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RELEASE: Business Council Budget Recommendations Designed to Strengthen BC’s Competitiveness and Attract Investment
Global economic uncertainty places pressure on BC exports
Richmond, BC (October 14, 2015) - Business Council of British Columbia has shared its views on the economy and some initial recommendations on Budget 2016 with the Standing Legislative Committee on Finance and Government Services (the Committee). The Council encourages the Committee to take note of the current uncertain global economy and to recognize the need to bolster the province’s competitiveness – particularly in the traded industry clusters that are central to BC’s prosperity.
“British Columbia’s economy, currently one of the strongest in Canada due to our diversity, is experiencing a mixed performance at a time of slowing global growth and slumping commodity prices,” stated Greg D’Avignon, the Business Council’s President and CEO. “Competitiveness has become a top of mind concern for many business executives in BC, particularly those in export-oriented, job-creating sectors such as natural resources and manufacturing which are particularly sensitive to shifts in the global economy and in the cost of doing business at home compared to other North American jurisdictions.”
The Business Council’s pre-budget submission highlights the impact of provincial taxes, fees and regulations in shaping the climate for business investment and job creation in British Columbia.
“In recent years, many of BC’s leading traded industry clusters have faced a ‘triple whammy’ hit to competitiveness, owing to the return to the PST, the impact of the BC carbon tax, and rising electricity rates,” noted Jock Finlayson, the Business Council’s Executive Vice President and Chief Policy Officer.
The PST’s return has increased the cost of producing goods and services in BC by $1.6 billion per year, while tax compliance costs have risen by $150-200 million per year.
“This represents the biggest blow to BC’s competitiveness in several decades,” observed Mr. Finlayson.
At $30 per tonne of carbon dioxide emissions, BC’s carbon tax is, by orders of magnitude, the steepest in North America.
“The carbon tax has created a net cost disadvantage for all energy-intensive industries and many export-oriented industries in BC, notwithstanding the recycling of carbon tax revenue back into the economy through offsetting reductions in other taxes,” commented Mr. Finlayson.
Electricity rates in BC, while still relatively low, are rising much faster than inflation, and this trend is altering the competitive landscape for some industries operating in BC – especially at time when the cost of electricity is stable or declining in some US jurisdictions thanks to cheaper renewable energy and greater use of low-cost natural gas to produce power.
The Business Council’s submission notes that BC’s economy has diversified over time, with the tourism, advanced technology, finance, life sciences, and non-resource manufacturing sectors all playing a role in boosting the export base and supporting economic growth.
“The province also has a number of tradable service industries, including finance, engineering, and scientific and technical services, that are contributing to our economy and have promising growth prospects going forward,” stated Mr. D’Avignon.
“In making our recommendations to the Committee, we have taken note of the difficult global economic backdrop, the weakness in commodity prices, and the fiscal constraints facing the provincial government,” commented Mr. Finlayson. “In this connection, we propose that the province leave the corporate income tax rate at 11%, instead of lowering the rate to 10%, and use the fiscal room this would create to help finance new measures to address the competitiveness challenges facing export-oriented industry sectors.”
The Business Council’s recommendations, touching on the application of the PST, the carbon tax, and municipal property taxes affecting business and industry, are all intended to bolster BC’s competitive position, and to boost investment and job creation, over the medium term.
On the PST, the Business Council proposes that BC policy-makers look at options such as broadening the current mix of exemptions, removing the PST from business purchases of electricity, and developing an investment tax incentive scheme that would offset part of the negative impact of the PST on the cost of undertaking new investments. Turning to the carbon tax, the Business Council recommends keeping the tax at the current level. Finally, the Business Council re-iterates its previous recommendation that the provincial government reform the system of municipal property tax to ensure greater fairness in the treatment of business property owners.
With respect to the government’s overall fiscal plan, the Business Council supports the goal of achieving a balanced operating budget in 2015-16 and 2016-17, and recommends that the province keep the net debt/GDP ratio below 20% (it is a bit more than 17% today).
“Changes in the global competitive environment, in the structure of our economy, in the labour market, and in the demographic make-up of BC’s population all have implications for the effectiveness and robustness of the province’s tax system over the medium- and long-term,” stated Mr. D’Avignon. “Rapid technological change and concerns over the growth of the underground economy and tax evasion more generally also merit greater attention by BC policy-makers.
“As a small, sub-national economy that must compete for capital and talent, the tax system needs to evolve to reflect the realities of a different and more complex economy, an aging population and the capacity to fund increased public demand for government provided services,” concluded Mr. D’Avignon.
The Business Council's full submission is available HERE.
The Business Council of British Columbia, now in its 49th year as the premier business organization in British Columbia, is a non-partisan association made up of 260 leading companies, post-secondary institutions and other organizations representing BC’s diverse economy, which collectively support hundreds of thousands of jobs across the province. The Council provides timely and exceptional public-policy research and advice on issues related to BC’s competitiveness and prosperity.
Cheryl Maitland Muir