BC has opportunity to create ‘BC Advantage’ by 2010

Printer-friendly version
Appeared in the Okanagan Sunday, Dawson Creek Daily News, Kimberly Bulletin, Cranbrook Daily Townsman, and the Trail Daily Times

For more than a decade, Albertans have enjoyed the benefits of Canada’s most successful economy, in large part due to the Alberta Advantage. The widely recognized Alberta Advantage is based on the combination of Canada’s lowest tax rates, smallest government and most attractive investment climate. However, the province’s focus on the Alberta Advantage has been slowly eroded. British Columbia now has an opportunity to surpass Alberta and create a BC Advantage consisting of the lowest personal income and business taxes in Canada. With relatively little effort, Finance Minister Carole Taylor and the governing Liberals can make the BC Advantage a reality in the next provincial budget.

To understand the opportunity before British Columbia, it is important to examine what has transpired in Alberta. Since 1994/95, the year in which Alberta began its recent string of budget surpluses, program spending has increased at almost double the rate needed to compensate for inflation and population growth. In other words, spending on a per person basis (adjusted for the effects of inflation) has risen tremendously over the last decade. Regrettably, increased spending has come at the expense of securing the most important pillar of the Alberta Advantage: low personal and business tax rates. Unsustainable increases in spending and lack of tax relief over the past few years clearly signal a shift away from the very policies that created the foundation of Alberta’s current prosperity.

With Alberta’s government floundering, British Columbia has an opportunity to top Alberta and create a tax advantage over the rest of the country. In a study released yesterday entitled 2010: BC Tax Advantage, a three year fiscal plan is proposed that would give British Columbia Canada’s lowest personal income and business taxes.

First, the plan acknowledges more realistic revenue expectations. Consider that the government has recorded much higher revenues than expected in each of the past four years. Specifically, the BC government has received $10.6 billion more in revenue than it budgeted for from 2003-04 to 2006-07. In 2006-07 alone, the province collected $3.1 billion more than budgeted.

While the public perception is that the excess revenue is the result of booming resource revenues, the exact opposite is the case. Natural resource revenues have actually fallen short of expectations by $166 million over the past four years while personal and corporate income tax revenues exceeded expectations by $1.6 billion and $791 million, respectively.

More accurate expectations of future revenues provide the resources to implement meaningful and sizeable tax relief. Specifically, the plan recommends a three-year, $7.1 billion tax relief plan including:

  • reducing the number of personal income tax brackets from five to two and reducing the remaining top personal income tax rate from 8.15% to 8.0%;
  • reducing the corporate income tax rate from 12.0% to 8.0% percent;
  • increasing the threshold for income eligible for the small business tax rate from $400,000 to $1 million;
  • eliminating the financial corporate capital tax;
  • harmonizing the provincial sales tax with the GST.

This five-point plan would invigorate and strengthen the BC economy. First, having Canada’s lowest personal income tax rates for all taxpayers would dramatically improve the incentives for effort, risk-taking and entrepreneurship and aid in attracting and retaining professional and skilled workers.

A substantial tax advantage for businesses would also be created. Maintaining the country’s lowest corporate income tax would promote and encourage investment and development in the province. In addition, increasing the small business threshold would create an enormous advantage for small businesses in British Columbia by mitigating the impact of facing a much higher corporate income tax rate as they grow.

By eliminating the financial capital tax, British Columbia would join Alberta as the only other Canadian jurisdiction to have completely eliminated this particularly costly and damaging tax. Finally, harmonizing the provincial sales tax with the GST would exclude business inputs from taxation and reduce compliance costs on businesses by reducing the paperwork and related efforts to one system instead of two.

It is also important to recognize the cautious nature of the proposed plan. It includes a cumulative surplus of $1.4 billion over the three-year period, increases spending by $2.2 billion above the government’s current plan in order to fully account for expected inflation and population growth, and increases the amount of the contingency fund to deal with any unforeseen variances.

Although British Columbians are enjoying a period of strong economic prosperity, the province can do even better. The government has a unique opportunity to ensure a brighter future for all British Columbians. Creating a BC Advantage would lay the foundation for years of continued economic prosperity.

Subscribe to the Fraser Institute

Get the latest news from the Fraser Institute on the latest research studies, news and events.