Finlayson & Peacock Op-Ed: New age of activist governments driving up cost of doing business (Business in Vancouver)
Welcome to a new era of activist government.
In the last two years, both the federal and provincial governments have outlined more ambitious policy agendas. Each has ramped up spending on social services and income support programs, laying the foundations for a larger public sector. The drumbeat of regulatory change has become deafening as governments initiate multiple policy reviews and move to reshape environmental assessment and permitting rules, energy regulations and standards, the legal frameworks governing employment and labour relations, minimum wages, housing market policies, apprenticeships and much else besides.
The emergence of activist government reflects the electorate’s appetite for change. In isolation, many of the measures being advanced or entertained by Ottawa and Victoria have positive features and come with individual price tags that most businesses can absorb. However, the cumulative impact of the myriad of tax, legislative and regulatory changes and review processes now underway risks undermining business confidence and discouraging capital investment. While ministers and officials struggle to implement campaign promises and throne speech commitments, no one seems to be asking what it all means for the broader economic environment or the cost of doing business.
At the federal level, the Justin Trudeau government has delivered three budgets. The first two focused on infrastructure, improving child benefits, trimming income taxes for the “middle class,” hiking taxes on upper income earners, enriching employment insurance benefits, spurring innovation and some measures to deal with housing affordability.
The 2018 budget follows this pattern, with an added emphasis on gender equity and reconciliation with Indigenous Peoples. Unfortunately, Ottawa has done essentially nothing to address Canada’s eroding competitiveness or the alarming decline in net foreign investment inflows to the country. Despite the prime minister’s sunny words, Canada is becoming a less appealing place to deploy capital or grow a business.
Closer to home, B.C.’s minority NDP government is fleshing out its policy agenda. The 2017 budget update and last month’s full budget were tilted toward social programs, housing affordability, higher taxes on large and mid-sized businesses and a dollop of relief for low- and middle-income households. Like its federal counterpart, the B.C. government has paid little attention to the investment climate or the province’s lacklustre performance on capital spending and productivity growth.
Since last summer, B.C.’s corporate tax rate has been nudged higher, the NDP has promised to increase the carbon tax – already the highest in North America – over the next four years and taxes have been raised on people earning more than $150,000. Combined federal-provincial tax rates on the most productive slice of the workforce are back to 50%, up sharply from three years ago. And businesses operating in B.C. continue to face the steepest fossil fuel costs in the country – a competitive disadvantage for companies in the natural resource and manufacturing sectors.
The most significant added cost for B.C. business comes from the proposed employer health tax (EHT). Once in effect in 2019, it is expected to raise more revenue than Medical Services Plan premiums, which will be eliminated. On its own, the EHT is perhaps manageable. But it is being adopted at a time when the minimum wage will be rising steadily, the provincial labour code is under review and the government could soon decide to reopen the Employment Standards Act.
Business is also nervous about possible shifts in WorkSafeBC policies and regulations that will lead to escalating costs and higher employer premiums.
The province is also active in the environmental arena. A major review of B.C.’s environmental assessment legislation and process has been announced, on the heels of the looming revamping of federal environmental assessment rules. The province has also pledged to update its climate plan, pursue new provincial species-at-risk legislation and develop policies and guidelines consistent with the government’s support for the United Nations Declaration on the Rights of Indigenous Peoples. These developments could further inhibit private-sector investment, particularly in land-based industries.
Finally, B.C.’s 2018 budget introduced a suite of measures to dampen housing demand and extract more revenue from property owners and developers. How they will affect the market is difficult to gauge, especially at a time when borrowing costs are headed higher. The impact could turn out to be larger than policy-makers intended – another source of risk, given the outsized role of real estate and housing in our economy.
In isolation, government policy changes and reviews are often well founded. However, heaping on additional costs and uncertainty for businesses is problematic. Policy-makers need to understand that business leaders increasingly are taking stock of cumulative impacts, with a growing number deciding that the best course is to postpone, scale back or redirect new capital spending.
Jock Finlayson is the Business Council of British Columbia’s executive vice-president and chief policy officer; Ken Peacock is the council’s chief economist.
As published by Business in Vancouver.