British Columbia's Growing Tax Competitiveness Problem

Summary

• British Columbia faces significant tax competitiveness challenges with respect to the tax treatment of both businesses and individuals. This is a policy problem because competitive tax systems contribute to economic growth by helping jurisdictions attract business investment and skilled workers.
• British Columbia’s tax treatment of businesses has long been uncompetitive. An inefficiently designed sales tax that taxes inputs to business production processes is the key reason for the province having the highest average level of tax on new investment in Canada.
• Recent policy changes in the United States have made the business tax environment in that country more attractive for investment, which puts a new source of competitive pressure on BC.
• Furthermore, in recent years, the province’s tax competitiveness on personal income taxes for high-income individuals has become a new policy problem—on top of its longstanding business tax challenges.
• At 53.5 percent British Columbia now has the 4th highest top personal income tax rate in Canada or the United States. This is just 1.3 percentage points lower than in Newfoundland & Labrador, which at 54.8 percent has the highest personal income tax rate in either country.
• The added challenge of an uncompetitive personal income tax rate piled on top of the province’s already uncompetitive business tax environment raises important questions about the overall competitiveness of the province’s tax system. Policymakers should be concerned by British Columbia’s tax path in recent years.