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How to truly make BC a job creation machine

Appeared in Business in Vancouver
Release Date: October 25, 2011
Premier Christy Clark officially jumped on the “we must do something about jobs” bandwagon last month with the much anticipated release of her government’s Canada Starts Here: The BC Jobs Plan.

While the plan contained the right rhetoric – “Canada Starts Here will build upon our current fiscal and economic strengths to create an environment where growth and investment can flourish” – it was unfortunately devoid of details needed to get B.C. there. Worse, the government seems poised to develop “targeted-strategies” for select industries that it has identified for future expansion.

To truly make our province a job creation machine, Premier Clark should make B.C. the most investment-friendly jurisdiction in Canada. Instead of focusing on certain industries, her government should encourage all businesses to invest and develop operations. Here’s what’s needed.

The B.C. government should start by mitigating the damaging impact of restoring the PST, otherwise it will lose investment to jurisdictions with more competitive tax policies.

The HST’s greatest benefit is that it exempts all inputs used to create products and services. A return to the PST will again mean that items businesses buy to produce those goods and services will be subject to sales tax. This will increase the cost for businesses of investing in machinery, equipment and new technologies, which makes it more expensive for B.C. businesses to expand, upgrade and innovate.

The B.C. jobs plan offers no tax changes or reductions that will help cushion the blow of the HST’s defeat; it merely commits to a “broader review of the provincial tax system.”

At minimum, the jobs plan should have committed to a complete sales tax exemption for businesses buying machinery, equipment and technology. A partial exemption was put in place in 2001, but the province limited the exemption by narrowly interpreting the types of machinery, equipment and technology that qualified.

Reducing red tape should also be a priority. B.C. suffers from too much government regulation, which decreases innovation, delays product development and adoption and stifles entrepreneurship.

One area of red tape that threatens B.C.’s investment climate is recent environmental regulation – whether already implemented (the carbon tax, low carbon fuel standards, new green building requirements) or still in the draft stage (a cap-and-trade system).

Consider the proposed cap-and-trade system. The increased regulatory costs will likely fall on B.C. workers, especially those working in energy intensive industries such as manufacturing, utilities, forestry, oil and gas, mining and transportation. Consumers will also bear the cost through higher prices.

Instead of a clear strategy to reduce red tape, the B.C. jobs plan just commits to a net zero regulatory gain until 2015 – that is, keeping the overall level of red tape constant.

The jobs plan also lacked a strategy for reforming B.C.’s overly biased labour laws. B.C. can attract more business investment and gain a competitive advantage over other provinces by adopting “worker choice” laws, which allow employees to choose whether they want to join and financially support a union. Currently, workers can be forced to become union members and contribute union dues as a condition of employment.

Evidence from the 22 U.S. states with worker choice laws shows that they have higher rates of labour force participation, lower unemployment rates, greater capital investment and higher rates of economic growth. That’s after accounting for several other contributing factors like a state’s tax burden.

The jobs plan did, however, highlight the importance of getting goods to market through efficient transport infrastructure, including ports, highways and rail systems.

But it offered little in terms of how the province would improve mobility for people and goods, which is sorely needed since B.C. ranks poorly among the other Canadian provinces with respect to the extent, accessibility, cost and condition of its transportation infrastructure.

While Premier Clark’s rhetoric wisely focused on improving B.C.’s investment climate, her jobs plan doesn’t include the necessary policies to make the province a job-creating machine.