After nearly eight years of strong economic performance, B.C., like nearly all North American jurisdictions, is facing a difficult economic period. Now, however, is not the time to reverse course on economic policies that successfully lifted B.C. out of its 1990s economic malaise. Instead, the top priority for B.C.’s next government should be to further strengthen the province’s investment climate and competitiveness.

Many people are not aware of the dramatic turnaround and productive reforms implemented in British Columbia since 2001. Prior to that year, the province effectively missed the economic party that was the 1990s due largely to poor economic policies. As a result, the province became a “have-not” province and recipient of federal equalization at the end of the decade (1999-00).

However, in 2001 the newly elected government promptly undertook steps to reverse the province’s fortunes. It restrained government spending, enacted incentive-based tax relief and reduced the amount of red tape. As a result of these positive policy developments, the province witnessed a marked improvement in its investment climate.

Consider that in 2001, B.C. ranked last among the provinces in terms of its investment climate, according to pension and investment fund managers. Less than one year after the dramatic tax cuts and other policies enacted by the new government, the province catapulted into third position behind Ontario and Alberta. In 2008, B.C. ranked behind only Alberta in terms of fostering a positive investment climate.

The effects of an improved investment climate have been remarkable as the province experienced a dramatic reversal of economic fortunes. B.C. went from having the lowest per person GDP growth among the provinces between 1990 and 2000 to being one of the fastest growing economies in the country from 2001 to 2007.

The priority for the next government should be to further strengthen B.C.’s investment climate with the goal of making the province the most attractive jurisdiction in Canada.

To that end, additional tax relief is needed to help attract and retain professional and skilled workers, as well as promote and encourage investment and development in B.C. Options worthy of implementation include:

• eliminating the top personal income tax rate of 14.7% and moving toward a single-rate tax (as is the case in lberta);
• further reducing the general corporate income tax rate with the goal of maintaining the country’s lowest rate;
• following Ontario’s lead and harmonizing the provincial sales tax with the GST (this would exclude business inputs from taxation); and
• increasing the small business threshold to $1 million to help mitigate the tax penalty on small businesses as they grow.

To create the fiscal room to implement these important tax changes, the province must rein in government spending. Since 2005-06, the provincial government increased spending faster than the rate of economic growth, thereby expanding the size of the provincial government.

B.C. also continues to maintain too much government regulation, which decreases innovation, delays the development of products, stifles entrepreneurship and restricts competition.

Reducing red tape in the province should be a key objective for the next government. One aspect that deserves particular attention is labour market regulation. B.C.’s labour relations laws remain overly prescriptive and biased toward unions. B.C. labour regulation needs to be reworked to improve how the labour market functions.

Another aspect of regulation that requires attention relates to the new environmental initiatives enacted or being considered by the current government. Consider the proposed cap-and-trade system aimed at reducing greenhouse gas emissions. The costs imposed by the system will likely fall on B.C. workers as investments in plants, machinery, equipment and new technologies are reduced due to increased costs. Lower levels of investment reduce worker productivity and will ultimately mean lower wages for B.C. workers. This is especially true in energy intensive industries such as manufacturing, utilities, forestry, oil and gas, mining and transportation.

The next provincial government should seize the opportunity to ensure a brighter future for all British Columbians. Its top economic priority should be to make B.C. the most attractive province for investment and business development.