BC's boring, balanced budget anything but

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Appeared in the Vancouver Sun

Tuesday’s BC budget, which Finance Minister Michael de Jong called boring, balanced, should have set out an ambitious agenda for the next four years. After all, few governments embark on significant reform in the later years of their terms. But instead of a bold plan to set the stage for a more prosperous economy, this government continues to bet aggressively on the LNG industry.

There is little question that the LNG industry offers huge opportunity and potential for British Columbians. Setting out a proposed tax regime for the new industry is important but we need to remember it’s just that, a new industry. And while the government is exercising some control over spending growth and seems poised to balance its operating budget, the 2014 BC Budget does almost nothing to create better conditions for existing business and entrepreneurs that are currently creating real jobs and wealth in our province.

For starters, much was made of the budget being balanced with projected surplus of $175 million this fiscal year (2013-14) and further surpluses of totalling $841 million over the next three years (2014-15 to 2016-17). However, to get to a “balanced” budget this year (2013-14), the government is selling assets for an estimated $423 million.

In addition, despite being in a “balanced” position, the province’s debt is forecast to increase by $3.6 billion over the next three years. BC separates its operating and capital budgets meaning the operating budget can be balanced and yet the capital budget can continue to run deficits.  While Finance Minister Mike de Jong mused that “the greatest gift we can leave our children and grandchildren is a debt-free future,” that is certainly not the direction the government is headed.

In addition, Tuesday’s budget did nothing to reverse the recent trend of diminished tax competitiveness in BC.

In the 2012 Budget, the Liberals proposed a “temporary, one percentage-point increase in the general corporate income tax rate in 2014-15” to help balance the budget. Last year’s budget, delivered shortly after the Liberals’ electoral victory, sped up the date of that tax increase to April 1, 2013.

The Liberals also “temporarily” increased the top personal income tax rate from 14.7 per cent to 16.8 per cent. This was particularly worrying given Alberta’s top rate of 10 per cent.

These temporary tax increases were supposed to help balance the budget and while the Liberals celebrated operating surpluses totalling $841 million over the next three years, no effort was made to expedite the removal of these “temporary” measures. In fact, the Liberals have no plans to eliminate the increase in the general corporate income tax over the next three years – so much for “temporary” tax increases.

Perhaps most disconcerting, the Liberal’s 2014 budget did nothing to implement a plan to offset the marked increase in business taxes associated with last year’s re-introduction of the PST. Almost all of BC’s competitors have moved to a value-added tax like the now abolished HST which exempts business inputs and lowers the cost of investment.

Indeed, the government’s own Expert Panel on Business Taxation recommended that the government introduce a refundable investment tax credit equal to the PST paid on machinery and equipment.

A recent study by internationally-renowned tax expert and University of Calgary professor Jack Mintz found that increasing the general corporate income tax and restoring the PST has resulted in BC having the highest overall tax rate on new business investment in the country. Our overall tax rate on new investment (27.5 per cent) is substantially higher than that of Alberta’s (17 per cent).

Without a competitive tax system, BC risks losing much-needed investment that will instead gravitate to jurisdictions (provinces and U.S. states) with more competitive tax policies.

An aggressive plan to address BC’s tax competitiveness could have been accomplished by a more ambitious plan to achieve fiscal savings.  While the government has exercised greater restraint in recent years, the fact is program spending (total spending minus interest payments) has grown at an average rate of 2.1 per cent a year since 2010-11 and will continue to grow at that average rate for the next three years. What’s worse is that continuous increases in spending have done little, if anything, to improve government services such as healthcare.

BC’s Liberal government has been clear that economic growth and job creation are its top priorities.  Unfortunately, Minister de Jong’s budget fails to lay the policy ground work to produce a substantially improved economic environment.

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