After spending much of their time in office improving the business investment climate in B.C., the BC Liberals have done an about-face in this year’s budget.
Increasing the corporate tax rate by 1% a year earlier than planned is the most noticeable fiscal shift against B.C.’s largest employers. The move will take away B.C.’s claim as one of the most competitive jurisdictions for medium and large employers. It will also push B.C. closer to the middle of the pack in terms of provincial corporate tax rates in the country. But the lack of policy mitigating the impact of the return of the provincial sales tax will be more damaging in the long term. Instead of receiving the full 12% refund for eligible purchases, companies will have to absorb a 7% increase in costs with the PST (see “Preparing for the PST – save now or pay later” – BIV issue 1210, January 1-7).
Whether businesses will make investments in B.C. prior to the April 1 deadline remains to be seen. But the government’s business investment forecast appears to expect they will, with investment levels forecast to grow 6% this year before falling in 2014 and recovering slightly in 2015.
Despite these investment-dampening pressures, the government did not ratchet down its business investment forecast to the same extent it seems to have adjusted its forecast for many other major factors underlying its latest revenue projections for the next few years.
According to the government’s proposed budget plan, most of its economic forecast has remained more conservative than in the past. While the focus has been on the government’s natural gas prices, it also dropped its forecasts to multi-year lows for B.C.’s other key commodities, including copper and metallurgical coal.
But despite a more difficult investment climate, the government still expects business investment to be higher for the next few years than it forecast last year. Unlike commodity prices and U.S. housing starts, business investment is at least one area of Victoria’s estimates that it can influence.
Whether its forecast is wishful thinking, an oversight or something else is worth questioning. •
