Simpson spaces out on health care

Jeffrey Simpson really loves Gordon Campbell. Having done a series of columns on BC’s carbon tax, its clever political packaging and the leader behind it – all in all, not a bad set of columns – Simpson completely loses touch on the health care side of the provincial budget. He buys hook, line and sinker the arguments about the lack of sustainability in health care. Here is the argument in a nutshell:

In B.C., the Gordon Campbell-Carole Taylor budget forecasts health-care spending to grow by almost 6 per cent in each of the next three years. Believe it or not, that’s progress, because spending had been going up by 7 per cent and more. But wait. While health-care spending is rising by almost 6 per cent, the budget forecasts revenue growth of 1.8 per cent a year for the next three years. Do the math: Health-care spending is rising three times faster than government revenues.

Having crunched these numbers, I can attest that Simpson cannot actually do the math. My estimate, based on the minimum increase required to maintain health care in BC after accounting for an aging population, a growing population and health care inflation, is 5% per year. Whether this is sustainable or not is a function of economic growth: if growth averages less than 5% it could be argued that health care is unsustainable, as it would comprise a larger share of total income year after year. But longer-term growth rates have averaged more than 5% – even in the 1990s when the NDP supposedly destroyed the provincial economy, economic growth rates averaged more than 5%.

Simpson is correct that the budget forecasts health care spending to rise by 6% per year in each of the next few years. But comparing this to forecast revenues is a major error, as BC has been systematically understating its revenues, and has ended fiscal years with literally billions in “surprise” revenue. Budget revenues tend to rise at about the same rate as nominal economic growth (another issue that often confuses columnists, and even the BC Finance Minister, is thinking about nominal growth in spending but real economic growth), and nominal GDP is forecast in BC at 4.2% next year due to a modest slowdown. Over the past few years, however, revenue growth has been much higher, 9.7% in 2006/07 (the last full fiscal year), 10.1% in 2005/06, 7.9% in 2004/05, and 12% in 2003/04 (calculations based on BC Financial and Economic Review 2007 Table A2.7).

Secondly, recent increases in health care above 5% have only been in the past couple years. Campbell 2 is much more centrist than Campbell 1: health spending increased 3.8% in 2002/03, 2.6% in 2003/04, 2.5% in 2004/05, and only in the 2005/06 (election year) did we see a 7.8% increase, followed by a 6.6% increase in 2006/07 (same BC FER 2007, table A2.9). So pointing at recent budgetary increases while neglecting several years where growth was insufficient (read: real cuts in services) is a huge oversight on the part of Simpson.

One more way of looking at this is health care spending relative to GDP (Table A2.10). In 2006/07, health care was 7.4% of provincial GDP, a slight uptick from the 7.3% and 7.2% in the last years of the NDP government (1999/00 and 2000/01 respectively). One could also argue that as a share of GDP health care spending is down not up. In 2001/02 (another election year spike), it was 7.9% of GDP.

I could go on about how Simpson uses the old Fraser Institute measure of health care as a share of the provincial budget, and because other services have been given smaller increases, the share going to health has been going up. A trick that seems to waylay otherwise intelligent commentators (columnists really need to get some remedial statistics if they want to play the numbers game). But I’m out of time and have a federal budget to get to.