More initiatives needed to strengthen BC's investment climate

Printer-friendly version
Appeared in Business in Vancouver

The 1990s was an economically dismal decade for British Columbia. The province effectively missed the prosperity party enjoyed by the rest of Canada due largely to poor economic policies. As a result, the province actually became a “have-not” province and a recipient of federal equalization payments.

We witnessed young, educated and skilled British Columbians leave the province for opportunities elsewhere and BC had the lowest per person GDP growth among the provinces between 1990 and 2000.

Indeed, back in 2000, British Columbia ranked dead last among the provinces in terms of its investment climate, according to a survey of pension and investment fund managers.

Thanks to numerous reforms such as restrained government spending, tax relief, reductions in the amount of red tape, and more balanced labour laws , BC now has the third best investment climate among the provinces, behind only Alberta and Saskatchewan.

But more can be done to make BC the best place in Canada to investment and do business.

Here’s what’s needed.

Start by mitigating the damaging impact of restoring the PST otherwise investment will be lost to jurisdictions with more competitive tax policies. The HST’s greatest strength is that it exempts all inputs used to create products and services. A return to the PST will again mean that items purchased by businesses to produce goods and services will be subject to sales tax. This increases the cost for businesses of investing in machinery, equipment and new technologies, which makes it more expensive for businesses to expand, upgrade, and innovate.

At minimum, there should be a complete sales tax exemption for businesses purchasing machinery, equipment and technology. A partial exemption was put in place in 2001, but the province limited the exemption by narrowly interpreting the types of machinery, equipment and technology that qualified.

Additional tax relief would also help attract and retain professional and skilled workers as well as promote and encourage investment and development. Options worthy of consideration include: eliminating the top personal income tax rate of 14.7 per cent and moving towards a single-rate tax (as is the case in Alberta); further reducing the general corporate income tax rate with the goal of maintaining the country’s lowest rate; and increasing the small business threshold to $1 million to help mitigate the tax penalty on small businesses as they grow.

Reducing red tape should also be a priority. BC still suffers from too much government regulation, which decreases innovation, delays product development and adoption, and stifles entrepreneurship.

In particular, recent environmental regulation – whether already implemented (the carbon tax, low carbon fuel standards, new green building requirements) or still in the draft stage (a cap-and-trade system) threaten BC’s investment climate.

Consider the proposed cap-and-trade system. The increased regulatory costs will likely fall on BC workers, especially those working in energy intensive industries such as manufacturing, utilities, forestry, oil and gas, mining and transportation. Consumers will also bear the cost through higher prices.

BC can become significantly more attractive for business investment and gain a competitive advantage over other provinces if it reformed labour laws. One specific example worth considering isadopting “worker choice” laws, which allow workers to choose whether they want to join and financially support a union. Evidence from the 22 U.S. states with worker choice laws shows that they have higher rates of labour force participation, lower unemployment rates, greater capital investment, and higher rates of economic growth.

Finally, BC should improve mobility for people and goods through more efficient transport infrastructure. BC ranks poorly among the other Canadian provinces with respect to the extent, accessibility, cost and condition of its transportation infrastructure.

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 BC the most attractive province for investment and business development.

Subscribe to the Fraser Institute

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