Falcon’s “dire” financial estimates of HST reversal misleading – but “more effective if one were looking to lay the blame for provincial fiscal challenges onto the referendum results.”

I’m playing catch-up this weekend and next week after some new information came forward on an old story Friday, taking my attention away from more current news. However, before I leave you this morning, I wanted you to take a look at something I think is very important for British Columbians to read, and consider, in the face of Falcons gloom and doom announcement last week on the impact of reversing the HST.

This government continues to have no shame. Even spinning his version of the numbers was a practice designed solely to make everyone regret their decision, and not once did he address the bigger picture, instead trying to paint himself St. Falcon, protector of health and education… (pardon me a moment while I swallow the bile rising in my throat…cough,cough.)

Iglika Ivanova,  holds an MA in Economics from the University of British Columbia and a BA in Economics from Simon Fraser University. She recently posted a telling article which is easily read for those not inclined to numbers and financial terms, that gives the real picture of the impact of reversing the HST. 

From PolicyAlternatives.ca

The real impact of HST’s defeat on provincial finances

September 9th, 2011 · · No Comments · Economy, Provincial budget & finance, Taxes, Transparency & accountability

On Sept 8, Finance Minister Kevin Falcon released a much anticipated update on provincial finances.

The Minster’s presentation focused on highlighting the cost of the move back to PST/GST, providing some large numbers for the media headlines, instead of looking at the big picture.

In case you missed the media coverage, the provincial coffers are projected to suffer a loss of $2.8 billion over the next 3 years, relative to the estimates presented in February’s Budget 2011. The Ministry estimates that $2.3 billion of the loss is brought about by the HST defeat and the move back to the PST/GST system.

The Minister argued the impact of the HST defeat is manageable, but warned that:

“We’re going to be very tough on operating expenditures and people need to understand it is going to be a government that is going to be run very, very tightly from a fiscal point of view.”

However, closer look at the numbers reveal that the provincial financial situation is not nearly as dire as it may seem. And that returning to PST/GST is not all that costly, when compared with how much it would have cost to keep the “fixed” HST.

Firstly, comparing the costs of repealing the HST to the February budget estimates is misleading. Budget 2011 numbers did not include the cost of the last minute HST “fix” that Premier Clark announced this summer. Keeping the HST would have involved a significant budget loss relative to the numbers announced in February, as Seth Klein pointed out here. This is why the impact of reverting to PST/GST should be compared to the impact of keeping the “fixed” HST.

The cost of the one time rebates of $175 per child regardless of family income and for low- and modest- income seniors were estimated at $200 million. The government’s news release announced that these checks would go out before the end of the year, so they should be considered as expenses in 2011/12.

In addition, the HST was slated to be reduced to 11% in July 2012, which would have cost the government around $638 million in 2012/13 — 3/4 of the annual cost of a 1 percentage point reduction (estimated at $850 million). In 2013/14 the government would have given up $850 million. And this isn’t even considering that in July 2014, the tax was going to be reduced to 10%, giving up a total of $1.7 billion in revenues every year. At that rate, the government’s actually going to be collecting more revenue with the PST/GST than otherwise.

Some of these extra costs would have been offset by the increase in the corporate income tax to 12% (from the current 10%) in January 2012 and by postponing the small business tax cut slated for April 2012. These would have generated an additional $100 mil  in 2011/12 (1/4 of the annual revenue gain, estimated at $400 mil) and just over $400 million each in 2012/13 and 2013/14.

Thus, the real comparison of the costs of repealing the HST looks more like this:

My analysis shows that the provincial treasury would have faced a shortfall of $800 million even if the HST had survived the referendum. The real net costs of reverting to PST/GST are $1.5 billion, not $2.3 billion.

Of course, using the bigger number is more effective if one were looking to lay the blame for provincial fiscal challenges onto the referendum results.

Now, let’s turn to the total provincial fiscal position. Many analysts/commentators seem to have forgotten that the fiscal plan features unusually large contingencies and forecast allowances over the next 3 years. These total $2.5 billion over the 3 years and thus entirely cover the costs of the HST reversal.

If the HST defeat is not an unexpected event worth dipping into the contingency funds for, I don’t know what is.

As for the forecast allowance, the government has already built a lot of prudence into the budget projections by using economic growth forecasts that are considerably lower than the private sector consensus forecast (2% vs 2.8% growth for 2011 and 2.3% vs 2.8% growth in 2012).

In other words, the BC government has a real fiscal gap of only about $300 million over 3 years relative to Budget 2011, not $2.8 billion. This is a lot more manageable and hardly requires the kind of tight-fisted approach advocated by Minister Falcon.

Some of the media commentary around the fiscal update, such as Vaughn Palmer’s piece in the Sun are suggesting that the BC government is using the current fiscal challenges as an opportunity to punish British Columbians for exercising their rights in the HST referendum. This would be a great mistake. Not only would it go against our country’s respect for democracy, but it would also put a drag on the already fragile recovery (latest job numbers released today show BC is shedding jobs, full-time jobs in particular).

19 thoughts on “Falcon’s “dire” financial estimates of HST reversal misleading – but “more effective if one were looking to lay the blame for provincial fiscal challenges onto the referendum results.”

  1. What I find most bizarre here is that Mr. Falcon is rubbing British Columbian’s noses in it for actually recognizing what the HST was going to cost those who would have felt it most.

    And it was also a previous analysis by Ms. Ivanova that demonstrated that those who would have felt the tax shift most were those who actually voted against it.

    She is one whose work is worth watching.

    .

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    1. Laila

      I absolutely agree, RossK, her work is quite exceptional, in my opinion. And from someone who also looks at the facts and figures, not what equates to financial rhetoric coming from the finance ministry, I think what is most reprehensible on the part of this government, is that the continue to take advantage of the fact that most British Columbians DO NOT look at the actual figures in the budget and rely on the press for that information.

      I am posting a note that came to me from Erik Andersen, whose work ,research and views I asbolutely endorse for all readers and fellow concerned citizens. Long time readers will recognize Erik as someone I refer to often and share his research with others :

      ” By every news report the government and the mainstream press are still fighting the HST vote. There seems to be little capacity to recognize democracy and only re-enforces my previous assertion that we live in a “command economy”. Those in “command” refuse to change and appear determined to continue making government the enemy of citizens.

      (a) The financial forces concurrently at work are known to all observant folks. The government set a course to generously reward corporations in hopes of seeing new employment. This was and is a naive notion as corporation are not moral.

      (b) At the same time and as part of (a) above the government used its authority to sign two types of contracts (capital leasing and operational leasing) that are in many cases very long-term.

      Last year the AG took issue with this contracting activity as the amount he saw was greater than official long-term debt. By using the contracting scam the government tried to fool the public into thinking all is financially well in BC. Two days ago I asked two people if they knew of the “Sea-to-sky” shadow toll contract. Not a clue about it or what is this type of contract. I expect the same could be said about how much people in the lower mainland know about the financial responsibility they have for the “Golden Ears” bridge, the “Canada Line” and yet to be finished new “Port Mann” bridge. A rough estimate is that long-term financing, either by formal reported debt or by contracts, easily now exceeds $150 billion in BC.
      (c) This new and large indebtedness is now having to be paid from the operating budgets of the province, Crown Corporations and municipalities and it is hurting everyone because they are all forms of taxation.

      As a microcosm of this dynamic, the finances of BC Ferries displays this reality. In 04 interest expense was under $2 million but by 11 it is over $72 million. In the same period investment in hard assets increase by 300% as did long-term debt. The strain to pay for this rate of ramp- up in investment, that produced very little more in new transport capacity and is serving fewer and fewer customers, is very painful for the coastal population. Income increases for people on the West Coast have not been anywhere close to the rate of change in BCF debt and investment. THERE IS A DIVERGENCE BETWEEN THE REQUIREMENT TO PAY AND THE CAPACITY OF CUSTOMERS TO PAY. Just expand this example to understand what the Minister of Finance and his government have created. Because the HST was their way of “kicking-the-can-down-the road” it is understandable why the fight and “trash-talk” continues. The sad part is the media seem to have lost their ability to think objectively about the HST and its implications. A very poor lot at “connecting the dots”.

      Anything you folks can do that causes the penny to drop for BC folks, should bring us closer to finding our way out of this financial darkness.”

      E.Olson: The thank you’s go to Ms. Ivanova, for such a compelling and revealing display of how the truth trumps what nonsense Falcon spews everytime. Again, galling how they completely treat the people of BC like naughty toddlers.

      Like

  2. e.Olson

    Thanks for the analysis. I think everyone suspected Falcon’s huffing and bluffing was just that.

    As for punishing people, they have been doing that since day one. e.g. cutting payments to the disabled. The Libs forget these people like to spend too–and that means the flow of money to big and small businesses but more importantly, more food on the table just might lead to some of these people being healthier (fewer medical bills) and some just might be able to get better. Either way, it helps the bottom line.

    Then there are all the jobs lost in the non-profit sector. check out the report on Gaming by the Surrey Board of Trade on their website. http://www.businessinsurrey.com the figures at the end of the report are amazing.

    This is all about priorities. So far the priority of the Libs has been feathering their friends nests. e.g. tearing down a perfectly good bridge so that they can build another one and toll it.
    Bulding a road that destroys farmland and bogland when one could have been built cheaper and less destructive.

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    1. Laila

      Thanks Glen.

      I would also like to point out that we all need to be paying attention to what is going on in Europe with their economies and banks because historically this province has gone to foreign stakeholders to invest in their public private partnerships. When those stakeholders investments and ratings tank, it can have consequences here.

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  3. !i

    Off Topic – Spring 2001

    The recriminations over the bylines were the latest outburst of acrimony between newsroom staff and managers that boiled over during the federal election campaign last fall when journalists felt ethical boundaries were crossed by editor-in-Chief Vivienne Sosnowski, who re-arranged news coverage between editions to favor the Alliance Party and leader Stockwell Day. … It also purported to be laid “especially on behalf of The Province’s readers, who at the very least deserve to be told if their news is being edited on political rather than professional grounds.”

    http://caj.ca/wp-content/uploads/2010/mediamag/spring2001/cover1.html

    Like

  4. glen p robbins

    What overshadows the numbers – and Olsen and RossK have alluded to the public opinion on this – emerges as a new phenomenon outside the abstract of economics or general media discussion on the subject – and has been provoked in large measure by the politics of the HST.

    The government bureaucracy – federal and provincial wants to tell us times are not good (and they may not be – however we don’t know how much of this is real and what contribution is stage managed). Remember during the last recession of two years ago – five of the so-called top economists from the big banks – when pressed to explain why they did not make any valid predictions – held a news conference and said economics is an art not a science. So – the first point here is that we are using numbers provided by government that most to many agree lies with impunity. We don’t really know what is valid and what isn’t.

    From this point we know the public has not bought into the media hype of – so if you want services you must pay more – if you want to pay the same or less you will lose services. The mass of public does not agree with this. They want the services they are getting – in fact they want more – and they don’t want to pay any more. Further, if someone IS going to pay more – they want the rich to do it – including corporations. Canadians have said this – Americans (land of free enterprise) have said this – and the wealthy in France are already pleading with government to tax them more.

    The BC Liberals are tucked so far into the box – they don’t know themselves where they are at – so they fire on predictably. The HST debt is their reason for paying less to labour (public service) to coincide with business saying no raise for you. We need money for dividends for our shareholders – because the bond market stinks and interest rates will remain low.

    The majority of the public doesn’t except the explanations vis a vis taxes and services. They hear about huge payments to government officials – and rich executives. They go deaf to this tune. Adrian Dix and the NDP will tax the rich – particularly if they gut the BC Liberals. The BC Liberals can’t tax – and won’t tax the rich. They will do the expected and cause labour mayhem to induce the public to believe that’s why they should govern – only to hold back the onslaught of the BC Conservatives and the certain upcoming loss to the NDP. Even the media is making adjustments to accommodate the next government. The BC Conservatives are currently ‘off shoots’ only – of Harper’s original Reform – yet most British Columbians who currently support them want a !% reduction to government spending and to tax the rich. The future bodes well for the BC NDP on any front – not well for the BC Liberals – who will be replaced by the BC Conservatives – if the BCC are smart.

    What Falcon is talking about here – the BC public isn’t interested in – they’ve left the room – as we did in Coquitlam a few years ago when he told reporters the Evergreen Line would commence construction in one year. When credibility is shot – in politics – any discussion of economics is ‘relatively speaking’ moot.

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  5. glen p robbins

    Lynn – I suppose my point on that was our higher numbers of BC Conservative supporters who would also support taxing the rich. This would separate the former Harper Reformers who are now clearly on side with no taxes for rich or corporations. (You may recall when Harper was a Reformer – some working class neighbourhoods would have both NDP and Reform signs on them). It will be interesting to see where John Cummins goes with this – it will tell us something of his independence from the federal government.

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  6. Mr. Robbins–

    I very much enjoy it when you make your points this way (ie. by really telling us what you think).

    For those that are not the cynics amongst us, what you describe above could be what the rank-and-filers from both ends of the spectrum saw as being worth getting behind when the Three Amigos first emerged with their Tax Revolt strategy some time ago.

    _____
    And for the record, I was very cynical when Messr’s Delaney, Tieleman and Vanderzalm first unveiled their ‘plan’, because I saw it as a real politick, vote-splitting initiative….However, as it became clear who would be most affected by the HST, my views were swayed by the sustained grassroots surge. Thus, as I have said here, and elsewhere, I am a left-leaning person who, given my current level of income, is very willing to pay more in income tax to ensure that the ladder does not get pulled up on my fellow citizens (just as it was NOT pulled up a generation ago on me and mine). Thanks.

    .

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    1. Laila

      Well said RossK… and from the looks of it, Falcon will be raising personal income taxes, something I am an advocate of as well, as long as it hit the higher income brackets and does not penalize the lower income earners. After all, most higher income earners are more able to find deductions, credits and write offs whereas generally lower income people will not.

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  7. SB

    This govt has first lied then ruled with intimidation from the start , from Hospital workers to Bc Rail and HST none of the things said have proven true so now its try to use fear to scare the voters into submission , the ones who voted to kill the HST will pay and suffer and are going to take this about as well as they did the tax itself , i see complete oblivion for the Liberals in 2013 at this rate , lie cheat steal get caught and punish the ones who caught you then lie more and hope it works the MSM also needs its licenses yanked they are corrupt as Victoria,

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  8. Lynn

    What the Lieberals and their corporate elites and cronies fail to realise is this:
    The citizenery has the power in the end.
    We have the power to put an end to their tactics. We have the power to pull back our spending.
    So go ahead and bugger with numbers. Its all over.
    They are finished as a party.
    Let this be a rally call to all the rest of the lot.
    Mess with the bull, and you’ll get the horns.

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  9. islandcynic

    This province needs to get rid of the HST before 18 months as the Libs have committed. It has been a ball and chain around the neck of those who keep the economy rolling.

    Get rid of the HST and LET THE GOOD TIMES ROLL

    Like

  10. Gary

    Great article Laila. My take on the blabbering from Falcon and the rest is that he intends to punish us for refusing to be lead like sheep to the slaughter. We have shown the Lieberals the door and they are scared stiff as the next election means that we will kick them through that door, never to return. They will lie and say anything that they can to ward off that final kick, but even they know that the die is cast. I worry that some of these maggots will cross to the Conservative party and continue to corrupt our system. To get my vote, the Conservatives must refute any attempts of Lieberal rats to join their ranks.

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  11. Donna

    I will never vote Conservative, because of Campbell and Harper and their underhanded tactics. The BC Liberals and the BC Conservatives, are one and the same party.

    We have seen Campbell and Harper, stripping BC to the bare bones. Harper fully supported Campbell’s corruption and thefts. Harper needed Campbell because, he has no morals nor ethics. Campbell’s first priority is to, con Europe into accepting, the dirty tar sands oil. Campbell has not one saving grace, and no credentials. The OBC was ordered for Campbell, to hoodwink Europe into believing, Campbell is a decent human being. Europe already knows what Campbell really is, he has the dirtiest, most foul political record, ever in Canada.

    The BC judicial system is corrupt, as we have all seen many times over. It’s easy to see why, someone who stinks of corruption as Campbell does, gets named for the OBC. The decent good people, who really deserve the OBC, are passed over for the likes of Campbell and the other three misfits. The OBC is added to the other corrupt institutions in BC. They have really soiled themselves…The OBC are no longer trusted, for their abuse of power.

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  12. CrabbyD

    If the 6 pm news and other so called mainstream media in this province ever were to tell the truth about the BC Liberals instead of being their propaganda arm, they would be lucky to win 10 seats next time and maybe people would take to protesting in the streets..

    Like

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