B.C. has weathered the global economic downturn relatively well over the past couple of years, however, uncertainty over the HST will continue to weigh down the province’s national and international competitiveness, according to a report from the BC Progress Board.
The report suggests public debate over the HST, including discussions on how to replace lost tax revenue and the practicality of refunding HST already paid by consumers, miss an important benefit of the HST: lowering the province’s marginal effective tax rate to entice capital investment and productivity.
The report noted in 2009, Canada’s marginal tax rate was 10th highest among 80 countries reviewed. B.C. had the 11th highest tax rate. The report noted high tax rates dissuade potential investors, because higher marginal rates reduce the return on investments that improve productivity, which B.C. sorely needs. If the HST remains, B.C. would rank 24th in the world in 2010, and tie Canada at 31st in 2013. Roughly four-fifths of the improvement is from the HST.
Other concerns facing the province’s economy in the report include the first decline in a decade in real personal disposable income in 2009. Income fell by $469 last year, which was the second-largest drop among the provinces.
The board also noted concern B.C. will not see strong export growth in the near term until exports from the forestry sector improve.
“Although its share of exports is well below that of the 1990s, the forestry industry still generates $3 of every $10 in export income in B.C,” noted the report.