BC's Deficit Surprise (heh,Heh)

I expect all of us were aware that the world economy took a serious tumble last year. After the economy was sideswiped by poor lending practices in the US subscribed to around the world, major production industries dropped off the cliff behind the financial sector. Iceland bankrupted, nearly, followed by Chrysler and GM, really. You'll remember it even took a bite out of China's productivity.
Like me, you thought about how the drop in manufacturing and other industries world-wide and the total collapse of the housing industry in the USA would take a big bite out of the Canadian economy, especially the commodity rich Western Provinces. You expected a big deficit in the next budget. If you didn't, you were probably part of the Liberal government in BC.

It came as a huge surprise to the politicians after the provincial election. Even the NDP were dumbfounded: they had barely mentioned the weakening economy in their campaign.

Many commentators are suggesting the failure of politicians to face the looming revenue drop was simply a deliberate ploy to avoid criticism. Perhaps, but it seems far more likely that they just did not see the tidal wave coming because they were so busy gloating over Canada's superior banking laws, or, more , sadly, the high degree of focus on their own careers during an election campaign distracted them from their duties to serve the province.

Past and prologue! What about tomorrow? Canada currently has a balance of payments deficit due to all the capital that fled to Canada during the world financial meltdown. That flow helped and helps maintain a fairly stable stock market in Canada comparatively. Canada has a balance deficit with respect to goods as we keep buying from other countries but our wood, minerals, and petroleum are stock piled.
Investment will start leaving soon as opportunities in the stimulated USA and European economies call investors home to re-greened pastures. Shortly after, commodities will rebound and government coffers will recover.

An ordinary economic cycle even if slightly exaggerated that we will pass through again every 5 to 10 years.

The Campbell government has determined to use this economic downturn in the cycle to make structural changes in the economy.
You'll recall that he did the same thing on his first term when he took a relatively mild downturn and booted it into the depths by rewriting tax law to favour the richest in society. Premier Campbell was such a believer then that he reminded me of the old Socreds of Alberta. He believed that de-taxing the rich would create more revenue for the province then it returned to wealthy investors. Then China had a boom and proved him right. Now the world economy crashes and even he doesn't believe reducing taxes will save the day. Of course, even the von Mises Institute is favoring better regulation of capital now.
This time Campbell decides that a structural change is again the best fix for this cyclic downturn. But, economic belief in disarray, he has determined that the best hope for the economy this time is to increase taxes on the general population through a general increase in the social services tax by adding SS tax to all items that pay GST.
Even as the forgiveness of tax was the very essence of the new conservatism of Margaret Thatcher, so is increasing taxes on the general population the hallmark of the old conservatism in the day when Canada's cars were called "Bennet Buggies"

We don't know yet how big a kick in the gonads of the BC economy the new taxes will be but it is more likely to extend the tough times then hurry the relief to the resource sector that feeds so much of this province.

Investors interested in the domestic market are not coming. If Sobies had known this law was coming Thrifty's might still be locally owned.
BC will probably lag behind the rest of Canada in the anticipated recovery.

I wish we could have practical managers to govern us. Men like Doerr, E.Manning, Paul Martin, even W.A. Bennet. We always get believers when what we need are rationalists.