Monday, July 16, 2012

A 2013 NDP budget, what does it look like?

I am almost 100% certain the NDP will increase spending immediately should they win the next election but the question is by how much and how will they fund it.  The NDP really only has three options to deal with more spending: a deficit, higher taxes or a combination of the two.

Soak the Rich?
The Canadian Centre of Policy Alternatives has done research that says the rich in BC are being taxed at a lower effective rate than the poorer people and that the richest people have seen a significant drop in their taxes.   They are arguing that there should be higher income taxes on the rich.   This work give the NDP the patina of justification to raise taxes on the higher tax brackets.   How much would this raise?  It is very hard to say, but the CCPA says that if there had been no income tax cuts in the Liberal era the government would have $3,400,000,000 more a year to spend.

Higher Resource Revenues?
There are various suggestions from different people on the left on how this could be done.   All I would say to that is that the province already treats rural BC like a cash cow and sucks the wealth out of rural communities to the tune of $5,000,000,000 a year.  Higher resource revenues will only increase this problem.  It also means the government revenues will fluctuate more than now.   This is not good for long term dependable government programs.

I know it is unlikely to happen, but I would like to see the government return more of the wealth it taxes from rural BC than it does now.   I do not see any political party taking that action because most of the MLAs in BC come from urban centres.

Another problem the NDP has with resource revenue rents is that the increase in them will be restricted if there is a significant cooling in the resource sector.

The HST?
While I can not see the NDP bringing in the HST, value added taxes have long been suggested by left of centre of economists as a good way to shift the burden of taxation from productive activities and to consumptive activity.   The NDP in Nova Scotia saw the value of this and raised their HST.

Green Tax Shifting?
The carbon tax is the first green tax shift in BC, will the NDP bring in more?   If one follows the concept of tax shifting, this should not increase the total tax take.

Crown Corporations?
I am not sure what the NDP will do with BC Hydro, ICBC, LDB and BC Ferries, but everything I am hearing says to me the net returns to government is not going to as high under the NDP as the Liberals.

A larger and longer term deficit?
The NDP could very well do this and there is no good reason why they should not other than politically it says to to people once again the NDP are not good with the provincial finances.   Any significant and ongoing deficit will be very detrimental to the NDP's chances of re-election in 2017.

What do I think they will do?
My guess is that we are going to see an expanded deficit for 2013/14 and 2014/15 to the tune of $1,500,000,000 per year.  This would be small enough to politically cripple the NDP but large enough to allow them to increase spending at 3.5% per year.

I also think we will see an increase in personal income taxes of about $750,000,000 per year, with that all being applied to people earning roughly $85,000 a year or more.  I think this will be enough to offset the losses from Crown Corporations and resource revenue rents.
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