There were lots of stories in the news in 2009 about government spending and taxation, but of all the stories, none has more serious long-term consequences than the return to deficit spending. The B.C. government has a spending addiction and is supporting its habit by a massive increase in the provincial debt. If spending is not brought under control, taxpayers will be left with a legacy of higher taxes.
B.C.'s across-the-board income tax cuts have created a relatively competitive tax regime, second only to Alberta in Canada. But out-of-control spending is obviously unsustainable. Is the government looking for ways to cut spending? No, it's creating a legacy of debt for future generations and designing automatic stealth tax hikes to feed its spending addiction.
The debt is expected to balloon to almost $60 billion by 2013, up from $38 billion in 2008. That means each child born in 2013 will owe the provincial government almost $13,000. Debt servicing costs are expected to rise to $8 million per day by 2011. Sending millions of dollars every day to bondholders to pay the interest on the debt is nothing more than fiscal child abuse.
Further, automatic stealth tax hikes build a tax burden on unsuspecting taxpayers and do nothing to help government overcome its spending addiction.
The Medical Services Premium (MSP), otherwise known as the health tax, will feed the government's spending addiction by increasing automatically every year. While many British Columbians believe the health tax is an insurance program that pays for health care, nothing could be further than the truth. The health tax is a poll tax -- a per-person tax charging a fixed amount that goes directly into the government’s general revenue pot. Right now, the health tax takes $1.6 billion per year out of taxpayers' pockets and will take a bigger bite in the future -- $1.7 billion in 2010-11 and $1.8 billion in 2011-12.
The carbon tax, like the health tax, also increases every year. The government must eliminate these two stealth taxes to start its spending withdrawal program.
Without spending reductions, the legacy of debt will be long lasting and lead to lower economic growth. Stealth tax hikes already show the direction B.C. is heading. But government spending-induced economic stagnation and future tax hikes are not inevitable.
Every once in a while, politicians acknowledge high taxes and big government spending drag down economic growth. In a welcomed moment of tax-epiphany, the New Brunswick government announced a lower, simpler and flatter tax system, and a reduction in the size of their bureaucracy as an area of major cost savings. It identified $182-million in administration and wage savings for 2009-10. It froze MLA wages in December 2008, and will extend that for two more years. It also froze all public service salaries for two years and cut 700 redundant positions, and this in a province with a population of only about 750,000.
B.C’s return to deficit spending, the year's big story, is a symptom of a bigger problem, the government's spending addiction. The steps to recovery are clear. The government must get into a spending withdrawal program by: reducing families' total tax burden -- not giving with one hand then taking with the other; and not borrowing to fund spending sprees -- it is immoral to leave unborn children with a legacy of debt.
