The BC NDP's spending promises currently stand at more than $2 billion, a number the Liberals have seized upon as proof the NDP will drive the province's economy into the ground.
But both parties' plans to raise taxes have dismayed low tax advocates, who say the increases, especially on corporate income tax and high-income earners, might not generate the revenue the parties expect.
The NDP said its combined tax increases will generate $550 million every year (see below). The Liberals expect to raise $400 million by 2014 with short-term increases on corporate and personal income tax for high-income earners.
"Taxes on business income, capital taxes on the amount of investment that occurs within a certain jurisdiction, tax policy changes that change the cost of investing … those tend to be the examples of taxes which have a bigger impact on behaviour over time," Jock Finlayson, vice-president of the Business Council of BC, told Business in Vancouver.
Although a corporate tax increase will generate revenue when it is first introduced, those funds will likely decline over time, said Alexandre Laurin, a research director at the C.D. Howe Institute who recently wrote a report on the B.C. government's planned tax increases.
He added that in the long term – 40 to 50 years out – there would be a net loss.
Laurin predicted high-income earners will change their behaviour to avoid paying the tax and might:
- work less;
- adjust the timing of a significant transaction;
- switch sources of income;
- move to another jurisdiction before completing an important asset sale; or
- use trusts located outside of the province.
Laurin calculated that if high-income earners didn't avoid paying increased income tax, the Liberal government would generate more than $300 million in 2015 from its income tax increase. That number drops to under $200 million if tax avoidance schemes are taken into account.
But Seth Klein, B.C. director of the Canadian Centre for Policy Alternatives, said there was little evidence that people work less or invest less to avoid paying tax. Most of the behavioural changes are to do with people hiding their income.
"For me, that's not a reason for not raising taxes; that's an argument for hiring more auditors and closing loopholes."
Klein pointed out that the federal Conservatives have gone this route in their latest budget, committing to close some tax loopholes and go after offshore bank deposits.
The government expects to net $315 million in revenue from the move.
Revenue from the BC Liberals' tax increases might be more elusive because the increases are temporary, said Klein.
"When you put a two-year time limit on it like that, when people know the end date, it's almost inviting them to defer their income and avoid that tax."
While taxing corporations and wealthy people might be politically popular, Finlayson said consumption taxes like the HST and a general payroll tax – currently in place in Ontario, Quebec and Manitoba – would be more reliable methods of raising revenue.
How the NDP's spending promises stack up
$100 million: post-secondary education:
$25 million in 2014-15; $40 million in 2015-16: skills training and apprenticeship programs
$8 million in 2014-15, $12 million in 2015-16: small business initiatives
$2 million: support for high-tech sector
$15 million in 2014-15, $50 million in 2015-16: support for film/arts
$2 million: recognize credentials of foreign immigrants
$20 million: freeze BC Ferries rates
$90 million in 2014-15; $100 million in 2015-16: classroom support for public education
$1 million: science education program
$1 million in 2014-15, $2 million in 2015-16: preserving First Nations languages
$30 million in 2014-15, $60 million in 2015-16: childcare and early learning
$261 million in 2014-15; $301 million in 2015-16: programs to reduce poverty and inequality
$70 million in 2014-15, $159 million in 2015-16: health care
$40 million in 2014-15, $60 million in 2015-16: forest planning
$8 million: agriculture
$3 million: accelerate mining permit approvals
$5 million in 2014-15; $8 million in 2015-16: labour standards
$2 million in 2014-15 only: oppose the Northern Gateway pipeline with provincial environmental assessment
$45 million in 2014-15, $60 million in 2015-16: environmental protection
$5 million in 2014-15 only: BC Rail inquiry
Total new spending: $733 million in 2014-15, $988 million in 2015-16
Liberal and NDP revenue projections
Liberals
In its February budget, the BC Liberal Party introduced a temporary two-year raise of 1% on the corporate tax rate.
Projected revenue:
$205 million in 2013-14
$197 million in 2014-15
$200 million in 2015-16
The Liberals also raised personal income tax to 16.8% from 14% for people who earn more than $150,000. The increase would be in place for two years.
Projected revenue:
$50 million in 2013-14
$204 million in 2014-15
$158 million in 2015-16
In its platform, the party committed to freeze personal income tax for five years and to lower the small business tax rate to 1.5%.
NDP
The BC NDP has promised to permanently raise corporate taxes to 12%.
Projected revenue:
$200 million in 2014-15
$240 million in 2015-16
The party would also reinstate the capital tax on financial institutions.
Projected revenue:
$150 million per year
The NDP plans to raise personal income tax for earnings over $150,000 to 19%.
Projected revenue:
$200 million per year
The NDP also calculates:
$148 million from reallocating spending in 2014-15 and $328 million in 2015-16
$35 million from expanding the carbon tax in 2014-15 and $70 million in 2015-16
