BC United’s ‘largest tax cut in B.C.’s history’ plan fails to address main tax problems

This week, party leader Kevin Falcon announced that, if elected in the provincial election this October, BC United would eliminate provincial income tax on the first $50,000 earned by British Columbians. Falcon said it would be the “largest tax cut in B.C.’s history.” Specifically, the basic personal exemption—the amount of income that can be earned without paying provincial income tax—would increase from $12,580 to $50,000. Unfortunately, this change wouldn’t address any of British Columbia’s big tax challenges.

First, B.C. already has one of the lowest bottom statutory personal income tax rates in Canada at 5.06 per cent, behind only Ontario (5.05 per cent) with both applying on income up to about $50,000. The problem is at higher levels of income where B.C. is woefully uncompetitive with other jurisdictions.

According to a significant body of research, high and increasing tax rates discourage economic growth by reducing the reward from productive activities such as entrepreneurship, work and investment. B.C. currently has the fourth-highest top combined (federal and provincial) statutory personal income tax rate (53.5 per cent) among 61 Canadian and U.S. provinces and states, and significantly higher (16.5 percentage points) than in neighbouring Alaska and Washington State. The BC United proposal would do nothing to improve the province’s competitiveness with respect to top marginal tax rates.

Why should British Columbians care?

When deciding where to live and work, high-skilled workers including doctors, engineers, entrepreneurs consider (among other factors) personal income tax rates. Jurisdictions with lower tax rates will have an advantage in attracting these high-skilled and productive people who fuel economic growth. For that reason, the B.C. government should reduce the province’s upper income tax rates.

There’s also the issue of B.C.’s provincial sales tax (PST), which—unlike in other provinces with an integrated provincial sales tax with the federal GST, or Alberta which has no provincial sales tax—applies to a wide range of inputs (equipment, new technologies, etc.) used in the production process by businesses and entrepreneurs. Consequently, compared to other provinces, it’s more expensive to do business in B.C., which has the highest tax on investment in Canada. And lower investment means lower rates of economic growth, which is key to job-creation and prosperity across income levels.

In addition, the provincial government increased the business tax rate from 11.0 to 12.0 per cent in 2018, which is significantly higher than neighbouring Alberta (8 per cent) and most border states.

There are also a slew of less well-known tax increases and tax changes that have made the province less tax competitive. Overall, these higher taxes have made the province a decidedly less competitive place to work, start or expand a business, and to invest. And again, BC United’s proposed change, while large in terms of the estimated dollar reduction in personal income taxes, won’t improve competitiveness for higher personal income tax rates, business rates and sales taxes.

Thanks in part to the province’s competitiveness problem, the B.C. economy is stagnating. The province’s per-person GDP, a broad measure of living standards, is expected to be lower this year than in 2018. And compared to eight neighbouring provinces and states including Alberta, Washington, Alaska, California, Oregon, Montana and Idaho, B.C had the third-lowest per-person GDP at C$61,038 in 2019 (the latest year of available data)—barely ahead of Montana (C$60,042) and far behind top-ranked Washington (C$97,590). The province also ranked dead last on the narrower measure of median employment income at C$34,008, significantly lower than fourth-place Alberta (C$47,307).

Clearly, eliminating provincial personal income tax on the first $50,000 of income will not fix the B.C.’s tax and economic problems. Policymakers should address the actual problems for the benefit of the provincial economy and all British Columbians.