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What goes up must come down

Budget cuts make BC communities more economically vulnerable

Marc Lee

BC’s economy is a lot like a rollercoaster ride. Commodity prices for our resource exports (like energy, forest and mining products) go up and down over the years, and our economic fortunes lurch along for the ride.

This is especially true in BC’s “heartlands”. While the current economic upswing masks differences, BC actually has two economies: the diversified and populous Greater Vancouver and Victoria areas, and the rest of the province, which continues to be highly vulnerable to the resource rollercoaster’s ups and downs.

High international prices for resources are driving our current good fortunes. But caution is advised: what goes up must come down. And recent changes in BC’s taxation and spending policies may make for a rougher ride when the next downturn hits.

The provincial government’s income tax cuts concentrated dollars in the areas that needed a financial boost the least. The 66% of tax filers in the Lower Mainland and Victoria received 71% of the total tax cut pie. The remaining 29% of tax cut dollars were spread more thinly across the rest of BC. This lopsided distribution happens because incomes in the Lower Mainland and Victoria areas are higher than in the “heartlands.”

Income tax cuts were also closely followed by tax increases for MSP premiums (up 50%), sales taxes (since reversed), fuel and tobacco taxes. These tax increases hit rural BC harder, eating up a greater share — more than half — of the total dollars gained from tax cuts.

Spending cuts also hit hard in terms of lost public sector jobs. In many smaller communities the public sector is the number one or two employer, so the impact of cuts is severe. And once again, the impact is lopsided. Greater Vancouver and Victoria together have seen a 15% drop in public sector jobs since 2001. Total regional jobs fell by 22%.

In some communities, the dollars flowing out from job cuts (in lost salaries and wages) completely outweigh the dollars flowing in from tax cuts. Nelson, for example, lost more than half its direct public sector employees, a cut worth $12 million. That compares to only $5 million gained from income tax cuts.

While lost jobs hurt communities financially, the reduction or elimination of public services is also a big part of the story. Consider the case of local forestry offices. Of 800 jobs lost over three years of budget cuts to the Ministry of Forests, 81 per cent were outside Greater Victoria.

At the same time as forestry offices were closed, forest industry activities increased significantly. This raises concerns about how company activities are to be monitored to make sure that stumpage revenues are accurately reported and that environmental values are safeguarded.

Even in health care and education, where overall provincial spending has gone up, there have been negative impacts that hit smaller communities harder. Schools have been closed, teaching positions lost, and acute care and residential care beds cut.

These cuts undermine economic development prospects. It is hard to become a retirement destination without a full-service hospital. It is hard to attract young families without a school for their kids to attend. And public sector jobs cushion the impact when the economy turns down.

A more thoughtful approach to regional fiscal and industrial policy is sorely needed. With regional economies benefiting from strong international demand for BC’s resources, now is a good time to put in place policies that will help communities weather the storm.
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Marc Lee is an economist with the Canadian Centre for Policy Alternatives. He co-authored “BC’s Regional Divide: How Tax and Spending Policies Affect Communities” with Ben Parfitt and Stuart Murray. www.policyalternatives.ca