B.C. needs a plan to fight a nasty recession
Vancouver Sun
February 16, 2009
By: Marc Lee, senior economist with the Canadian Centre for Policy Alternatives' B.C. Office.

… The big question for the budget is no longer whether a deficit is in order, but how large that deficit should be, and what a meaningful stimulus package looks like.

With grim economic numbers piling up, the danger is in the government doing too little.

British Columbia's economic expansion since 2002 was driven in large part by high commodity prices, a housing boom, and strong U.S. and Asian demand for our exports.

In 2009, these dynamics have shifted into reverse, and all major economic indicators are pointing in the wrong direction.

Unemployment trends are particularly worrisome. In January, the ranks of the unemployed swelled by 35,000, an increase of 50 per cent compared to last January.

… Many private sector forecasters continue to hold out hope that B.C. will avert a recession. But the latest data suggest that we should prepare for a much rougher ride.

Heavily indebted households are pulling back on consumer spending and businesses are reining in their investments. This leaves government as the only sector of the economy that can fill the gap to avert a deep recession.

Last month's federal budget is already being criticized as too timid relative to the challenges we face. It tabled a stimulus package of just over one per cent of GDP, about half as much as what the IMF and OECD have been calling for.

And while there are some worthwhile infrastructure projects on the list, the federal budget did nothing to shore up employment insurance and target assistance to vulnerable Canadians.

This means B.C. will have to do more of the heavy lifting itself.

A recession will quickly push the budget balance close to a

$1-billion deficit -- and if the recession is as deep as the recent data suggest, deficits could easily be in the $2-billion to $3-billion range.

And that is just the "status quo" or cyclical deficit that arises from the drop in revenues due to a recession and the upward pressures on expenditures (notably social assistance.)

A stimulus package, as recommended by most economists, would require an even larger increase in B.C.'s debt. The good news is that B.C. is well-positioned to run deficits because of its excellent fiscal health.

The key point now is to get money into the hands of those who will spend it quickly.

Broad-based tax cuts are a poor source of stimulus compared to government spending. In uncertain times, the tendency of most tax-cut recipients will be to save rather than spend -- and much of what is spent will be on imports rather than boosting local economies.

The recession will mark the first real test of B.C.'s social assistance program since cuts were made in the mid-1990s to early 2000s.

The government should commit to immediately increasing income assistance and disability benefit rates by 50 per cent and indexing them to inflation. In addition, income supports must be accessible to those in need by removing the arbitrary barriers that discourage, delay, and deny financial help to people in need.

Infrastructure spending will inevitably be a major part of the provincial response. But such spending should be green and meet social needs. A major campaign of new capital spending offers the opportunity to green B.C.'s infrastructure, from public transit expansion to retrofits of homes. Working with new federal money, B.C. should ensure that approved projects first pass through a green filter.

Expanding B.C.'s social infrastructure should also be on the table, including early learning and child care, and educational investments given that large numbers of young people will go back to school in a downturn. Social housing and residential care facilities are other key areas where workers can continue to be employed in construction….

Budgets are about the choices we make as a society. In the face of a recession that will have negative impacts for communities and families across the province, we need a government committed to action, and to ensuring that no British Columbians are left out in the cold.