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Editorial: Budget contains danger signs

In releasing her midterm budget update, Carole James appears to have followed the game plan of her predecessor, Mike de Jong. Neither finance minister levelled with us. In February 2016, de Jong brought down the last full budget his B.C.

In releasing her midterm budget update, Carole James appears to have followed the game plan of her predecessor, Mike de Jong. Neither finance minister levelled with us.

In February 2016, de Jong brought down the last full budget his B.C. Liberal administration would deliver. In it, he predicted a surplus of $295 million.

But de Jong’s revenue estimate was low, by nearly $3 billion. Some of this, to be fair, was the result of a stronger-than-expected economy. De Jong later bemoaned setting his revenue target too low.

But some of it might also have been deliberate. Over the past three years, de Jong consistently understated both his revenue forecasts and his surplus targets. Perhaps he wished to create the impression of poverty, so as to justify his government’s sustained economy drive.

In any case, the eventual 2016 surplus far exceeded his target. That enabled him to spend a billion and a quarter more than his budget promised — money that was never voted by the legislature.

Now it seems James might have followed suit. Her bottom lines have every appearance of employing a similar approach.

She set the surplus at a mere $246 million. With the economy still going gangbusters, this is an improbably low target. And it conceals two pieces of legerdemain.

First, it appears James might have lowballed the amount of new income the burgeoning economy should produce. A good chunk of the additional revenue she declares comes instead from tax increases.

Over the next three years, she plans to raise $1.8 billion from hikes in personal income-tax rates, corporate tax rates and the carbon tax. While some of this will eventually be returned in promised cuts to MSP premiums, the likely reality is that James had no need to raise taxes. Possibly she did so for political reasons — to satisfy her caucus, which seems to see B.C.’s low tax regime as an offence against morality.

Then there is the spending side of the budget. James’ figures show a whopping seven per cent increase over the amount de Jong actually spent, and 10 per cent beyond his original budget figure.

That exceeds the growth in population and inflation by a considerable margin, and is likely not sustainable very far into the future.

But we’re entitled to wonder if James has more in mind. If the economy performs as expected, she’ll have extra money to spend. Is it her intent, as it was de Jong’s, to preserve for now the appearance of thrift, knowing she can sweeten the pot later when the legislature has risen?

This, of course, is speculation. And finance ministers are supposed to be cautious in their estimates. The economy is riding high now. But a sudden downturn would soon darken the picture.

Nevertheless, the undeniable facts are that James has converted a $2.7-billion surplus into little more than a flat-line balance. And to accomplish even that, she has pushed through a significant tax hike.

Her published spending lift is by far the highest in recent years, yet many of her party’s more expensive promises, such as a $10-a-day child care and a $400 renter’s credit, have not yet been addressed.

And the potential writeoff of B.C. Hydro’s Site C dam, at a loss of between $9 billion and $12 billion, looms large.

For now, the benefit of the doubt goes to James. She has six months to pull together a full-scale budget and provide a clearer sense of her government’s fiscal policy. Much might happen in that time.

The danger signs, though, are evident. The minister has come close to embracing a tax-and-spend mentality that doomed the NDP governments of the 1990s.

It is essential, both for her administration and the province, that she avoids this trap.