It’s not surprising that Finance Minister Kevin Falcon went to New York to reassure big lenders about the province’s books.
The last two years have been a fiscal gong show. The government’s erratic policy stumble is the kind of erratic behaviour that makes lenders and bond rating agencies edgy.
Start with the government’s botched deficit forecast in the 2009 campaign budget. The deficit, then premier Gordon Campbell vowed in the May election campaign, would not exceed $495 million.
Four months later, the government said the deficit would actually be $2.8 billion. That’s a spectacular failure, the kind that makes lenders wonder what else the government is messing up.
Then, of course, there is the HST. The Liberals ruled it out during the election campaign and then, two months later, announced the introduction of the new tax.
Leave aside the pros and cons for a moment. There is no debate that lenders and investors like stability in tax policy.
A surprise introduction of a major tax change, especially one that had been rejected months earlier, does not increase confidence. And especially when the government concedes it made the tax change without any economic analysis of its impact. (Falcon acknowledges cabinet ministers were heavily focused on the chance to get $1.6 billion from Ottawa to reduce the deficit problem.)
Then things got more erratic.
As public anger about the HST increased, Campbell went on television in November and announced a 15-per-cent income tax cut. That would knock about $1 billion a year off provincial revenues; there was no clear plan for dealing with the shortfall.
Again, a well-considered, affordable tax cut would likely find favour with rating agencies and lenders. This looked like an impulsive effort to shore up a failing government. That impression was confirmed a few weeks later, when Campbell quit and the Liberals said they weren’t going ahead with the promised tax cut.
If you’re watching this from a New York investment fund or bank, you are likely getting nervous about the competence and stability of the government.
How much more chaotic could things get?
Quite a bit more, it turned out. Because the government last month announced more surprise tax changes. The HST would be reduced in two steps if it survived the referendum, Premier Christy Clark said.
She had rejected that during her leadership campaign. It would be akin to bribing people with their own money and leave the province short of revenue for health care and other needed services, she said.
And the government would raise corporate taxes 20 per cent, said Clark, reversing past cuts – the most recent less than six months ago. (NDP leader Adrian Dix proposed the same increase during his campaign. George Abbott said the idea represented the “leading age of 18-century socialism.” Mike de Jong said an increase would be “chasing jobs and investment away.”)
You can debate all these individual changes, their benefits and costs. But taken together, they paint a picture of an erratic, incompetent government that doesn’t have a coherent tax policy.
Add to that the government’s inability to provide accurate information on the HST. It claimed the tax would result in 113,000 new jobs by 2020; a credible independent panel report commissioned by the government estimated 24,400. It said the tax was revenue-neutral; the panel found it was a tax increase; it said a middle-income family would pay $100 more a year under the HST; the panel said it would be five times that much.
No wonder Falcon needed to head to New York. The last two years of lurching, incoherent tax policy would likely alarm any lender or bond rating agency.
Clark should also be wondering if the last two years have alarmed B.C. voters as well. Because if so, a fall election could be highly risky for a party that has always claimed to offer stable, consistent administration.
Footnote: The latest Angus Reid poll found 56 per cent of decided voters would vote yes to get rid of the HST. It also found 40 per cent of those surveyed considered Clark credible on the tax; 35 per cent considered Dix credible; and 47 per cent though Bill Vander Zalm credible. The media came in at 37 per cent.