Government AccountabilityTaxes

Matt Stiles: “The Perilous State of BC’s Finances”

By February 26, 2018October 14th, 2020No Comments

The spending provisions in the 2018 budget are not a realistic reflection of the effect that new taxes, labour regulations and already rising interest rates will have on the broader economy.  On its face, a balanced budget might give the first impression of responsibility and moderation. But make no mistake, this is a tax and spend document with all of the economic fallacies that big government likes to employ, namely that a province can spend its way into prosperity.

The government has explicitly stated that the goal of their litany of new taxes on the property market is to reduce prices, eliminate speculation on real estate, and generally make owning property less desirable for many people.  The real estate and construction industries account for approximately one quarter of all economic activity in BC (more in Vancouver and other cities).

A large portion of the income taxes, sales taxes, corporate taxes, property transfer taxes and property taxes themselves are tied to these industries.  Successfully achieving their goals will mean a reduction of revenues totaling billions of dollars.  The NDP budget casually ignores these realities and projects increasing revenues instead ($5.5 billion more in 2 years).  It is only through this disingenuous bait and switch that anything close to a balanced budget can be proclaimed.

The very flawed MSP Premium program, rather than being fashioned into an effective user-pay system, has instead been eliminated entirely and will be replaced by a tax on medium and large employers.  Adding to their already burdensome payroll and sales tax remittance requirements, this will act as yet another obstacle for businesses to grow in British Columbia.

Because the removal of the MSP premium wasn’t totally replaced by the new employer health tax, and there is $1.3B in annual funding increases to health and health care delivery, they still need to find more ways to raise revenue.  So there will now be introduction of up to $900 “health surcharge” on top of your income tax, as was introduced in Ontario when they removed their health premiums.  In 2019 they intend to introduce a payroll tax, evidently somewhere between Ontario’s 1.95% rate and Quebec’s 4.48% (notes 4 and 5, pg 126).  This will be a new source of revenue that is not included in the current budgeted revenue forecasts.  Business activity is somehow expected to be unaffected by this change as well, as corporate income tax revenues are forecast to rise by 5.3% this year and 8.3% the following year.

It’s revealed in a bizarre admission in the footnotes of appendix page 128: “Employer-paid payroll taxes and employer-paid health care premiums are generally reflected in reduced wages.”  However on page 102, wages are projected to continue rising at a rate of about 4.0% annually.  This defies logic.

As if businesses didn’t need another incentive to accelerate the adoption of automation technologies with minimum wages also on the march higher – to levels beyond the productivity capabilities of many thousands of British Columbians.  Employment and labour force participation rates are forecast to remain idle in the face of this (page 102).  To the contrary, additional resources will need to be deployed to provide for a greater number of unemployed workers, and those who can never join the workforce in the first place.

What is also confounding is that with all of the increased taxes on business, carbon taxes, incoming mobility pricing and more, there is only a 2% expectation for consumer price inflation, retail sales growth remains strong and consumers are assumed to be unaffected.  Businesses will not pass through any of these added costs.

The government spends a lot of space in the document defining the problems with ICBC and its massive deficits, but only glances over how precisely its changes will manage to erase a $1.3B deficit in a matter of two years and return it to profitability.  While pain and suffering claims, associated court costs and fraud were indeed eating up large portions of their premiums, it was far from the greatest problem in a monolithic bureaucracy that is unaccountable for how money gets spent.  Crash rates will not magically decline because of “investments in safety”.  British Columbians can expect skyrocketing premiums instead.  How high?  On page 64 the budget says they will be “fair.”

In Natural Resources, a sector that the NDP/Green government has indicated particular hostility toward, natural gas royalties, forestry tenures and timber sales are only projected to be marginally affected by the ongoing softwood lumber dispute or the reluctance to build projects that would get our resources to alternative markets.  The impact on revenue, as well as the impact on workers in these industries, is yet again not acknowledged.

All reasonable economists agree that there is such thing as a Laffer Curve (the idea that the taxing ability is diminished once rates exceed unknown thresholds), they just disagree on its shape.  It is certain that increases in taxes of the sort laid out in Budget ‘18/’19 will have some adverse consequence on on total economic activity, and therefore revenues.   But the opposite is assumed throughout the budget.

Good budgets have room for error.  This budget is just full of errors.  The priorities of the government, if accomplished even in part, will reveal it to have been a disaster, leaving multi-billion dollar deficits in its wake, and higher taxes for everyone.  The previous Liberal government has created the conditions for the NDP and Greens to lay waste to our public finances.  The BC Libertarian Party will continue to advocate for spending restraint and prudent fiscal management.  We will be offering alternatives that relieve the provincial government of many of its activities and provide individuals with more choice, families with lower taxes, and communities with real freedom to control their own destinies.