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B.C. budget grants employers relief on health tax

Government expects anemic growth, indefinite deficits, higher natural gas royalties
B.C. Finance Minister Katrine Conroy

Small businesses in B.C. that pay the employer health tax will get a break from the B.C. government, which Thursday brought down a budget that lowers the threshold that triggers the payroll tax – a key ask of the business community.

There is also a minor break for business on power bills and a few programs that will benefit the resource sector.  

Otherwise, budget 2024 may disappoint some in the business community with its swelling and apparently indefinite deficits.

The B.C. government is assuming anemic GDP growth in 2024 of 0.8 per cent, additional spending of $13 billion, and deeper deficits.

In the lead-up today’s budget, business groups had lobbied for spending restraint and some tax relief. A key ask was raising the threshold for paying the Employer Health Tax (EHT). Companies with a payroll under $500,000 don’t pay the EHT, which replaced the Medical Services Plan (MSP).

Business associations had asked that the threshold be raised, and Budget 2024 delivers. The B.C. government will raise the payroll threshold from $500,000 to $1 million. The budget implications of the threshold shift is $100 million a year.

“Small businesses are facing constant cost pressures everywhere they look, so this cut to the Employer Health Tax is much needed,” said Cory Redekop, CEO of the Greater Langley Chamber of Commerce. “This reduction will leave thousands in the pockets of small businesses which will be better used to hire and pay staff and invest in tools and strategies to grow their business.”

A one-time BC Hydro “affordability credit” will apply to ordinary households, and commercial and industrial power users will get 4.6 per cent shaved off their electricity bills. This will save the average small business $400 over the course of a year. These credits will show up on monthly bills, starting in April.

The budget includes $24 million to support collaboration between First Nations, industry and government on mine permitting. It also introduces a provincial loan guarantee program geared to helping First Nations to take equity stakes in resource projects.

The budget boasts of “record-level” capital spending of $43 billion for schools, hospitals, roads and other public works, and additional operating spending of $13 billion over three years.

Over a three-year period, the capital spending for transportation is $15.5 billion for major projects like the Fraser Valley Highway 1 corridor improvements ($2 billion), the Surrey-Langley Skytrain project ($2.3 billion), and Fraser River tunnel project ($1.5 billion).

Climate policy spending includes more money for rebates for heat pumps for low and middle-income households, and public charging stations for electric vehicles.

Interestingly, despite the carbon tax increasing $15 per tonne of CO2 per year (it will rise to $80 per tonne as of April 1), the budget anticipates a 3.2 per cent decline in carbon tax revenue ($2.6 billion in 2024-25). This is partly explained by the government’s move this year to an output-based carbon pricing system for heavy industry.

LNG and natural gas to boost government revenue

The budget anticipates significant royalty increases from natural gas – from $684 million in 2023-24 to $1 billion in 2025-26 and $1.4 billion in 2026-27.

An expected 37.6 per cent increase in royalties from natural gas over the next two years would be the result of higher natural gas prices, increased volumes to LNG facilities like LNG Canada, and increased royalties from natural gas liquids (light oil, condensate, propane, etc.)

The government expects new LNG exports – notably from LNG Canada – to account for 26 per cent of B.C. natural gas production.

“They said we couldn’t fight climate change while growing B.C.’s natural resource sector,” Conroy said in her budget speech.

“And yet, emissions are down, and projects like the Cedar LNG facility are moving forward. It’s going to be the largest First Nations majority owned energy project in the country and one of the cleanest liquified natural gas facilities in the world.”

While the budget expects revenue from mining to increase, from $493 million for 2023-24 to $548 million in 2024-25, it expects mining revenues to drop to $325 million by 2026-27, mainly due to an expected decrease in metallurgical coal coal prices from a global oversupply.

The budget expects revenues from forestry to decrease in 2024-25, but then increase seven per cent over the next two years mainly due to higher stumpage rates, which reflect lumber prices.

The budget shows Crown corporations that are in better financial shape than they have been in the past. ICBC, for example, is projecting a balanced budget in 2024-25 and net income of $400 million in 2025-26.

Debt and deficits

The B.C. government expects to continue to rack up deficits indefinitely, with budget deficits projected each year to at least 2027.

Business groups have been warning that, if the B.C. government does not get spending under control, it will face higher debt servicing costs and could face a credit rating downgrade.

In a scrum with Conroy, one reporter noted that, in 2022, the three-year plan projected a deficit of $3 billion for 2024-25. Budget 2024 now puts the deficit for 2024-25 at $7.9 billion.

Conroy was asked to defend what some have described as “reckless spending.”

“I say what would be reckless is to make cuts to people in this province,” Conroy responded. “We cannot afford to have a deficit of services.”

She added that B.C. has “one of the most affordable debts” in Canada – 3.2 cents per dollar.

The provincial deficit for 2023-24 is $357 million higher than the last forecast and now sits at $5.9 billion, and there isn’t even a pretense at balancing the budget in the coming years. Budget 2024 forecasts a deficit of $7.9 billion for 2024-25, and an accumulated deficit of $11 billion.

B.C.’s total debt, now $104 billion, is projected to climb to $165 billion for 2026-27. Taxpayer-supported debt will climb from the current $72 billion to $126 billion in 2026-27.

The budget includes spending to address affordability -- $248 million for a “new one-time” child bonus under the BC Family Benefit and $370 million to address electricity rates.

The budget includes $8 billion over three years for bread-and-butter issues -- health care, education, and public safety.

While the majority of spending for climate change policies is on mitigation, Budget 2024 also ups spending for adaptation and restoration, including $175 million for wildfire response and recovery, and $234 million for flood and drought mitigation.

The money for wildfire prevention includes $60 million for the Forest Enhancement Society, which is not only addressing prevention through things like proactive management (trimming, understory removal, etc.), but also supplying wood fibre, mostly for pulp and pellet sectors. The funding also provides $38 million for “year-round” resourcing for wildfire staff.

Under CleanBC, the budget provides $318 million for things like rebates for heat pumps ($40 million) and $30 million for more public charging for electric vehicles.

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