The BC Liberals trumpeted their 2014 budget, tabled on February 18, as “boring, balanced,” with perhaps the most significant feature being a new tax regime for the province’s budding LNG industry.
And that in itself is one of the budget’s critical failures.
Finance Minister Mike de Jong had an opportunity to stake out a bold plan to set the stage for a more prosperous economy, something one would expect from a government beginning its first term.
Instead the budget largely ignored the policies needed to create better conditions for business and entrepreneurs who are creating real jobs and wealth in our province.
For starters, much was made of the budget being balanced with surpluses totalling $841 million over the next three years.
However, despite being in a “balanced” position, the province’s debt is forecast to increase by $3.6 billion over the next three years.
You see, British Columbia separates its operating and capital budgets, which means the operating budget can be balanced and yet the capital budget can continue to run deficits.
While de Jong mused that “the greatest gift we can leave our children and grandchildren is a debt-free future,” that is certainly not the direction the government is headed.
And while there was also much talk of the budget being “prudent,” it does nothing to reverse the recent trend of diminished tax competitiveness in B.C.
In previous budgets, the Liberals introduced “temporary” tax increases to help balance the budget.
And while the Liberals celebrated operating surpluses totalling $841 million over the next three years, no effort was made to expedite the removal of these “temporary” measures.
In fact, the Liberals have no plans to eliminate the increase in the general corporate income tax over the next three years – so much for “temporary” tax increases.
Perhaps most disconcerting, the Liberals’ 2014 budget did nothing to implement a plan to offset the marked increase in business taxes associated with last year’s reintroduction of the PST. Almost all of British Columbia’s competitors have moved to a value-added tax, like the now abolished HST, which exempts business inputs and lowers the cost of investment.
Indeed, the government’s own Expert Panel on Business Taxation recommended that the government introduce a refundable investment tax credit equal to the PST paid on machinery and equipment.
British Columbia now has the highest overall tax rate on new business investment in the country. Our overall tax rate on new investment (27.5%) is substantially higher than that of Alberta (17%).
Without a material shift toward a more competitive tax system, British Columbia risks losing much-needed investment that will instead gravitate to jurisdictions (provinces and U.S. states) with more competitive tax policies.
An aggressive plan to address British Columbia’s tax competitiveness could have been accomplished by a more ambitious plan to achieve fiscal savings.
While the government has exercised greater restraint in recent years, the fact is program spending (total spending minus interest payments) has grown at an average rate of 2.1% a year since 2010-11 and will continue to grow at that average rate for the next three years.
B.C.’s Liberal government has been clear that economic growth and job creation are its top priorities.
Last Tuesday’s budget reiterated this point.
But it fails to follow through with action on the province’s lack of tax competitiveness and growing provincial debt.
A pro-growth, pro-job-creation budget would have reduced program spending in order to lower taxes and end British Columbia’s accumulation of debt. •
