The cost of low taxes

How did we get here?

That would seem to be one of the great philosophical questions but, in this case, I am thinking more along the lines of students not in school, tailing ponds breaching, and potholes in our roads.

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The answer would appear to be "not enough money" but that begs the question of how did we get to the point where there is not enough money in government coffers to cover our needs?

So, here is my version of history. I know that there are people that will disagree, but I suspect that will mostly be with the details.

In the 1990s, our economy was based on resource extraction. Much of our economy lived and died with the forest industry. Mining was taking a beating because of world commodity prices. Things were not great.

But they weren't as dire for the entire province as some people have made out. Prince George was struggling, although there were certainly a lot more stores downtown in the mid-90s than today.

In any case, the B.C. economy as a whole was growing at a moderate pace and keeping up with the rest of Canada. We had good years and bad but then so did every other province. Sometimes we outperformed everyone else; sometimes we didn't.

Somewhere in the late 1990s, though, many people became disaffected. They believed that our economy was in trouble. They refused to believe the government was balancing its books. The B.C. debt clock featured prominently on the nightly news.

The answer, we were told, was to cut taxes.

After all, that is what the United States did.

"Trickle-down economics" or "neo-conservatism" was the order of the day. Cut government and the economy will boom. It sounds too good to be true.

The basic idea is that people know how to spend their money better than governments. Give everyone a break on their taxes and they will spend their money supporting charities and buying consumer goods.

The problem with this model, from a British Columbia perspective, is that we do not have a vibrant manufacturing sector. We don't make the goods that people buy. Hence, the money from a tax break did not find its way back into the immediate real economy.

The other aspect of tax-break based economic theory is that people with real wealth will spend their tax breaks investing. They will support corporations and companies.

That might be the case but, again, from a British Columbia perspective it doesn't make a lot of sense because corporations and companies are not headquartered here. Even with one of the lowest corporate tax rates in North America, companies have not flocked to British Columbia (although inversion might see that happening as more corporations flee the United States.)

In any case, in 2001, the B.C. Liberal party ran on a promise of a 25 per cent tax cut. On their first day in office, the lived up to the promise and cut personal and corporate income taxes. Everyone was happy.

Or, at least, people paying taxes were happy. It didn't really help the lower income earnings. It is hard to get a 25 per cent cut when you aren't paying any provincial tax.

Since then the B.C. Liberals have given us 13 years in which the bottom two tax brackets are the lowest in the country. Great news.

Except it didn't really do the job. Dropping personal income taxes was supposed to lead to a booming economy. The 2000s were supposed to be British Columbia's decade.

We were told that economic growth would more than make-up for the lost revenue from taxes.

Instead, our economy has not really outperformed any other province in Canada. We have seen moderate but average growth. The result is that the provincial coffers have not grown fast enough to keep up with increasing expenses.

The government has gone on a borrowing spree like no other. They have more than doubled the provincial debt since taking office.

At the same time, they have cut back on services, people, regulations, and just about everything they can in order to live within their self-imposed limit. They haven't increased taxes.

Which leads us here. Removing environmental regulations and decreasing the frequency or intensity of inspection result in industrial accidents and other consequences. Decreasing the tax base has resulted in not having enough money to fully fund our education system. Downloading costs onto municipalities has made balancing the budget difficult at the local level without property tax increases.

I don't like paying taxes, but maybe if the B.C. Liberals were not so set in stone about making our taxes the lowest in the country, they wouldn't be struggling to make ends meet while maxing out the credit card.

Maybe it is time for us to have the second-lowest taxes in the country.

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