Earlier today British Columbia's new government released a budget update in Victoria.
Below is an analysis of Budget 2017 Update from the Greater Vancouver Board of Trade, outlining some of the government's key announcements and the impact those decisions may have on our Members and our region's business community moving forward.
Today's announcement was an interim update that formally launched the new government's mandate. The government is now taking steps towards fulfilling NDP election promises, and any available money within this fiscal has been allocated to that end.
Many expensive promises remain, however, without a clear indication as to where that money will come from. The February 2018 budget is expected to reveal much about the taxation framework needed to fund the government's vision for British Columbia.
A 0.5% small business tax reduction is welcome, but overshadowed by tax increases at the personal level, corporate level, an increase in B.C.'s no-longer-revenue-neutral carbon tax, and the corresponding pending changes by the federal government as to how small business owners can manage their affairs.
Some of the tax increases and other policies revealed today do not help attract the investment needed to create jobs and sustain/grow our economy. Continued policy shifts of this nature will put at risk our status as an attractive region in which to invest.
The state of the province
- The update confirmed that B.C.'s economy continues to perform very well, with employment now at almost 2.5 million (just off an all-time high), and a strong outlook over the next few years, all things being equal. Retail sales (consumer spending), real estate and exports continue to be the key drivers of our provincial economy.
- The government continues to predict balanced budgets over the three-year term, though there is a significant change in the debt profile of B.C., notably our taxpayer-supported debt, which is scheduled to increase more than 17% over the next three years.
- The government identified wildfires, ICBC, NAFTA, collective bargaining (on the horizon) and increasing interest rates as risks to their revised plans.
Today's budget update contained several steps consistent with the NDP Election Platform and their agreement with the BC Green Party and reiterated a number of recent announcements.
The themes repeated throughout the materials were similar to the election campaign verbiage of "improve affordability, enhance services, and building a strong and sustainable economy.
- MSP premiums will decrease by 50% for all British Columbians starting January 2018. Tables in the budget documents show this being paid for by carbon tax revenues, which are predominantly paid by businesses.
- Investments in affordable rental housing ($208 million over four years) and modular housing units for the homeless ($291 million over two years).
- $479 million spent over the next three years removing the tolls from the Port Mann and Golden Ears bridges. Note: Only the first year of Golden Ears tolls are included in that number, as negotiations with TransLink (who own the bridge) are ongoing for years two and three. So, that number will increase.
- $681 million increase for K-12 education.
- $322 million expenditure on the fentanyl emergency.
- Confirmation of government's intent to raise the minimum wage to $15/hour via the creation of the Fair Wages Commission.
- Increasing the general corporate tax rate from 11% to 12%.
- Increasing the individual income tax rate from 14.7% to 16.8% on taxable income over $150,000.
- Increasing the carbon tax by $5 per tonne, rising to $50 per tonne by 2021.
Because this was an update to Budget 2017-18, the Greater Vancouver Board of Trade did not issue a letter grade or report card.
Below are some of our key reactions to today's announcement.
Some appropriate expenditures. We applaud the government for making some meaningful investments in some of our province's most vulnerable. We also applaud the reduction of the small business tax rate by 0.5% and the phasing out of PST on electricity.
Any fiscal wiggle room has been used... and questions remain. While the government is still forecasting a balanced budget, all the elasticity (read: available money) in the current fiscal has now been used up with the new taxation and spending measures announced today. At the same time, many of the NDP's expensive election commitments remain unfunded and unannounced (for example, $10/day childcare, $400/month renters' supplement, and so on).
In addition, there are material expenditures missing from the operating budgets going forward, such as the Golden Ears bridge toll fees removal in year two and beyond, the one-third replacement cost of the Pattullo bridge (which was to be funded by tolls) and the second 50% of the promised 100% MSP premiums reduction.
Businesses and professionals will be paying more tax. With those as-yet unfunded costs looming on the horizon, today's budget update has already imposed new tax increases on business and higher earning employees. The increased corporate tax rate, the increased carbon tax (and its changed status of being no-longer-revenue-neutral), and the increases to personal income tax rates at management and professional-earning levels are all problematic for the business community. Moreover, the reduction of the MSP premiums is being funded by the carbon tax, which is predominantly paid by the business community. This is effectively just transferring the source of payment onto business.
B.C.'s credit rating at risk? In addition, spending plans over the next three years (before the February 2018 full budget modifies them further) sees B.C.'s taxpayer-supported debt increase by over 17%, and our debt-to-revenue ratio increase from 82% to 93%. (Note that a ratio of over 90% has been identified by bond rating agencies as being problematic for retaining our valued AAA-credit rating).
Should this changing profile of our province's balance sheet result in a credit rating downgrade, the impact will be hundreds of millions of dollars being committed to interest rate payments, instead of services or tax reductions.