As the NDP government prepares to table its 2019 budget, there is no reason to believe that Finance Minister Carol James is contemplating any major course corrections. The province’s finances are in decent shape, with a small operating surplus and a stable net debt-to-GDP ratio. The provincial economy is expected to grow at an annual pace of just over 2 per cent, even with the slowdowns in job creation and consumer spending that materialized in 2018. Housing markets are adjusting to the mix of demand-dampening measures introduced in last year’s budget along with tighter mortgage lending rules and somewhat higher interest rates. The NDP wanted to move the province away from a real-estate centric economic growth model, and this goal is now in sight. Meanwhile, LNG Canada’s recent announcement that it intends to proceed with its massive $40 billion Kitimat project will deliver a multi-year lift to the B.C. economy.
Against this backdrop, what would we like to see included in Budget 2019?
Item one on our wish-list is an explicit commitment to keep the operating budget balanced as long as the economy continues to grow. There is a solid case for government to borrow to fund infrastructure investment and other capital projects that provide long-term benefits (in this regard, we are perplexed about the ill-considered decision to cancel the Massey Bridge project). But absent a recession, the province should not run deficits to pay for current services.
Our second recommendation is to hold the taxpayer-supported debt-to-GDP ratio below 20 per cent, in order to limit upward pressure on interest expenses and ensure the government has fiscal room to deal with future economic shocks. On this metric, B.C. is in a strong position, with the debt-to-GDP ratio hovering near 15 per cent. Indeed, unlike most other provinces, B.C. arguably has room to accelerate public sector capital spending, should policy-makers conclude that it makes sense to do so.
A third suggestion is to modify the schedule of provincial income tax rates on individuals. The NDP hiked personal taxes shortly after assuming office, by way of a new, higher bracket on incomes above $150,000. Since 2012, some other provinces – notably Alberta and Ontario – have also increased tax rates for upper earners, but with an important difference: the income level at which the top tax bracket kicks in in these other provinces is much higher. For example, Alberta levies its top provincial tax rate starting at $307,000, while in Ontario the top bracket threshold starts at $220,000. B.C. should follow a similar path, by lifting the threshold for its top provincial tax rate to $250,000. This would improve the ability of B.C. companies to attract and retain experienced professionals, researchers, managers and technology workers, at only a small cost in foregone government revenues.
A fourth priority is to recognize and address the competitive handicap imposed on many B.C. industries due to the design of the province’s carbon tax regime. When the carbon tax was introduced a decade ago, it was accompanied by a promise to reduce corporate income tax (CIT) rates in tandem with the escalating carbon tax. B.C.’s corporate tax rate was duly trimmed from 12 to 10 per cent, as the carbon tax rose from $10/tonne to $30/tonne between 2008 and 2012.
Recently, however, the province abandoned this approach. The previous Liberal government pushed the CIT rate to 11 per cent in 2013, with the NDP then raising the rate to 12 per cent in 2017. Today, B.C. companies face exactly the same income tax rates as in 2008, but now they are shouldering much higher energy taxes. For manufacturers, farmers, transportation providers, and companies in the lumber, pulp and paper, mining and oil and gas industries, B.C.’s carbon tax translates into hundreds of millions of dollars in extra energy taxes, without any offsetting tax reductions. The government acknowledges that something needs to be done to mitigate the impact of carbon pricing on export-oriented and import-competing B.C. industries that can’t pass on higher energy input tax costs to their international customers. But so far, no specific measures have been announced.
Finally, we believe the government should look to boost support for families using daycare services. We encourage the government to steer clear of a costly a universal child care system, which would come with a big fiscal price tag, and instead make eligibility for public money conditional on household income. Targeting support to families most in need of subsidized child care is more affordable and represents a smarter use of scarce tax dollars. More importantly, it would also allow the province to provide more funding to families in the greatest need of assistance.
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.