Reaction from economists in B.C. remains mixed about the economic impact of Premier Gordon Campbell’s income tax cut announced Wednesday night.
In his televised address, Campbell announced a 15% income tax cut effective January 1, 2011, that he said would allow roughly 1.9 million British Columbians keep hundreds of dollars more of their personal income.
Helmut Pastrick, chief economist at Central 1 Credit Union, was generally positive about the move, telling BIV the total amount cut will roughly boost disposable income of B.C. taxpayers by the same amount.
“Some of that will be saved; some of that may leak out into imports and not be spent domestically,” said Pastrick. “But it will lift economic growth somewhat. Based on the preliminary work we’ve done, it could lift growth by 0.1% or 0.2%.”
Jock Finlayson, executive vice-president of policy at the Business Council of BC said in an email from Ottawa that the tax cuts will bolster economic activity and should support the economic recovery at a time when the North American economy as a whole seems to be losing momentum.
Cameron Muir, chief economist at the BC Real Estate Association, told BIV the income tax cut would boost household consumption and help boost job prospects in consumption-related sectors. It will improve the tax competitiveness of the B.C. economy and serve as a catalyst to attract talent to the province. However, the benefit would not offset the disincentive to move to the province because of high taxes associated with purchasing a home in B.C.
“Our property transfer tax regime is head and shoulders the most onerous type of property transfer tax in Canada,” said Muir. “While lower personal income taxes are a net positive for the B.C. economy, it’s only a small brick in terms of overall tax competitiveness.”
Iglika Ivanova, economist at the Canadian Centre for Policy Alternatives, said, however, the tax cuts will not benefit the 30% of British Columbians who already do not pay any income tax, and will be marginally beneficial for individuals.
“Even at the maximum, it translates into less than $2 a day. It’s not a very big impact on the individual, but it’s very expensive collectively. I think it would have been better for B.C. and for our long-term economic health as a province to spend this money on investing in people. Anything would have had a more stimulative effect than giving it away.”
The political motivations were not lost on any of the economists although few decided to comment on it. Ivanova, however, questioned why the tax cut was announced ahead of next year’s budget, and even before a report of its public consultations on the budget was released.
“I don’t see any other reason why these tax cuts had to be announced now. The whole government consultation was sidestepped.”