When they arrived in office, the New Democrats inherited both a buoyant economy and what looked to be a healthy budget surplus pegged at $2.7 billion for 2017-18. That surplus has since dwindled, due to spending and taxation measures announced in September along with the worsening financial picture at ICBC. Six months ago, ICBC was expected to lose $225 million in the current year; now, the torrent of red ink stands at $1.3 billion. Because Crown corporation profits and losses flow directly to the government’s bottom line, the hemorrhaging at ICBC might eliminate any remaining budget surplus in the near term.
Against this backdrop, what should the minister be aiming for in her forthcoming budget?
First, leaving aside the mess at ICBC, she should strive to avoid an operating deficit. With the economy running at full tilt, there is no case for the government to be spending more on programs and services than it collects in taxes and non-tax revenues. Deficits can be justified during economic downturns, but not when macroeconomic times are good, as they are today.
Second, the NDP should embrace an ambitious capital spending plan, with a focus on infrastructure investments that make the economy more productive and facilitate the movement of goods, services and people. As the federal government rolls out the new Canada Infrastructure Bank, B.C. needs to ensure it is well positioned to leverage Ottawa’s commitment to boost infrastructure spending over the next several years.
A third priority is holding the line on taxes. Since last summer, the NDP has hiked both corporate and personal income tax rates and pledged to maintain the highest carbon price in North America. Meanwhile, the Americans are reducing regulations, cutting taxes and implementing sweeping reforms to the overall business tax regime. As a result, Canada – including B.C. – finds itself at a further disadvantage in the competition for capital investment and skilled people. The province has little room for large-scale tax cuts. But to enhance B.C.’s ability to recruit and retain talent, the government should modify the existing personal income tax schedules by lifting the income threshold at which the highest provincial tax rate applies, to $250,000 from $150,000 – similar to Ontario, and closer to the level in Alberta. It should also develop measures to offset the negative impact of B.C.’s escalating carbon tax on manufacturers and other export industries that can’t pass on higher energy input costs to their customers.
Premier John Horgan has indicated that housing will be the main theme of Budget 2018. There is widespread public concern about housing affordability, the role of non-residents in driving demand and distorting local markets and record-low rental vacancy rates. While there are no magic bullets, the government should act both to further temper housing demand – especially from non-residents – and to increase the “elasticity” of supply. The province can deploy a mix of sticks and carrots to induce municipalities to speed up approval and permitting processes, foster densification along transit corridors and free up more land for development. More than one-third of B.C. households are renters, so it’s important to address this part of the housing market, too. The NDP has promised to accelerate the development of non-profit, co-op and other forms of rental housing. Tax incentives could assist in attracting more private capital into the long-neglected rental housing sector. We are wary of the NDP’s proposal to introduce an annual renter’s grant, because this is apt to put more upward pressure on market rents and, ultimately, benefit property owners rather than renters.
Finally, Budget 2018 should acknowledge the central role that export industries play in underpinning B.C.’s prosperity. Energy, forestry, mining and agri-food collectively supply three-quarters of the province’s merchandise exports. There is a risk that a government with few elected members from resource-producing communities could overlook the needs of these industries. That would be a mistake. The province’s long-term economic success hinges on building and sustaining globally competitive traded industry clusters. In B.C.’s case, most of these are in, or are closely linked to, the broad natural resources sector. Tourism, advanced manufacturing and high technology also make significant contributions to B.C.’s export economy. But we won’t be able to pay our way in the world if our leading resource industries wither away. •
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.