Cut tax, reduce deficit, grow economy. Can B.C. Conservatives do it all at once?

With two-thirds of the seats in the next legislature, the B.C. Conservatives may have a resounding mandate to follow through on their election promises to cut taxes, reduce the deficit and grow the economy at 3.2 per cent — but some economists say the challenge will be doing it all at once.

Cutting tax and simultaneously fixing the budget “are contradictory,” said Werner Antweiler, a professor at the University of British Columbia.

And the surge in government spending behind the record $14-billion projected deficit is conversely a contributor to economic growth, said Marc Lee, senior economist with the Canadian Centre for Policy Alternatives.

Premier-designate Lorne Doerkson has promised the appointment of a panel to review the books before presenting his government’s first budget.

But instead of easy solutions, tough choices await about what to cut, said Jairo Yunis, policy director with the Business Council of B.C.

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Yunis said public sector employment had grown by over 45 per cent since 2019 under the NDP, while private sector employment in the same time was up only about three per cent.

He said public sector cuts need to be a “big part of the conversation” in an extensive review of government spending, which should take lessons from former federal Liberal prime minister Jean Chrétien and his governments.

The review should question whether the province still needs certain programs, whether there is duplication and if they can be delivered differently.

“My point is to make choices based on priorities and outcomes,” he said.

He said the deficit could be halved as a result of the review, more discipline around the use of contingencies, economic growth and lower regulatory burdens. But it won’t be easy, he said.

“That is going to entail a lot of hard choices,” Yunis said.

The Conservatives promised to raise B.C.’s basic personal income tax exemption to $32,000, amounting to a $1,000 tax cut for most individual workers. As for the deficit, their platform pledged to bring it down with the help of growth it forecast to reach 3.2 per cent, well in excess of most predictions.

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The party’s platform notably omitted detail on what might be cut to help make ends meet.

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Antweiler agreed the Conservatives would need to shrink the public workforce.

But the government would also need to raise more revenue and it cannot cut taxes and fix the budget at the same time, he said.

Antweiler said voters have given Doerkson a mandate, but plans may need revising after the financial assessment, and nothing should be ruled out.

“There are things we cannot do right away, that may have to wait later until economic conditions improve actually enable us to do that,” he said. “There needs to be a small dose of austerity to fix what is quite obviously broken.”

He said the public service accounts for a “huge chunk of the expenditures,” but shrinking it can be tricky because it is heavily unionized, and Doerkson’s government can’t cut back on health care, education or public safety without compromising quality.

“Provincial governments have a limit how far they can go, because many of these expenditures are written in stone,” he said.

Shrinking the public service would have to be balanced in ways that make a difference in the budget, without triggering labour unrest, he said. “But shrink we must, because I don’t think there is any other avenue,” he said.

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The Conservative platform foresees economic growth increasing to 3.2 per cent in 2029, raising an additional $2.62 billion without raising taxes.

Antweiler said the growth forecast was “lofty” and not realistic.

Lee at the Canadian Centre for Policy Alternatives said that while history showed the provincial economy could sometimes improve quickly, there was plenty of uncertainty.

“We don’t even know what is going to happen next week after the U.S. election,” he said. “If there is a major stock market crash, which seems incredibly likely in the next six months, that’s going to change the situation.”

Lee said the provincial economy ran on trade, housing and immigration, and government spending. But the trade engine was sputtering because of the trade war and the housing engine was completely dead, because of changes in immigration, he said.

“The B.C. budget has been contributing to B.C.’s economic growth,” Lee said. “If we didn’t have that budget deficit, we would probably be in a recession.”

He said that to reduce the deficit “you are going to need to increase tax or cut spending.”

Antweiler said he favoured an all-of-the-above approach, combining cuts with higher revenues from economic growth and more indirect forms of taxation.

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He said the NDP government of outgoing Premier David Eby made a mistake by getting rid of the carbon tax, which blew a $2-billion hole in the budget.

He said the next finance minister should look at all options, including raising resource royalties, shifting taxation from income to consumption, and encouraging investment.

The Conservatives may need to “jump over their shadow” and break their tax promises, he said.

Yunis said B.C. has more of a spending problem than a revenue problem.

And British Columbia, he said, needed to improve its tax-competitiveness.

All three economists agreed that the new finance minister faced a difficult file.

“A new chapter needs to be turned now,” Antweiler said. “It’s not too late to turn the wheel around.”