Next week’s budget in British Columbia should assume the province will be in recession in 2009 and perhaps longer and will require an aggressive stimulus plan capable of reducing the length and severity of the downturn. A central element of that stimulus plan must focus on green infrastructure.

These points are part of the central recommendations in a report entitled BC Budget Reality Check 2009: Planning for a Recession, released by the Canadian Centre for Policy Alternatives (CCPA).

“With grim economic numbers piling up, the danger is in the government doing too little,” says Marc Lee, CCPA senior economist. “All major economic indicators are pointing in the wrong direction. If the provincial government fails to prepare for a rough ride, we risk a deeper and longer recession.”

BC Budget Reality Check 2009 models three possible budget scenarios for government finances: baseline (using the latest Economic Forecast Council projections), minor recession, and major recession:  

• Even with no changes in tax or spending policies, a minor recession would mean “status quo” deficits of approximately $0.8 billion in 2009/10 and $1.3 billion in 2010/11.
• A major recession would push deficits to approximately $1.9 billion in 2009/10 and $2.7 billion in 2010/11.

These are just the cyclical deficits that arise 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 BC’s debt.

“Debate now hinges on what form the stimulus should take,” says CCPA BC Director Seth Klein. “The focus should be on protecting and enhancing the incomes of the most vulnerable British Columbians – the people who don’t have the luxury of saving, who spend everything they have in our local communities. That’s why a poverty reduction plan should figure centrally in an effective action plan.”

“The government should also make significant investments in social programs and public services – not just capital projects – and stay away from broad-based tax cuts, which have a much smaller bang-for-the-buck as a stimulus measure,” says CCPA economist Iglika Ivanova.

With respect to recovery spending, the CCPA report suggests the upcoming recession offers the opportunity to green BC’s infrastructure, from large transportation projects to seismic upgrades for schools and retrofits of homes.  

A major contradiction that exists between the government’s Climate Action Plan and other policy areas, notes the report, is the emphasis on highway expansion, which would undermine long-term GHG reduction objectives.

In forestry, an action plan is needed for the massive beetle-kill lands. An aggressive program of reforestation should be implemented, an investment that would create jobs while restoring the land base for future economic activity (and CO₂ capture).

One thing is clear, the report suggests; “there will be substantial costs associated with meeting the climate change challenge. Governments should not limit themselves to ’revenue neutral’ strategies.

In the coming years, BC will need to raise significant new revenues (and/or take on new debt) if we are to adequately fund public transit, building and home retrofits, incentives to reduce carbon emissions, and other needed climate expenditures.”

Addressing the contentious issue of B.C.’s carbon tax, the study suggests that if BC continues to have a carbon tax, personal and corporate income tax cuts should be dropped from the recycling re­gime, the low-income credit should be expanded, and the remaining carbon tax revenues should fund other programs to reduce BC’s greenhouse gas emissions, including major public transit expansion, transition programs for workers, and energy efficiency programs.

Download the Report/Study here

For More Information: Canadian Centre for Policy Alternatives