Cutting Back the State in Canada

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Last June, voters in British Columbia threw out the New Democrat Party (NDP), the explicitly socialist party that had controlled B.C. for a decade. The Liberal Party, which had a platform of tax cuts and less government, won 77 of the 79 seats in the provincial parliament. The new government announced a 25% across-the-board tax cut and plans to get rid of more than a quarter of the province’s employees.

According to the rest of Canada, people in B.C. take their politics a bit too seriously. Accepted wisdom from a Toronto’ newspaper is that all the footloose fruits and nuts who couldn’t make anything of themselves elsewhere in Canada slowly migrated westward until they hit the ocean. With nowhere else to go, they settled down to forcing their polarized visions upon each other. This is supposed to explain why the governments of British Columbia seem to rotate so rapidly from the reddest of the radical socialists to the blackest of the rapacious capitalists and why after ten years (1991- 2001) of socialist taxing, spending, and regulating, British Columbians threw out the scoundrels and elected’ their ideological opposite, the new Liberal government.

Judging by current headlines, the leader of the Liberal Party, Gordon Campbell, has already overplayed his hand. Not only are the changes radical, according to media pundits, but he is making them simply to satisfy his pure ideological bias and out of class hatred of the poor. The evening news has become a full hour of bleating beggars wailing ¬†about cuts in their subsidies, bleeding-heart professors worrying about the tearing social fabric, and union leaders haranguing their followers to “Fight back! Fight back!” and promising to make, the province ungovernable. Even the respected Economist magazine came in on message, subtitling their recent report on B.C. “a wild gallop to the right.”

When government-loving professors, unions, and special interests are all angry, it is surely good news. But don’t apply at your local Canadian embassy for your immigration papers just yet. In B.C., substantial reductions in the role of government in people’s lives is still far away.

For one thing, the tax cut isn’t as large as it sounds. Provincial income tax is only one-third of the total personal income tax collected, ‘and personal income taxes are only one-third of the total taxes British Columbians pay. A ,25% cut of one-third of taxes works out to about a 3% tax cut. Each year, the local free-market think tank, the Fraser Institute, calculates an annual Tax Freedom Day, the (metaphorical) day Canadians stop working for the government and get to start keeping what they earn. In 2000 (the last full year with the NDP) B.C.’s Tax Freedom Day was July 5, with taxes consuming 50.6% of the average family’s income. Back of the envelope calculations indicate that the 25% provincial income tax cut would bring taxes down to about 47.5% of income and move Tax Freedom Day forward to about June 22. That’s about the level it was in 1995, halfway through the NDP’s reign.

This tax cut is a small step in the right direction, but provincial income taxes are still higher in British Columbia than in either Alberta or Ontario (the only other Canadian provinces that pay their own way in Canada) and the total tax bill of 47.5% is still more than ten percentage points higher than Americans in any state have to put up with.

What is getting the demonstrators out into the streets is the announced intention to get spending under control. In the fiscal year 2001-02, provincial government expenditures reached $24 billion Canadian, just under 20% of gross provincial domestic product. But with a poorly performing economy, built-in automatic spending increases hidden in

After ten years of socialist taxing, spending, and regulating, British Columbians threw out the scoundrels.

 

union contracts, as well as the $2 billion tax cut, the government faces an expected $3 to $4 billion deficit without making any changes.

Campbell proposes to balance B.C.’s budget by cutting provincial expenditures by 8% ($2 billion) over the next three years to reach a level of $22 billion. This translates into job losses for about 12,000 full-time bureaucrats (out of over 40,000 positions). By the end of this plan, B.C. should have around eight provincial employees per 1,000 residents, compared with Alberta’s 9.3 and Ontario’s 7.4.

Despite the impression one might get from the headlines, Campbell is not pioneering drastic changes but just trying to return B.C. to a level of taxation and expenditure considered normal for the other “have” provinces in Canada. Even with this “radical right-wing” shift, Campbell’s government will still own 95% of the land area in B.C. and thus will retain control of the forestry resources responsible for a major portion of the economy. This “radical free-market” wingnut will also still own nearly all of B.C.’s valuable electricity generating and distribution services.

Nor has the government announced any plans to release citizens from the government-owned monopoly car insurance company or to allow citizens to opt out of its government monopoly medical service. Farmers’ land has been declared protected (originally to save British Columbians from impending world famine) but farmers are still not allowed to sell land for more valuable uses. Even with falling world food prices, you can still find cows and fields of vegetables just minutes from downtown¬∑Vancouver. This “free market” government still restricts the production of milk, eggs, chickens, apples, oysters, mushrooms, and green vegetables so that B.C.ers have the honor of paying substantially higher than world prices for the pleasure of knowing that some of their food is grown close to home.

British Columbia has made some small baby steps in the direction of a free market, but not nearly enough to warrant all the fuss and squawks from the many special interest groups. But then again, the movement does seem to be in the right direction and we should be thankful for every incremental gain in freedom we can get.

Meanwhile, most B.C.ers are very thankful for their tax cut, despite its puny size.

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