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Big BC government and its defenders

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Mark Milke reviews George Abbott’s Big Promises, Small Government-Doing Less with Less in the BC Liberal New Era.

Back in May 2001, an earthquake hit BC’s political landscape, when Gordon Campbell’s BC Liberals pummelled the governing BC NDP, reducing them to two seats in BC’s legislature.

The BC Liberals took 57 per cent of the popular vote and 77 of 79 seats, a voter judgment delayed as long as possible by the NDP after multiple scandals in the previous five years.

These included faked budget projections demanded by then-Premier Glen Clark’s political staff before the 1996 election, ordering up three fast ferries for BC Ferries which never worked as intended, later sold for pennies on the dollar.

That’s the context for the 2001 BC election. Ujjal Dosanjh led the NDP after Clark resigned (in 1999), but could not rescue his party.

Tax relief as home-wrecking policy?

That 2001 election, the near-NDP wipeout and the subsequent BC Liberal government are all part the subject matter for a new book by former BC Liberal cabinet minister George Abbott. An MLA since 1996, Abbott was present at the creation of Campbell’s new government in 2001, lost in the 2011 BC Liberal leadership contest to Christy Clark, and served in cabinet until 2013.

Abbott’s new book, Big Promises, Small Government: Doing Less with Less in the BC Liberal New Era, follows the trajectory of most books written by ex-politicians: part payback and part-exculpatory confession: “I’m actually one of the good guys and here’s why.”

In Abbott’s case, he also delves into policy, some of the math of government and lightly into political ideologies. A good chunk of the book focuses on ministries for which he was responsible and which he argues were not funded well enough to do a proper job, especially early on. That includes the Community, Aboriginal and Women’s Services ministry run by Abbott in the first-term of the BC Liberal government after 2001.

There are several main themes/assertions in Abbott’s book.

  • Personal income tax cuts delivered by the Campbell government in 2001 and afterwards (part of its election platform that year) were not going to “pay for themselves” despite Finance Minister Gary Collins’ belief;
  • The tax relief was the wrong policy not only in the light of a weakening economy but especially post 9/11;
  • Tax cuts damaged the ability of the BC government to deliver necessary services;
  • Campbell and others were being ideological—Abbott tags them with a left-wing description assumed negative of “neo-liberal’’—even if sincere.

Debating tax relief and its feedback effects

On the tax relief introduced by the Campbell government early on, Finance Minister Collins indeed claimed they would pay for themselves.

That was mistaken and Collins never should have made that claim.

I remember the Collins assertion because I wrote a column on his claim—as BC director for the Canadian Taxpayers Federation—critiquing Collins on just this point, as did others (such as economist David Bond, whom Abbott cites).

I did so not because reducing personal income taxes was the wrong policy—I’d written and lobbied for just such a policy for years— but because claiming personal income tax cuts would pay for themselves in the short-term was empirically flawed.

Different taxes, and increases or decreases have different impacts on the economy. In general: Sales taxes are the least harmful to the economy while high business taxes and high marginal rates can have most deleterious impacts on investment and employment. The economic impact of various tax measures (hiking or lowering) thus also differs.

Debates over the feedback effects of different taxes on future revenues aside, Collins’ flawed assertion had the potential to undercut support for tax relief.

That doesn’t mean the Campbell government was wrong to cut taxes, only that they should not have over-claimed the effect upon future revenues, what’s known as the “feedback effect.”

Context matters for taxes

There were solid reasons for tax reductions in 2001 and beyond. They included how the NDP government dramatically upped taxes on British Columbians between 1991 and 2001.

In just their first three years, the NDP hiked taxes on nearly everything that moved, and much that didn’t. From personal income taxes hikes to higher sales taxes and new taxes on businesses, renters and others, by 1993, the NDP had raised taxes by $1.8 billion, or about $2.9 billion in today’s money.

There were more tax increases to come and with only minor, miniscule reductions in the tax burden late in the decade after other provinces reduced their tax burdens. That made the BC NDP government the outlier and it only offered meager tax relief to British Columbians in a deathbed conversion near the end of its first term. Abbott doesn’t provide that higher-NDP tax context; it’s a major omission.

Like surpluses? Credit an earlier premier’s restraint program

Here’s another bit missing from the book: Spending.

Throughout Big Promises, Small Government, Abbott takes the view of a politician/cabinet minister who dislikes being asked to do with less. He seems irritated by his own party’s 2001 election pledges including delivering on smaller, more affordable government for British Columbians. He confesses to being much happier as Health Minister later in the decade. “I was minister of health, happily at a time of surplus and expansive agendas” writes Abbott in an endnote to chapter one.

That’s telling.

Abbott was health minister at a time, as now, when serious health care reform following European models was needed. (Universal health care minus the Canadian “public” monopoly by government employees’ unions.) That would improve outcomes for patients. But no discussion of such reform occurs in Big Promises, Small Government. Instead, it is again always about the money—not enough taxes, in Abbott’s view.

Like many politicians who like spending surpluses, Abbott appears not to ponder where they came from—usually from earlier, tougher decisions by others.

In the 1990s, the BC NDP government loved to crow about a low debt-to-GDP ratio for British Columbia’s finances. Of course, they never credited the restraint program of then-Premier Bill Bennett in 1983 who reined in spending, and which the NDP ferociously opposed at the time.

Similarly, Abbott complains of the parsimonious nature of early Campbell rule, even though it was part of the BC Liberals’ 2001 election platform. However, once BC’s finances were in better shape due in part to hold-the-line spending early in his government’s first term, he was happy to spend the surplus cash.

Context that also matters: government spending

Abbott blames early tax relief for problems that cropped up in various ministries, including, tragically, ones that dealt with children. But budgets have two sides—revenues and also spending. Choices on the latter matter as much as the former and can also impact which government programs are delivered properly or not.

Nowhere in the book does Abbott offer a substantive analysis of government spending, including public sector compensation. Instead, any reduction in taxes on British Columbians is routinely linked to assumed damage to the budget, and to programs Abbott champions. His language reflects that.

Abbott approvingly cites a 2001 Vancouver Sun story about a $1 billion “hole” in the provincial budget that resulted from tax relief that year. In another, descriptions of being asked by Premier Campbell to do more with less is linked to “austerity”, “induced austerity”, and “harsh medicine.”

Of course, there are other ways to describe governments that try to make government more affordable for citizens: prudent; engaged in long-overdue reforms; modernizing government; and treating the public sector akin to the private sector, i.e., paying attention to the people who pay the tax bills, from coffee baristas, to entrepreneurs, to blue-collar construction workers.

Why does $1 billion in tax cuts blow a “hole” in the budget but not $1 billion in higher government wages?

On the $1 billion “hole” blown in BC’s budget numbers, Abbott looks at just one side of the fiscal ledger.

While other governments from an NDP-led one in Saskatchewan to a federal Liberal government in Ottawa and some Conservative-led provinces cut spending and staff and froze or reduced wages to stop the red ink tsunami, in the 1990s, British Columbia’s NDP government was the only province to hike the public sector wage bill.

For instance, the public sector wage bill dropped by 13.7 per cent in NDP-led Saskatchewan and declined by 22 per cent in Alberta during the 1990s. In NDP-led BC, the public sector wage bill for taxpayers rose by 1.7 per cent.

The BC NDP’s approach to wages made a big difference on the balance sheet. Between 1998 and 2001 (when the NDP government claimed it froze civil servant wages), a plethora of secret deals later came to light, showing an extra $1 billion in compensation costs from just those secret deals alone.

Abbott never cites that $1 billion in extra compensation spending as part of the reason for a larger deficit in his BC Liberal government’s early budgets, only the $1 billion given up on the revenue side. Nor does he make the link between spending an extra $1 billion on the bureaucracy as another possible reason why ministries he cares about were shortchanged.

What other governments were up to

There are other critical bits of missed context. How governments of all political stripes in Alberta, Ontario, Saskatchewan and federally cut program spending in the 1990s – while the NDP in BC did not.

The start dates were different but from peak to trough, program spending declined in ranges that included 3.8 per cent in Conservative Ontario, 10 per cent in NDP-led Saskatchewan and 10 per cent by the Liberal-led federal government and 22 per cent in Ralph Klein’s Conservative Alberta.

The Campbell government’s planned 11 per cent reduction in spending was reasonable in that context. However, and as the federal government’s fiscal references tables show, BC Liberal government never actually cut program spending (though it did freeze it once firmly in control of the budget).

Between the last full NDP budget year (2000/01) when program spending was $25.5 billion, spending actually jumped by $2 billion to $27.6 billion in 2001/02 (the ‘shared’ NDP-Liberal budget year), $27.7 billion in the first full BC Liberal budget year, $27.9 in the subsequent year, and upwards from there.

Other missing context: Private sector realities

In 2001 and 2002, at the time scary headlines about “austerity” appeared, I provided useful context in my book on BC’s lost decade. That context is missing in Abbott’s book—what was happening in the private sector in the 1990s and just before the BC Liberals came to power in 2001: It was getting hammered by NDP policy. That also explains why Campbell and at least some of his colleagues favoured dramatic tax reductions.

Over the course of the 1990s, a few facts:

  • Real disposable income dropped in BC from $18,265 per person in 1992 to $16,700 by 1999, or a decline of 8.5 per cent;
  • Much of the mining industry fled south to places like Chile. Annual mining investment was $222 million in 1990 and that dropped to just $22 million by 1998. Meanwhile, in the mid-1990s, Canadian companies already had $2.2 billion in long-term investment booked for Chile.
  • Other parts of BC’s economy were packed up and left for points east, especially Alberta, which is why for the first time in BC’s history, interprovincial migration statistics turned negative for British Columbia and its working age population: Workers were leaving the province because NDP policy chased away investment in the 1990s and that dampened job creation.

A few facts on NDP job creation vs. Gordon Campbell job creation

On jobs, let’s compare the five-year job creation record of the NDP between 1996 and 2001 with the four-year record of the BC Liberals between 2001 and 2005 (starting in the election month in each example).

  • In the second NDP term that lasted five years, 125,000 jobs were added in BC, or 25,000 new jobs per year. Public sector employment rose by 6.9 per cent while private sector employment was up by 5.7 per cent in those years.
  • In the first four years of the BC Liberal government, between 2001 and 2005 British Columbia’s employment grew by almost 156,000 jobs, or nearly 39,000 annually on average. Public sector employment grew by 6.2 per cent but private sector employment grew faster, by 7.9 per cent.
  • During the late NDP era, 1996-2001, national private sector job creation soared by 14.8 per cent. That was nearly triple the 5.7 per cent increase in private sector jobs under the NDP in BC.
  • BC growth in private sector jobs in Campbell’s first term at 7.9 per cent was higher than the national average at 6.7 per cent.

In short, early BC Liberal policies in their first-term, including tax relief, worked to create jobs. That was in contrast to the NDP that came before them and also in contrast to Abbott’s misplaced skepticism.

Happy are those who cite Naomi Klein?

Abbott’s core approach is to examine government only from the taxes/revenue side and never the spending side. He mostly ignores the private sector and also contrary available evidence.

This tendency to focus only on “lost” taxes and never government spending, private sector needs, or actual jobs created perhaps explains in part why Abbott cites friendly academics, and groups such as the Canadian Centre for Policy Alternatives and anti-capitalist Naomi Klein.

It is why he even spends time trying to discredit Milton Friedman, the 20th century’s Nobel Prize-winning economist. Friedman spent his lifetime educating the public and politicians against the anti-reality economics of the political and ideological left, but they are cited sympathetically in Abbott’s book.

Expressed differently, if Abbott’s book was written as a series of questions, it would post them in this fashion.

Should government:

  • ever restrict its Leviathan appetite?
  • cut taxes after years of mostly ever-higher taxes?
  • reform itself to match private sector practices wherever possible and feasible?
  • cut government employees’ wages to stretch government spending—including to provide more money for children’s services?
  • exit the business of being in business, i.e., either through outright privatization where the Crown need not exist (think ICBC as a lingering, expensive example) or competition in the delivery of goods and services?

Based on his book, Abbott’s answers would seem to be no, no, no, no, and no.

That’s a position one can take. But if Campbell and his colleagues had actually gutted their election platform and trod the path implicitly suggested by Abbott, it would be difficult to see how the BC Liberal government post-2001 would have been much different than had the NDP government won a third term..

Mark Milke’s first book was published in 2001, Barbarians in the Garden City: The BC NDP in Power. His most recent is The Victim Cult: How the culture of blame hurts everyone and wrecks civilizations.

SWIM ON:

SWIM ON