Letnick: Lessons from Greece: Don’t spend your way out of trouble
Why should you pay attention to the economic turmoil in Greece? Not because it could happen here, but because it nearly did.
Greece has a lot going for it. Much like B.C., it’s a major tourism destination attracting thousands of visitors every year.
It’s a high-income economy and enjoys the world’s 22nd-highest human development and quality of life ratings, respectively.
So what happened? It’s a long story—longer than my space here—but suffice it to say they could no longer spend and borrow their way out of trouble.
Whether you’re an individual or a nation of 11 million, eventually your creditors come calling—especially and particularly when the global economy experiences a downturn.
It’s not just Greece, of course. And the global economy isn’t out of the woods yet.
Consider our neighbours and trading partners to the south.
From January 2008 to February 2010—just 25 months—the United States lost 8.8 million jobs.
No major economy, including B.C., survived the global economic downturn completely unscathed.
But the situation is improving here, even as it refuses to elsewhere.
For instance, employment continues to increase, with 2,261,000 British Columbians having full-time employment.
That’s up from 2,203,000 in March 2009.
So how has British Columbia managed to weather this storm?
How has B.C. managed to maintain our AAA credit rating from both Moody’s and NSP?
Responsible fiscal management: It’s not a glamorous answer, but it’s why our trading partners regard us with envy.
The lowest corporate and small business tax rates in the G7; the lowest income tax rates for earners under $120,000 in Canada; the elimination of the capital tax, and more.
Policies like these, in place and responsibly maintained for a decade, enabled B.C. to weather the global economic storm better than most.
Again, not unscathed —but better than most.
Why is this relevant now? Because it’s been suggested by some that these low tax rates aren’t a strength, but a problem.
High tax rates and throwing around unlimited amounts of money directly lead to problems like those faced by the likes of Greece.
Not so long ago, B.C. had governments that believed wholeheartedly in unfettered spending.
In 2001, we found a province that had the slowest per-capita growth in Canada. B.C. was a have-not province that received equalization payments from Ottawa.
Most alarmingly, we experienced net out-migration.
That’s a cold, clinical way of saying people left.
Similarly, there is a temptation to increase government revenue by increasing taxes.
But nobody wants to volunteer themselves to pay more taxes. So the temptation is to increase taxes on somewhat-faceless organizations. Businesses. The bigger, the better. Banks.
But banks and businesses—even the big ones —employ thousands of British Columbians, pay benefits and contribute towards pensions.
Banks and businesses are no different than an individual managing his or her finances, or a nation like Greece: If debt and obligations get out of control, creditors come calling.
That would have real consequences for jobs, benefits and pensions.
B.C. has weathered this economic storm better than most because of responsible fiscal policy.
Let’s stay the course.
Norm Letnick is
the Liberal MLA for