What was probably the most telling moment of budget day in Victoria came when reporters asked Joy MacPhail why she chose to break her government's promise to balance the budget. The NDP finance minister threw her head back and laughed. "Because you wouldn't believe me," she said. If the comment was meant to imply that the small deficit the budget ended up showing somehow made it more believable, Ms. MacPhail was mistaken.

The finance minister says B.C. will run a $95-million deficit this year—the seventh consecutive NDP deficit. Placed under the light of approved accounting practices, however, the figure proves to be an illusion (see story, page 16). The NDP is really adding $1.25 billion to the provincial debt, bringing it to a record $31.2 billion, compared to just $18 billion when the party took office.

Ms. MacPhail also claims her budget will encourage investment and breathe life into an economy that is nearly in recession. Analysts point out, however, that the centrepiece of her plan is a collection of tiny tax cuts—just $52 million this year—that are many times smaller than the job-killing tax increases of the NDP's first finance minister, the man who is now premier. "Glen Clark's first budget took $750 million in taxes right out of the economy. His second budget took $800 million," says Jim Cutt, a professor of public administration at the University of Victoria. "This year, his kick-start budget gives us $50 million back? I'm just not persuaded by that."

Indeed, many economists agree Ms. MacPhail's first budget is a study in how reluctant the New Democrats are to give taxpayers a break. When Mr. Clark jacked up income taxes in 1992 and 1993, the higher rates came into effect right away. But income-tax cuts in this budget do not begin until January 1, 1999. The corporation capital tax will be eliminated for 10,000 small businesses, but not until next year. The same is true of the 0.5% cut in the small business tax rate. "We were hoping we could do something to fix the economy now, not sometime in the future," complains Gordon Chan, president of the Certified General Accountants Association of B.C. "How big a hole do we have to fall in before we climb out of it?"

Furthermore, the government will take until 2001 to lower the top marginal income tax rate from its current level of 54.2% to 49.9%. Punitive tax rates on high-income earners are especially damaging to the economy because they tend to punish entrepreneurs and executives, the very people who decide whether to locate a company's new plant or head office in Calgary instead of, say, Vancouver. This year a person making $80,000 in B.C. will pay $1,280 more income tax than if he lived in Alberta. The higher the income, the more uninviting B.C. looks. A person making $200,000 will be worse off in only two other provinces, Quebec and Newfoundland, and would be $11,000 better off in Alberta.

For middle- or lower-income British Columbians, the budget contains no significant tax relief. The one-point cut in the basic provincial income tax rate will mean an extra 14 cents a day for someone who earns $35,000 a year. "At the end of the week you might be able to go get a cup of coffee," says Troy Lanigan, B.C. director for the Canadian Taxpayers Federation (CTF). "It's two-bit tax relief at best."

Premier Clark brushed off the criticisms as "almost comical," because many of the same people who wanted substantial tax cuts were also calling for a balanced budget. To accomplish both, of course, the NDP would have to cut spending, something they have shown little inclination to do. Gordon Wilson, leader of the Progressive Democratic Alliance, notes that even the paltry tax cuts offered in this budget are paid for by adding new debt, not by spending cuts. "It's pretty easy to say we're going to reduce your tax demand if we're going to go out and borrow $1.2 billion to cover what is a $150-million increase in government spending," says Mr. Wilson. "You have to make hard choices on the expenditure side, which doesn't necessarily mean you have to put in Draconian measures."

Given who is in charge of the government, however, it is not surprising the NDP avoided those hard choices. Opposition critics say that of the four NDP finance ministers this decade, Mr. Clark was least amenable to fiscal responsibility. The two budgets he drafted, in 1992 and 1993, did more to punish wealth creators and poison the business climate in B.C. than anything his successors did. By the time he was through, Mr. Clark had added $5.9 billion to the provincial debt in just two years.

In those two budgets Mr. Clark took $1.55 billion out of the economy in new taxes. He raised income taxes on everyone, especially the biggest earners. He raised taxes on businesses large and small, and brought in the corporate capital tax, which discouraged investment in B.C. He raised the sales tax and increased the number of services to which it applies. He raised school taxes and brought in a new surtax on expensive homes and vehicles. He raised the cost of healthcare premiums.

At the same time Mr. Clark spent like a man who just won the lottery. During the two years in which he presided over the purse-strings the provincial operating budget went up by $1.8 billion, an increase of more than 10%. (During that same period B.C.'s population grew less than 6%.) But the B.C. Liberals point out that the extend of his spendthrift ways was partially hidden when he began to play shell games with the public accounts-shifting the costs of new buildings and highways onto "financing authorities" and crown corporations so they did not show up in the deficit.

All this taxing and spending occurred as B.C.'s economy was healthy and growing at 2.4% a year. Elizabeth Cull, Mr. Clark's successor, had the good fortune to take over just as the economy turned red-hot in 1994. The revenue windfall meant the NDP could continue to increase spending and still shrink the deficit, thus claiming to be good fiscal managers. "In the early part of the '90s, that was the time to have really tackled spending," laments Suromitra Sanatani, provincial director of the Canadian Federation of Independent Business, the lobby group for small business. "Instead, we had all kinds of crazy policies."

By 1995, the NDP had missed its chance to balance the budget. The economy began to cool off as business took its money to provinces with less hostile business climates, most notably on the Prairies, where provincial governments had eliminated their deficits. Ms. Cull did announce balanced budgets in 1995 and 1996, but they turned out to be more than $700 million in the red, destroying the NDP's last shreds of fiscal credibility.

Many who have studied the government's latest budget say it is no more credible. Ms. MacPhail's deficit figure of $95 million is a sham, says Professor Cutt. The real government deficit—as presented elsewhere in the budget documents—is at least $949 million. Prof. Cutt says the NDP's bookkeeping is so dishonest, the government deserves to have its credit rating lowered, as it was last year. "The credit agencies are no fools," he says. "They're going to look at that and say, 'Come on, give us a break. The real deficit is this [$949 million], and the real debt is going up faster than anywhere else in Canada. You guys have not learned fiscal propriety and control and therefore you are not really progressing.'"

As if on cue, the Canadian Bond Rating Service announced April 3 it had downgraded the province's credit rating for long-term debt to AA from AA+. The move inspired Liberal finance critic Gary Farrell-Collins to call for the NDP "to immediately scrap their four-day-old budget and introduce a budget which will provide for immediate significant spending cuts and a balanced budget."

Even those viewing the budget from afar can see the NDP is not being truthful about the real bottom line. "It's just amazing to me that no one says, 'This is a complete crock,'" says Mark Milke, provincial director of the CTF's Alberta branch. "The NDP's $95-million estimate will be laughed at by bondholders, other finance ministers, and kindergarten children who have a rudimentary ability to add."

In contrast, Alberta, Saskatchewan and Manitoba have laws preventing their governments from playing games with the books (see story, page 17). But that is not the only reason Prairie finance ministers put Ms. MacPhail to shame. All three will run surpluses and pay down debt in 1998; Alberta and Saskatchewan have tabled five consecutive balanced budgets. Furthermore, all three provinces are bringing in larger income tax cuts than B.C. "We are still losing ground dramatically compared to other governments in Canada," says Prof. Cutt. "These governments are paying off their debt, the are genuinely decreasing taxes, they are genuinely controlling expenditures."

Significantly, each Prairie province has legislation to protect taxpayers from free-spending governments. Manitoba's law is the strongest. Both the operating and capital budgets must be balanced unless revenues fall by more than 5% or there is a state of emergency. If there is a deficit, the entire cabinet takes a 20% pay cut; two consecutive deficits mean a 40% pay cut. Any increase in sales, payroll, income or corporate taxes must be approved by referendum. Finally, the law requires minimum payments toward the debt, which is expected to be paid off by 2025.

B.C. once had a debt repayment plan, but the NDP scrapped it when it could not meet its targets, and then replaced it with a less stringent "financial management plan." The CTF's Mr. Lanigan says what is really needed is Manitoba-style legislation. "We're in the eighth year of the NDP's three-year balanced budget plan and people don't buy it anymore," he says. "They expect something meaningful, and meaningful is to put it into law like every other province in Western Canada."

A balanced-budget law would go a long way to improving business confidence, says Ms. Sanatani. Ms. MacPhail's budget seems to have failed in that regard, not only because the tax cuts are so modest, but also because anti-business policies continue to be implemented or proposed. For example, just two days after the budget, B.C.'s minimum wage was raised to $7.15 an hour, the highest in the country and $2.15 more than in Alberta.

Still, it is two regulatory issues that stand out: the Labour Code and land-use policy. The NDP is expected to overhaul the code this year, after aborting an attempt to do it last summer because of protests from business. If it follows the recommendations of the review panels it appointed, the code will become more favourable to unions than it is already. "That's simply going to confirm to our manufacturers this is not the jurisdiction to invest in," says Werner Knittel, B.C. director of manufacturing for the Alliance of Manufacturers and Exporters Canada. "They're going to move elsewhere." Adds Mark Von Schellwitz, a lobbyist for the restaurant sector, "Making an announcement that they're not proceeding with any Labour Code changes would have done a lot more to improve confidence in our industry than the tinkering they've done on the tax side."

For many companies in the resource sector, access to crown land is a far more important issue than tax rates. The NDP's land-use planning process has put 20% to 30% of B.C.'s land base in "special management zones," a vague classification that means development may or may not be allowed. The ensuing uncertainty is one of the reasons mining companies spent $55 million less exploring in B.C. last year than they did in 1991. Most of the money they did spend was to expand existing, known deposits. "Looking for new deposits has dropped to almost zero," says Gary Livingstone, president of the Mining Association of B.C. "Very little was spent going out and looking for the next generation of mines." Like the forest sector, the mining industry has been in discussion with the government about how to reduce the burden of environmental "green tape," but Mr. Livingstone says it is too early to tell what the result will be.

In her budget, Ms. MacPhail promised to address the regulatory burden on business by setting up a task force to study ways to cut red tape. It is to report to the minister by June 30. But sceptics note that previous NDP promises to "cut red tape" accomplished little. "There's still no substance to it. It's really a promise to talk," says Prof. Cutt. Meanwhile, the regulatory burden continues to grow. On April 15 businesses in B.C. will have to comply with 1,400 new workplace safety rules brought in by the Workers' Compensation Board.

In the end, Ms. MacPhail's budget left some asking how low B.C.'s economy must sink before the NDP faces reality and changes its fiscal course. "B.C.'s economy is in the tank now, not three years from now," says MLA Farrell-Collins. "It's time to turn this province around, or get out of the way and let someone else do it." Prof. Cutt questions whether the Clark government is capable of changing the business climate in B.C. "These guys genuinely either don't understand it, or resent it, but for whatever reason, they are not even in this budget the friends of wealth creation," says Prof. Cutt. "As long as Glen Clark is at the helm, I think that will remain the case."

As bad as the budget was, however, it was overshadowed almost immediately last week when Liberal MLA Paul Reitsma (Parksville-Qualicum) was caught lying about a letter he forged and submitted to a local newspaper. Mr. Reitsma was kicked out of the Liberal caucus April 1 and then resigned from the party. Don Scott, a policy consultant who believes the NDP is hiding a real deficit of $2 billion, sees a certain irony in that turn of events. "If a lie is big enough," he concludes, "you can get away with it."

—Derek DeCloet

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