Election results could spell trouble for B.C.’s tax competitiveness
While the final outcome of B.C.’s election is far from certain, it’s worth considering what a minority government could mean for provincial tax policy. As things currently stand, a majority of MLAs headed to Victoria belong to parties committed to raising economically damaging taxes. This could spell trouble for B.C.’s tax competitiveness and the province’s economic prospects. Our political leaders would do well to prioritize the economic well-being of British Columbians over party politics.
The election platforms of the NDP and Greens both propose hiking B.C.’s general corporate tax rate and top personal tax rate, while the Liberals support the status quo on these two key taxes. In the context of a Liberal minority government, the NDP and Greens would likely pressure the Liberals to acquiesce to their demands. But even if the Liberals resist, the status quo is itself problematic.
Here’s the current reality—B.C. is uncompetitive in Canada and internationally when it comes to overall business taxes and has the potential to become less-competitive on personal taxes, particularly if rates rise and President Trump enacts his proposed tax plans in the U.S.
B.C. has one of the highest overall tax rates on new investment in Canada and the developed world. While B.C. may have a lower corporate income tax rate compared to other provinces, this tax is only one of many factors that affect the overall taxation of new investment.
The main driver of B.C.’s high overall rate is the PST, which taxes business inputs (machines, equipment, materials, energy and other items) used by entrepreneurs to produce and sell their goods and services. This significantly raises the cost of investment in the province, making the PST a particularly damaging tax—an issue none of the parties propose to do anything meaningful about.
The high tax on investment is a contributing factor to why B.C. has the third lowest investment level in Canada and why investment per-worker in B.C. is a fraction (just three-quarters) of the average in industrialized countries.
This matters, because it means B.C.’s standard of living is less than it could otherwise be. When businesses invest in machinery, equipment and technology, workers are able to produce more and create higher-valued output for each hour they work, increasing productivity. And increased productivity ultimately leads to higher wages and living standards.
Investment also creates jobs and opportunities for British Columbians, and leads to new and improved products and services that improve people’s lives. By many measures, investment helps propel economic well-being.
Yet the NDP and Green Party platforms propose to further discourage investment by increasing the corporate tax rate (currently at 11 per cent). The Liberal plan to largely stick to the status quo on business taxes is also unhelpful, particularly in light of a potential major corporate tax cut in the U.S.
In addition to corporate taxes, the NDP and Greens want to raise the carbon tax—the NDP supports the federal mandate to increase the tax from $30 to $50 per tonne. The Greens are calling for a $70 per tonne carbon tax. Raising the carbon tax, especially without offsetting tax reductions elsewhere, will increase the cost of doing business in B.C. Consumers will pay indirectly as higher production and transportation costs drive up consumer prices, and directly as the cost of consuming gasoline and natural gas goes up.
When it comes to personal income taxes, B.C.’s top rate is currently 47.7 per cent after accounting for federal taxes. B.C.’s top rate fares well compared to other provinces but is decidedly uncompetitive with most U.S. states including Washington State, which has no state-level personal income tax.
Both the NDP and Greens want to push B.C.’s top rate to around 50 per cent. Again, even the Liberal’s support for the status quo will erode our tax competitiveness if the U.S. cuts its personal tax rates. Put simply, raising the top rate will discourage economic activity in the province, making it harder to attract and retain top talent including entrepreneurs and business professionals.
So far, the election results do not bold well for B.C.’s tax competiveness. Hopefully MLAs will prioritize the prosperity of British Columbians over their party’s political aspirations.