This year, British Columbian taxpayers will foot a $1.9 billion bill for interest on the provincial debt. This translates into 6.4 cents of every dollar in government revenue. Shockingly, we spend more on interest than we spend on transportation infrastructure or on the protection of persons and property (policing, courts of law, firefighting, etc.). Simply put, the provincial debt continues to impose a significant burden on taxpayers.

Fortunately, BC’s government is set to balance the books this year with small surpluses planned for the next three years. The question now facing British Columbians is whether or not we should follow Alberta’s lead and begin paying down debt or use the expected surpluses for other purposes.

Just ten years ago, Alberta taxpayers were paying annual interest payments of $1.7 billion. This year, interest payments are forecast at just $360 million. In other words, Albertans now pay almost $1.4 billion less a year in interest; money that can be -- and has been -- used for healthcare, education, and tax relief. Further, on Monday July 12th, the Government of Alberta announced that the province is setting aside $3 billion dollars in the Debt Retirement Account to pay off what’s left of the province’s debt. In the near future, Albertan taxpayers will no longer be burdened with interest payments.

Clearly, paying down the debt frees up resources currently being spent on interest payments. There are, however, two other possibilities for future surpluses: increased government spending and tax relief.

British Columbia still has much work to do on the tax relief front. In order to attract business investment and educated, skilled workers our tax system must be competitive with our closest competitor Alberta. On many important levels it is not. BC’s top personal provincial income tax rate (14.7 percent) is significantly higher than Alberta’s (10 percent). Alberta has no sales tax while British Columbian’s pay 7.5 percent on nearly everything we purchase. On the corporate side, British Columbia’s effective corporate tax rate, one that includes all types of taxes levied on corporations, is 30 percent, while Alberta’s is a significantly lower 24.6 percent.

Alternatively, future surpluses can be used to finance increased government spending; a particularly harmful choice. Many academic studies have found that the size of government negatively affects economic growth. Specifically, Harvard economist, Robert Barro, found a “significantly negative association” between government consumption as a percent of GDP and economic growth. More recently, economists Stefan Folster and Magnus Henrekson concluded that a 10 percent increase in government spending as a percent of GDP resulted in a decrease in economic growth rates by 0.7 to 0.8 percentage points.

British Columbia’s government is already significantly larger than Alberta’s. In 2002/03, the last year for which comparable data are available, total government spending in British Columbia stood at 22.3 percent of our provincial income or gross domestic product (GDP) whereas it was just 14.2 percent in Alberta. If British Columbia wants to enjoy the benefits of a more prosperous economy then both government spending as a percentage of GDP and taxes must be reduced.

To that end, the BC Liberals must keep a tight rein on the growth in government spending by ensuring that it does not increase faster than the rate of inflation and population growth. Limiting the growth in spending will ensure a growing surplus that can be used to pay down government debt and lower our tax rates. A lower level of government debt reduces interest payments and frees up resources which can then be used to finance tax relief. Both courses of action will increase economic growth and lead to increased business investment, employment growth, and higher average incomes.

Albertans are reaping the rewards of debt relief and lower levels of taxation. British Columbia must now follow suit. Limiting the growth in government spending, and lowering the tax burden faced by average British Columbians will ensure a prosperous future.