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Experts split on Liberals' role in economy

From Wednesday's Globe and Mail

Vancouver — Gordon Campbell's Liberal Party rode to victory in the British Columbia election yesterday after convincing voters that their government should continue to oversee Canada's top-performing provincial economy.

But as Mr. Campbell prepares to begin his second term, economists remain divided over just how much his government's policies contributed to B.C.'s economic health in the past four years.

"My view is that history will give the Liberals a lot of credit for the recent change in the province's economic performance," said James Brander, an economics professor at the University of British Columbia's Sauder School of Business.

By reducing taxes and easing the regulatory burden on the key mining and forestry sectors, Mr. Campbell played a role in turning B.C. into one of Canada's best-performing economies, with an annual growth rate of 3.9 per cent last year, he said.

Other economists say the turnaround has more to do with low interest rates and the soaring price of commodities such as oil, coal and natural gas. The commodity boom has helped to offset the impact of a 27-per-cent increase in the value of the Canadian dollar against its U.S. counterpart since 2002, which has slowed growth in other parts of the country.

"This helps to explain why B.C.'s economic performance outpaced the rest of Canada in 2003 and 2004, after trailing early in the decade," said Marc Lee, an economist with the Canadian Centre for Policy Alternatives, a left-leaning think tank.

Mr. Lee said the big increase in resource prices reflects global market conditions, and is providing a huge boost to B.C.'s resource sector -- and to the province's overall economy, given the importance of the resource sector.

"This has everything to do with external demands, which are beyond the provincial government's control," he said.

But UBC's Prof. Brander says it is difficult to explain B.C.'s performance by low interest rates and high commodity prices alone. He said Mr. Campbell's critics are ignoring the influence of government policy on the economy.

"In the last four years, Mr. Campbell's government has taken more dramatic steps than most governments usually do to in order to help the business sector," Prof. Brander said.

By far the most important, he said, was delivering on its pre-election promise to lower personal income tax rates by an average of 25 per cent and eliminate the corporate capital tax.

This was a response to a complaint that high marginal tax rates made it difficult for employers, particularly in the technology and research sector, to retain experienced workers

"Tax cuts to business and individuals sent a strong message outside the province's boundaries that B.C. was open for business," said Jerry Lampert, chief executive of the British Columbia Business Council.

"That was a big change from 10 years ago, when the New Democrats were in power," he said.

The Liberals have also helped industries prepare for improved commodity prices by balancing the provincial budget and by streamlining or improving regulations governing mining and forestry.

"The government can take credit for market-based policy reforms which have allowed the forest industry to take full advantage of soaring commodity prices," said John Allan, president of the B.C. Lumber Trade Council, an association that speaks for the lumber industry.

"We have seen this through the industry's ability to invest in new plants and equipment and improve its relative competitiveness globally in spite of punitive duties on softwood-lumber exports to the U.S. and the strong U.S. dollar," Mr. Allan said.

"The industry wouldn't have been as profitable as it has without the benefit of forest policy reform," he said.

Still, critics argue that tax cuts and changes to provincial regulations did not come without a price.

The government has presided over a major shrinkage of the public sector, cutting 6,806 jobs or 17 per cent of the total work force between 2001 and 2004.

This has only served to widen the gap between the economies of the Lower Mainland and the so-called hinterland, which is more dependent on the public sector for income and employment, Mr. Lee said.

In his view, the biggest challenge facing the Liberals, now that they have a mandate to govern for another four years, is coming up with a plan to diversify rural economies that still depend on traditional resource industries.

"The communities outside Vancouver and the Lower Mainland remain very vulnerable to the next economic downturn," he said.

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