B.C. budget 2016 - What do you want to see?
Posted by Steve Harmer on Saturday, February 6th, 2016 at 12:48pm.
Waning business and consumer confidence, runaway housing costs, commodities nosedive among issues eroding economic optimism
February 16th 2016, the BC government will release the new budget.
"Is the economy important to you?” the Facebook ad from the BC Liberal Party asks. “Should we stay at #1?”
The answers are “yes” and “not sure,” and the implication is that if you want the B.C. economy to stay “#1” among Canadian provinces, you should vote for the BC Liberals and their small-c conservative strategies of keeping taxes and public expenditures low while boosting an exciting new liquefied natural gas (LNG) industry for the province.
B.C. led the country in economic growth in 2015 and is forecast to have the highest growth again in 2016. But as the BC Liberals prepare to introduce the provincial budget later this month, economists warn there are more clouds on the horizon than those projections might suggest.
Challenge No. 1: Confidence
B.C. might have relatively upbeat gross domestic product growth projections approaching 3% for 2016, but Canada’s economic prospects are dismal.
“It’s an [economic] environment that has a lot of risks, more than the usual,” said Jock Finlayson, executive vice-president and chief policy officer of the Business Council of British Columbia.
“Canada is struggling. All the data I’m looking at tells me that Canada is going to be challenged to really get any growth at all in the economy this year, and that’s largely due to the collapse in commodity prices and weakness in emerging markets.”
Finlayson expects a relatively upbeat economic forecast from Minister of Finance Mike de Jong, but he thinks a key challenge for the government will be to reinforce confidence in B.C.’s economy.
According to the Bank of Canada’s January business outlook survey, business confidence has deteriorated as the effect of the oil price shock has bled into other industries.
On the consumer side, Canadians have seen the price of food spike as the low price of oil has dragged the dollar down with it.
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A January 21 Insights West poll found that B.C. residents are much more worried about the health of the economy than they were a year ago and plan to curtail spending on items like entertainment, travel and restaurant meals.
“One of the biggest risks out there right now is the possibility of a downward spiral of confidence both on the consumer side and the business side,” Finlayson said.
Challenge No. 2: Housing
Real estate and construction are two bright spots for the B.C. economy. But the overheated conditions that are spurring that activity are also creating a housing affordability crisis in Metro Vancouver, with both residential homes and multi-family apartment buildings skyrocketing in value in 2015.
The B.C. government’s preferred response so far has been to offer a first-time homebuyer’s tax credit and increase the homeowner’s grant for property taxes.
That strategy isn’t just inadequate, it’s completely wrong-headed considering current real estate market conditions, said Tom Davidoff, a professor of economics at the University of British Columbia’s Sauder School of Business.
“It does zero for renters,” he said. “In fact, it does negative for renters because of course it has to be paid for.”
Vancouver real estate has increasingly become a haven for global money, and that trend is expected to increase because of the low Canadian dollar and uncertainty in the Chinese economy. It’s a relatively new phenomenon for B.C., and Davidoff said that if it’s not addressed through policy now, it could become “a giant issue.”
Davidoff and eight other colleagues released a proposal in early January calling for a 1.5% property tax surcharge that would apply to property owners who keep homes vacant or who don’t pay income taxes in Canada.
“It’s transforming. What I’ve come to realize when I think about this and analyze it is B.C.’s tax code and housing market are almost designed to be a haven for people who want to park capital and not mess around with not having a renter in their space.”
Challenge No. 3: Commodities tailspin
B.C.’s diverse economy has cushioned the province from the worst of the commodities plunge. But the economic growth that’s expected will be mostly centred in the urban areas of the province. Meanwhile, unemployment is growing – and real estate prices are falling – in the province’s north and Interior, said Iglika Ivanova, senior economist at the Canadian Centre for Policy Alternatives.
A “yes” on just one LNG project in 2016 would be a huge boost for the B.C. economy, Finlayson said. But with the current high-supply, low-price dynamics in both the oil and natural gas sectors, that’s a big uncertainty.
“It’s not the government’s fault that oil prices are low. Those are driven by global factors, but the problem is when a government like B.C.’s puts so much emphasis on one sector that’s driven by global forces – that’s very risky,” Ivanova said. “There’s so much energy put into that that could have gone elsewhere.”
Challenge No. 4: Lagging investment
Provinces and cities have welcomed the federal government’s plan to invest in infrastructure, and in early December Transportation Minister Todd Stone and Peter Fassbender, the minister responsible for TransLink, travelled to Ottawa to meet with the new federal infrastructure minister.
The B.C. government wants federal money not just for the Lower Mainland’s stalled transit plan, but for things the province has already committed to, like the new Massey bridge and widening of the Trans-Canada Highway between Kamloops and Alberta.
But B.C. will likely also have to think about what it’s going to bring to the table, said Finlayson.
“B.C., I think, may need to look at some modifications and a potential increase in the capital budget to ensure we can leverage what Ottawa is likely to want to do over the next couple of years,” he said.
“It’s a bit unclear where the province stands on that, and we will certainly be looking to the budget to see what the strategy is.”
The B.C. government has kept spending for social programs in check, but Ivanova said that with a relatively healthy economy and budget surpluses, the government should now think about loosening the purse strings.
Aside from health care, government spending has not kept up with population growth and inflation: for instance, B.C. spends $1,000 less per K-12 student than the national average.
https://www.biv.com/article/2016/2/bc-budget-2016-challenges-ahead-threaten-upbeat-pr/https://www.biv.com/article/2016/2/bc-budget-2016-challenges-ahead-threaten-upbeat-pr/