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B.C. at a fiscal crossroads
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623 words

By Charles Lammam
and Hugh MacIntyre
The Fraser Institute

As the old cliché goes, if you don’t learn from past mistakes, you’re doomed to repeat them. But the opposite is also true – learning from previous successes can be as valuable. As it prepares to introduce its first full budget, British Columbia’s NDP government would do well to recognize what’s led to B.C.’s enviable fiscal position.

Charles Lammam

B.C.’s government finances are in good shape, at least compared to other Canadian provinces. In 2016-17, B.C. was one of only three provinces to record a balanced operating budget. What’s more, B.C. is the only province to post four operating surpluses in a row.

Fewer deficits help keep the debt burden low and B.C. has a low provincial government net debt burden compared to most other provinces. B.C.’s provincial net debt amounts to $7,944 per person, much lower than Ontario ($21,584). Only Alberta has lower per-person provincial net debt than B.C., although that province is on track to surpass B.C. on this metric by 2019-20.

But B.C. hasn’t always enjoyed a positive fiscal standing. In the 1990s, the province struggled with a string of uninterrupted operating deficits and was one of only two provinces (along with Nova Scotia) that didn’t balance its budget during the 1990s. B.C.’s turnaround didn’t happen by accident – it’s rooted in a decade-and-a-half of relative restraint in the growth of program spending (total spending minus interest paid on the debt).

Hugh
MacIntyre

Consider that from 2002-03 to 2016-17, B.C.’s program spending grew at an average annual rate of 3.5 per cent – the lowest rate of any province over that period.

The greatest growth over that period was in Alberta (6.0 per cent), and Alberta experienced booming population growth over that period. But even after accounting for population growth and inflation, B.C.’s program spending growth (averaging 0.9 per cent per year) was significantly lower than Alberta’s (1.3 per cent).

Compounded over time, this has helped to ensure B.C.’s fiscal position remained solid while Alberta’s deteriorated. Indeed, Alberta’s lack of spending restraint has quickly turned the province from a leader in fiscal prudence to a growing concern for credit agencies, which have downgraded Alberta’s rating in recent years.

If B.C. had followed the same spending path as Alberta over the last decade and a half, B.C. would be in much worst financial state. For instance, B.C. would have only posted an operating surplus twice from 2001-02 to 2016-17, instead of the nine times it did. Moreover, B.C. would have posted a $5.6-billion deficit last year instead of its actual $2.7-billion surplus.

The lesson here is that disciplined management of spending is critical for fiscal success.

Now, with a new government in power, B.C. is at a crossroads. It can continue its path of relative fiscal prudence or follow the lead of other provinces such as Alberta and Ontario, which are plagued by chronic fiscal shortfalls and ongoing budgetary challenges. Unfortunately, signs from the NDP’s fiscal update in September 2017 don’t bode well for continued spending restraint.

Just months after coming into office, Premier John Horgan and his government boosted the planned spending increase for 2017-18 to 6.6 per cent – a far cry from the 3.5 per cent annual spending growth over the past 15 years Overall, the NDP added $4.4 billion in new spending over three years. And that doesn’t include big-ticket items promised in the NDP election platform, such as $10-a-day subsidized daycare.

While the early signs may be discouraging, it’s still possible for the government to heed the lessons from history – B.C.’s enviable fiscal position comes from a conscious and prolonged effort to restrain program spending growth.

Charles Lammam is director of fiscal studies and Hugh MacIntyre is senior policy analyst at the Fraser Institute. The study Will B.C.’s New NDP Government Abandon Past Spending Discipline is available at www.fraserinstitute.org

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