The economic plan

Posted October 24, 2008 by Sacha Peter
Category: Economy

As soon as I heard the Premier say “10 point plan“, I was wondering which point the NDP would cherry pick to attack.

I was thinking the NDP would attack #4 - the 50% rebate on the school component of select industrial property taxes (being relatively beneficial to select corporations), but the winner turns out to be #8 - the 1/3rd rate reduction on BC Ferries in December and January - the argument being that of supposed non-interference by the government.

The point is valid - the whole point of converting BC Ferries into a separate (albeit 100% owned by the government) corporation is to avoid exactly the political interference that went behind the announcement.

It’s a populist move designed to shore up the support of those that depend on the ferry system, but one would wonder where the positive electoral impact for the BC Liberals would be - the coastal regions of BC are dominated by the NDP except for the Saanich/Comox regions - perhaps trying to shore up support in these areas? The government will probably take more damage via credibility attacks than helped via happy ferry riders, especially after the January price decrease is reversed - people are going to get used to the low prices and will wonder what happened after they rose again in Februrary. Presumably the NDP will be fishing for comments made after the structuring of BC Ferries in 2003 for their 2009 election advertisements.

The other measures, especially the taxation ones (#3, #5), are reasonable (although in the case of the proposed defined pension plan, one would wonder how this would mitigate against adverse economic times). The tax decreases muddies the water with respect to how the revenues from the carbon tax will be allocated to tax reduction (i.e. the “revenue neutral” part) - do these accelerated tax decreases go into the category of revenues from carbon tax, or are these stand-alone tax cuts?

The Legislature recall date of November 20 was quite odd - it is a Thursday. This will allow for exactly 5 days of debate on the proposed bill that will enact certain elements of the plan.

The government is clearly in a “need to be seen to take action, although don’t want to take too much action so we don’t blow our election platform” mode, and the NDP is playing the same way - it’s likely that they’re holding their cards close to their chests because they don’t want their ideas poached for the upcoming spring election session.

This election race is getting interesting - the economy is going south just at the worst moment for the government, although it will be very interesting to see how the public assigns blame in the voting booth in just over 6 months. Perhaps a single data point will be the upcoming by-elections?

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Economic update Wednesday

Posted October 21, 2008 by Sacha Peter
Category: Economy

The Premier has announced that there will be an economic update of sorts on Wednesday.

This fiscal year (ending March) will likely be safe with respect to having a balanced budget, but next fiscal year will probably contain some risk with respect to tax collections. I would guess that it would include some announcement that natural gas royalties will drop in the future, offset somewhat by a weaker Canadian dollar. The spending side of the ledger will likely be unaffected (other than potential cost overruns on certain capital projects, something the NDP will inevitably pick on).

The government’s surplus projections in the future will likely have a much slimmer margin of error.

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Marriage penalty in BC

Posted October 3, 2008 by Sacha Peter
Category: Economy

From a press release, announcing that the “climate action dividend” will be distributed to low income individuals, we have the following quotation:

In addition to the personal, corporate and small business income tax cuts provided this year, the tax-free B.C. Low Income Climate Action Tax Credit will be sent to more than one million residents. Individuals with incomes of up to $30,000 in 2007 and B.C. families with incomes of up to $35,000 will receive the maximum annual amount of $100 for each adult and $30 for each child in the first year. Single parent families will receive $100 for the first child.

I always wondered why the government has different tiers for income testing between singles and married people.

For example, if I made $25,000 in a year, and got together with somebody else making $25,000 a year, we would collectively get $200 a year from the government for the climate action dividend. However, if we got married, that would vanish as collectively we would be pulling in $50,000 a year.

This logic also applies to other income-tested programs, such as the federal GST rebate.

Most of the financial benefits (in terms of government benefits) through marriage only occur at much later stages of life (e.g. pension income splitting).

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Short term Carbon Tax effects over

Posted July 23, 2008 by Sacha Peter
Category: Economy

There is one powerful axiom of politics, for any democratic political jurisdiction:

Fuel taxes will never be reduced.

No matter how much people complain, gasoline taxes will never be a single issue for a voter to swing to one party over another. As long as this is the case, the axiom above will remain true. By extension, the carbon tax is now in place and will never be reduced - there will simply be too many entrenched interests in the status quo for any government to take down the new taxation wall that has been erected.

Now that the July 1, 2008 carbon tax has taken effect, the attention has shifted away to other topics, such as the Auditor General’s report on tree farm licenses.

Helping matters somewhat for the government is that the price of crude oil over the last week has dropped from $148 per barrel to $128, a full 14% drop. As prices at the pump adjust to reflect this lower pricing, the 2.4 cents seemingly becomes less significant as other issues take the limelight in the public consciousness.

So the short term political effect of the carbon tax is now over - this leaves the question of how much of a long term effect the tax will have on the upcoming campaign. Will the opposition be able to leverage it into a viable issue in May 2009?

Ultimately, the answer will not be whether the NDP or Green party can turn BC Liberals away from the polls - rather, it will be the crude oil futures that will do the job for them. If oil prices are higher in 9 months, the carbon tax will be on people’s minds. If not, then the price of energy will play second fiddle to other pressing matters of the day - possibly job security and the real estate marketplace?

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