VANCOUVER, BC-The BC government should use its next budget
to reduce taxes and cut spending in order to set the province
back on a path to prosperity, says Niels Veldhuis, Fraser
Institute senior economist.
"Today's throne speech is the first chance for the
government to show British Columbians it has a vision for
returning the province to prosperity; that it has a plan for
making the province the most attractive jurisdiction in Canada
in which to work, invest and engage in entrepreneurial
activities," Veldhuis said of the traditional speech from the
throne that will open the next session of BC's legislature.
"The key for this government is its March 2 budget which
must get back to economic fundamentals-and that means tax
relief and reduced spending in order to strengthen BC's
Last year the B.C. economy shrunk by 2.4 per cent, shed
nearly 55,000 jobs, and saw unemployment increase from 4.6 to
7.6 per cent. While the economy is forecast to improve this
year, a recent study by Harvard economists shows that the best
way to stimulate economic activity is through tax relief, not
increases in government spending.
Veldhuis makes three specific recommendations for reducing
- Eliminate the top personal income tax rate of 14.7 per
cent and move toward a single-rate tax (as is the case in
- Further reduce the general corporate income tax rate with
the goal of maintaining the country's lowest rate; and
- Increase the small business tax threshold to $1 million
to help mitigate the tax penalty on small businesses as they
But hand in hand with tax relief, Veldhuis urges the
government to reduce spending.
"The government will likely use the deficit as an excuse not
to reduce taxes. Only by reducing spending will it be able to
square the circle to reduce taxes and balance the budget."
Veldhuis suggests the obvious place to cut spending starts
with health care, which accounts for 42 per cent of total
program spending in the province and is the largest expenditure
item in the budget.
"Despite continuous rhetoric from public sector unions who
benefit from the structure of the current system, B.C. could
reduce spending and simultaneously improve the state of health
care. The key is program reform, specifically, allowing
competition in the delivery of publicly funded care and cost
sharing," Veldhuis said.
By requiring patients to share in the cost of their care,
total health care spending could be reduced by 12 per cent
(after accounting for the additional out-of-pocket payments for
British Columbians) and government spending by about 20 per
cent. International evidence shows that when patients are
responsible for some of the cost of their care, they use fewer
resources and end up no worse off in terms of health outcomes.
Cost sharing would result in a savings of about $3.1 billion in
Changing the way hospitals are funded and allowing more
competition in the delivery of publicly funded services also
offers an opportunity to reduce costs. Moving to activity-based
funding in which hospitals would be paid per patient they treat
rather than receive a pre-set yearly budget would result in
about $735 million in savings in 2010/11.
"Introducing just these two sensible health policies could
reduce public health spending by an estimated $3.8 billion in
2010-11 alone. Similarly, education and other government
services could be vastly improved through program reform, while
spending less," Veldhuis said.
"The $3.8 billion annual savings would not only bring
spending in line with revenues, it would allow B.C. to enact a
multi-year tax-relief plan."
Veldhuis also recommends using the budget to deal with the
excessive burden of government regulation which decreases
innovation, delays the development of products, stifles
entrepreneurship and restricts competition in the province.
Recent estimates of the cost of regulation on B.C. businesses
amount to $4.8 billion a year or 2.5 per cent of total economic
output. This does not include the impact of new environmental
initiatives being considered such as the proposed cap-and-trade
system aimed at reducing greenhouse gas emissions.
"Reducing red tape and scrapping pet environmental
initiatives should also be a key priority in the 2010 budget,"
"A budget that reduces spending, reforms key government
programs, balances the budget and reduces taxes and regulations
would provide the necessary incentives for individuals and
businesses to engage in productive activities. Most
importantly, it would ensure a bright future for all British