At the best of times B.C.'s entrepreneurial class does not expect business-friendly policies from the NDP, but as members of the Vancouver Board of Trade settled in to watch Joy MacPhail deliver her second budget, they had a sense that this year's fiscal plan would be worse than usual. The tip-off came from Premier Glen Clark himself. In the moments before his finance minister rose to give her March 30 speech, the embattled premier gave a performance reminiscent of the 1996 election campaign. Dusting off his class-warfare rhetoric, Mr. Clark attacked the Liberals as the party of "massive tax breaks" for business. "Stop being apologists for big, multinational corporations," he taunted. "Stop apologizing for those big, poor forest companies. Start thinking about workers."

Many of those watching were furious that Mr. Clark would send such hostile signals at a time so few want do business in this province. Nevertheless, they recognized that there is little they can do about it while the New Democrats are still in power. What fires such observers' imagination, however, is the prospect that the problem-plagued Clark government will, in all likelihood, be turfed from office within two years, and that a new government—one with a mandate to put the books in order and rebuild the economy—will be in power. But what a Herculean task it will be.

Private-sector investment in B.C. has dropped in each of the last three years, and is expected to be lower this year than it was in 1992. In the other nine provinces, on the other hand, investment has risen. "In my travels, I have never once seen the leader of a government attack business [like Mr. Clark]," said Jim Shepard, chairman of Finning International Inc., one of those multinational corporations the premier loves to hate. "Not even in Poland."

Within moments of the premier's broadside, the anger turned to shock as Ms. MacPhail revealed the details of an aggressive borrow-and-spend budget, which included $509 million in new program spending, no personal income tax cuts and a deficit of $1.5 billion. The NDP has now doubled the debt in just eight years.

It took one week for the financial markets to slam her effort. For the second time in two years, the Canadian Bond Rating Service downgraded B.C.'s credit rating, to AA— this year, the worst of Canada's three "have" provinces. Paul Calder, a public finance analyst with CBRS, had said only two months ago he did not think he would have to downgrade B.C. this year "unless we see something absolutely horrific." Ms. MacPhail's plan to add $2.7 billion to the taxpayer-supported debt this year fit that bill. "I was truly not expecting to touch the credit rating for a while," Mr. Calder says now. "But generally, the entire budget we saw as moving in the wrong direction. The idea of spending your way out of economic troubles is somewhat misplaced."

The credit hit will add millions to the government's already-whopping $2.6-billion annual interest costs. But if the NDP's eighth deficit budget is an economic disaster, it might be a smart move politically. By bloating the deficit, the New Democrats have ensured that if another party replaces them in power, it will have to make deep spending cuts to clean up the mess. "This is very similar to what happened in Ontario after the Bob Rae government left office," says John Nagy, president of the Certified General Accountants Association of B.C.

Difficult choices await the winner of the next election, says Jim Cutt, a professor of public administration at the University of Victoria. "You have to show seriously to investors and lenders that you're going to deal with the expenditure side," says Prof. Cutt. The next government has several options. One would be to emulate Alberta's Ralph Klein and make across-the-board spending cuts. This has political advantages in that special interests cannot claim they are being singled out. Alternatively, the next B.C. government could use the formula of Mike Harris' government in Ontario: make major tax cuts to stimulate growth, restrain spending and reap the revenue windfall from a booming economy. (Although the Harris government has been excoriated by the left for "radical" spending cuts, program spending in Ontario is higher today than in 1994-95, the last full year of NDP rule.)

Liberal leader Gordon Campbell has promised a "dramatic" income tax cut within 90 days of taking office, but the Liberals cannot count on the resulting economic growth to balance the budget, says Prof. Cutt. B.C. is as hobbled by oversized bureaucracy as by high taxes. Government spending accounted for 46% of B.C.'s economy in 1996. In Ontario and Alberta, the figure was 41% and 34%, respectively. Not surprisingly, those two provinces have been receiving added investment and creating tens of thousands of new private-sector jobs; B.C. has not.

So far, the Liberals have been relatively quiet about where they would cut. Ask Mr. Campbell the question, and he speaks in generalities about not building fast ferries and cutting back on partisan government advertising. (Ms. MacPhail is spending $700,000 on ads to sell the 1999-2000 budget, which she says has a deficit of $890 million, a figure that does not include spending by crown corporations such as Forest Renewal B.C. When that spending is included, the real deficit is $1.529 billion.) But Mr. Campbell's position is not good enough, says Troy Lanigan, provincial director of the Canadian Taxpayers Federation. "I think the Liberals have an obligation to be honest," he says. "The level of cuts that have to take place is significant." Revenue growth is expected to be modest for a few years, so the next government might have to look at cutting spending by at least $1.3 billion (about 6% of the $21-billion budget).

If the Liberals have been absent from the debate, however, the NDP has been dishonest by implying that any attempt to cut spending would automatically devastate schools and hospitals. Many economists say that assertion simply isn't true. So, how could a new provincial government cut spending, balance the budget and fix the fiscal disaster left by the New Democrats, without gutting education or healthcare? Here are some ideas, listed by area of government activity:

• Ministries of Employment and Investment; Small Business, Tourism and Culture; Energy and Mines; Fisheries; Agriculture and Food. Hard evidence of the economic good these five ministries are doing is scant, since B.C. is attracting little investment, business bankruptcies are rising and mines are being closed at twice the rate that new ones are being opened. Yet these five ministries will spend $327 million this year.

  The evidence suggests much of this money is being wasted. "I think you could take a meat cleaver to Employment and Investment and it wouldn't make a rip of difference," says Mr. Lanigan. For example, the ministry poured $50 million into the Kemess mine, a copper-gold deposit 240 kilometres northeast of Smithers. In return, Royal Oak Mines Inc. was to give a portion of copper royalties back to the government. In February Royal Oak filed for protection from its creditors; its main creditor, Trilon Financial Corp., is now trying to force the company into receivership. Royal Oak had until April 16 to come up with a restructuring plan. Documents obtained by BC Report through a freedom of information request show the government has yet to receive a penny from Royal Oak.

  If Kemess turns out to be a bust, it would not be the first time an NDP plan to subsidize business failed. Between 1992 and 1995, the government wrote off $82.5 million in bad corporate loans. The province also gives hundreds of thousands of dollars in grants each year to mining prospectors. It has not worked; mineral exploration activity has dropped by 82% since 1990. Similarly, the government has spent $20 million helping fruit growers rip up their orchards and replant them with trees that produce higher-quality apples that would yield a better price. Now prices for the new varieties of apples have fallen and some desperate Okanagan orchardists are taking chainsaws to their trees. There is a lesson here—when government tries to pick economic winners, it usually does a poor job.

  But corporate welfare is only one way these ministries waste tax dollars. The Agriculture Ministry's 1997-98 budget included $99,000 to the B.C. 4-H provincial council. Small Business, Tourism and Culture gave $96,000 to the B.C. Sailing Association. True, some valuable research is done with grants from these ministries, but much of it could be funded privately. Combining these into one ministry of Economic Development would make it easier to absorb a 50% budget cut, saving $163 million.
  
  

• Highways and other capital construction. Most new highway construction in B.C. is not financed by the Ministry of Transportation and Highways. The money comes from the B.C. Transportation Financing Authority (BCTFA), a Harcourt-era creation to push costs "off the books." BCTFA capital spending is increasing by $139 million this year, a 40% rise. Doubtless the province needs new roads and bridges, but the increases could be rolled back, or more user-pay ideas could be integrated into the system.

  The rest of the capital budget got a hefty $567-million increase, most of which is for the SkyTrain expansion in Greater Vancouver. By the time a new government gets into power it will probably be too late to stop that project. The same is true of the fast ferries. But ending the discrimination against non-union contractors and delaying other capital projects should save at least $100 million. Total reduction in capital spending: $239 million.
  
  

• Ministry for Children and Families. This ministry received a larger budget increase (4.2%) than education. Now spending nearly $1.5 billion, Children and Families will soon become the fourth-largest ministry if current trends continue. The new ministry was created in 1996 and hundreds of new social workers were hired. But despite good intentions, many believe it has done more harm than good.

  The number of children who are wards of the state has skyrocketed—from about 6,000 in 1992 to 9,800 today—and stories abound of children being snatched from their parents on the flimsiest grounds. Yet there is no evidence the state does a better job of caring for children than extended families or churches; dozens of children "in care" of the government continue to die or be abused.

  In the long term, the best solution is probably to give child-protection duties back to families and non-profit or religious institutions, as Kansas has done with some success. In the short term, a new government could rewrite the ministry's overzealous policies to ensure children are taken from their parents only as a last resort, not as a first step. Keeping children with their families is usually better and cheaper to boot. A 15% cut in the ministry's budget would save $222 million.
  
  

• Ministry of Advanced Education, Training and Technology. While low tuition fees may be a laudable goal, a college diploma is little solace if its holder is unemployed. Students will benefit from the prosperity that comes with prudent fiscal management, and should be asked to contribute. Cutting post-secondary transfers by 5% would save about $75 million, which could be made up through a reasonable tuition increase.
  
  
• Ministry of Education. Here is a fact Ms. MacPhail did not include in her budget speech—the Ministry of Education is projecting enrolment declines in 45 of 59 school districts next school year. In total, the government expects 3,500 fewer students come fall. Yet Ms. MacPhail's budget allows school boards to hire up to 300 new teachers. Unless the government can prove that spending ever-greater amounts on reducing pupil-teacher ratios by an average of two students a classroom pays any real dividends, the education budget should rise and fall with inflation and enrolment. Rescinding this year's increase would save $86 million.
  
  
• Wage cuts. Any attempt to restrain school spending will undoubtedly spawn tales of libraries with no books and music classes without instruments, but almost 90% of education spending is on salaries and benefits. According to Statistics Canada, the typical employee of an elementary or secondary school in B.C. makes $757 a week—almost 8% higher than the Canadian average.

  Mr. Lanigan says approximately 60% of Victoria's budget goes to salaries and benefits. "You will never go through any serious restraint exercise without looking at that envelope," he says. "The unions can choose to co-operate or not, but there will have to be very serious layoffs or wage rollbacks, or some combination of both." Unless a new government is willing to legalize private hospitals and clinics, salary cuts might also be the only way to trim the mammoth $7.7-billion health budget without significant increases to waiting lists.

  A new government could cut the payroll by forcing bureaucrats to take unpaid days off (such as "Filmon Fridays" in Manitoba or "Rae Days" in Ontario), but that means closing government offices and less service to the public. The Alberta solution was to cut everyone's wages by 5%, including politicians'. For most employees, those lost wages have since been reinstated.

  Statistics Canada figures show that public-sector workers in B.C. enjoy an across-the-board wage advantage compared to their brethren across the country. Hospital workers' wages in B.C. are 12.6% higher than the national average, for example. (Most of that gap opened after 1991 and appears to be a key reason why the Hospital Employees' Union is so loyal to the NDP.) Wages for "provincial administration" are 11.2% greater than those in other provinces. Meanwhile, private-sector workers in B.C. are hurting. A 1998 study by the Urban Futures Institute found the average B.C. worker's purchasing power declined by 5% between 1983 and 1996. Yet civil servants did not share the pain; they saw a 26% rise in purchasing power. A 5% wage cut would still leave B.C. public servants better paid than their counterparts, and would save at least $550 million.

  All this will require a government with the fortitude to stand up to B.C.'s powerful public-sector unions-even if that means enduring a strike. Eight months after the Conservatives were elected in Ontario, provincial employees went on strike for the first time ever. "The work stoppage did not take the Mike Harris government by surprise," writes journalist John Ibbitson in his book Promised Land: Inside the Mike Harris Revolution. "The premier and his advisers had expected a strike from the day they took office—not only expected it, but encouraged it." The Tories had a plan to keep things running with minimal inconvenience to the public, outlasted the union,and won major concessions.
  
  

• Other ministries. The NDP has done a reasonable job reducing welfare rolls, but eligibility rules are still looser than in many other provinces. B.C. is the only province with a stand-alone Ministry of Women's Equality. A new government could save $4 million in administrative costs alone by eliminating it and giving its functions to another department. Other ministries might be difficult to cut, particularly Municipal Affairs, which took a 41% hit this year. Still, there ought to be room for at least $70 million in savings from the rest of government.

By following these measures, the next B.C. government would save taxpayers $1.4 billion a year and tame the deficit monster. The CTF's Mr. Lanigan says a new premier such as Mr. Campbell will find the task easier if he tells the blunt truth about what needs to be done and does not try to have it both ways. "If the Liberals campaign on increased spending, balanced budgets and lower taxes," he warns, "they're going to be in a lot of trouble." BCR

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