VANCOUVER, BC-The BC government should use its upcoming
budget to reduce government spending and implement permanent
tax relief aimed at improving economic incentives, recommends
Niels Veldhuis, Fraser Institute senior economist.
"There is no doubt the province is facing an economic
slowdown and uncertainty. However, the government should not
use the current economic woes as an excuse to avoid doing what
is needed to improve BC's competitiveness," Veldhuis said.
"Meaningful spending reductions and program reform are
required to help balance the budget and provide the resources
to implement tax relief that will improve the incentives for
working and investing."
Veldhuis recommends the government focus on four key
- Personal income taxes: Eliminate the top rate of 14.7 per
cent (a projected cost of $327 million in 2009/10), thus
improving the incentives for effort, risk-taking and
entrepreneurship, and aiding in attracting and retaining
professional and skilled workers;
- Corporate income taxes: Reduce the corporate income tax
rate to eight per cent from 11 per cent ($236 million in
2009/10), giving B.C. the country's lowest corporate income
tax rate thus promoting and encouraging investment and
development in the province;
- Small business taxes: Increase the threshold for income
eligible for the small business tax rate from $400,000 to $1
million ($77 million in 2009/10) creating an enormous
advantage for small businesses in British Columbia by
mitigating the impact of the higher corporate income tax rate
they face as they grow; and
- Provincial Sales Tax (PST): Harmonize the provincial
sales tax with the GST (a revenue-neutral change) to exclude
business inputs from taxation (currently the case with the
PST) and reduce compliance costs on businesses by reducing
the paperwork and related efforts to one system instead of
He noted these initiatives would cost an estimated $640
million in 2009/10. He also recommends the government eliminate
tax rebates and credits that favour certain types of business
investments over others (amounting to approximately $360
million per year) to help offset the revenue losses.
Most critically, Veldhuis emphasizes the need to reduce
spending and reform government programs to help balance the
budget and reduce taxes.
Average annual increases in program spending over the past
five years (six per cent) were significantly above the rate
needed to compensate for inflation and population growth (3.3
Had the BC government held spending growth to inflation and
population growth over the past five years, BC's program
spending would have totaled $32.3 billion this year (2008/09)
instead of the projected $35.8 billion -- a difference of $3.5
billion for 2008/09 alone.
Recent news reports quoted Premier Gordon Campbell and
Finance Minister Colin Hansen suggesting cuts to healthcare and
education are the only alternatives to running a deficit.
"Unfortunately, the Campbell government has bought into the
fallacy that healthcare, education, and many other government
programs need ever greater budgets," Veldhuis said.
Nadeem Esmail, Fraser Institute director of health system
performance studies, points out that BC spent nearly $15
billion on health care in 2008/09 (41.8 per cent of program
spending), yet the median wait time for medically necessary
care from GP referral to treatment still stood at 17 weeks, a
length of delay that ranks among the worst in the developed
world. Additionally, British Columbian's access to doctors and
medical technology significantly lags that of other developed
"BC could save money without negatively impacting the
quality of health care if it funded hospitals on the basis of
services delivered, rather than give hospitals blocks of money.
This would improve efficiency. Private hospitals should also be
allowed to compete for the delivery of publicly funded services
as they are in many European nations," Esmail said.
"The BC government has a unique opportunity to ensure a
brighter future for all British Columbians. However to seize
the opportunity it must make the necessary tough choices.
Spending reductions and tax relief would be a true stimulus to
wealth creation now and in the future," Veldhuis added.