his political capital by the time he left office largely because he had become associated with the reduction or elimination of all kinds of things so many people had come to rely on in their daily lives.

The HST debacle simply sealed the deal. It was piled on a stack of negatives that was becoming higher and higher all the time.

The B.C. Liberals love to brag about cutting everyone's income taxes. While it's true most people over the years received significant decreases in their income taxes, those same folks found themselves digging into their pocketbooks more and more to pay for all kinds of other government services (the latest being the big increase in medical service premiums).

Campbell and his government also became unpopular because of such decisions as reducing gaming grant payouts, which inflicted enormous political pain for relatively small fiscal gain.

If Clark follows the same path, her personal popularity will begin to erode, a dangerous development for someone facing the electorate in 20 months.

Her government will no doubt freeze or reduce some spending in some areas, and it can do so without absorbing too much political damage. It can also likely stare down public sector unions that want significant wage increases.

But a truly balanced budget by 2013 will likely include a boost in revenue, which brings us to the sensitive area of raising taxes.

Now, raising income taxes seems like a nonstarter to me. Even a potentially popular "soak the rich" philosophy doesn't raise enough money because B.C. doesn't have enough millionaires.

Increasing user fees at every turn also seems politically dangerous.

But what about raising corporate taxes?

Such a suggestion would have been greeted with horror by the corporate-friendly Campbell administration, but Clark is trying to show she is significantly different than her predecessor.

There is no better way to do that than to ask the business community to pay more to help balance the books. The corporate tax rate has gone from 16 per cent to 10 per cent since the B.C. Liberals came to power, and while I agree that too high a rate can have a negative impact on investment, the timing seems right for a boost.

Clark has already signaled she's prepared to raise corporate taxes, as that was part of her government's pitch to lower the HST by two points.

The voters said no to the HST, but I don't think they were also saying no to higher corporate taxes.

However, you can be sure they will say no to any big cuts to services or programs.

That approach was Campbell's baby. Here's a chance for the new boss to blaze a different trail.

Keith Baldrey is chief political correspondent for Global BC.