As a new B.C. provincial government gets ready to assume office, there is an opportunity for a fresh agenda and new perspectives. The BC NDP government will inherit an economy that has been outpacing the rest of the country in the growth of overall output, employment and consumer spending. However, B.C. also faces several structural challenges that in some ways belie the happy picture of robust economic growth. These challenges include excessive reliance on a frothy housing market and outsized real estate sector; alarming levels of household debt; tepid productivity growth; sluggish business investment; waning competitiveness in some key segments of the province’s export economy; and a housing affordability crisis that is affecting many parts of the Lower Mainland.
In these circumstances, the new government will need to proceed carefully in defining and implementing its policy agenda.
On tax policy: The NDP platform pledged to raise business and carbon taxes and to institute a new, higher tax rate on individual incomes starting at $150,000. An agenda of rising taxes is sure to give many employers and investors pause. Of particular concern, adopting a steeper top tax rate will bring the highest combined federal-provincial tax rate for skilled workers to approximately 50%, up six points from where it stood in 2015 (this mainly reflects the Trudeau government’s 2016 budget, which hiked the top federal tax rate by four points).
Higher personal tax rates will make it harder for employers to hire and motivate talent and act as a headwind to growth in both the technology sector and other industries that depend on innovation and human capital to thrive. If B.C. develops a reputation as a high-tax jurisdiction, we will lose ground in the quest to attract and retain skilled people, grow corporate head offices and expand the number of high-paying jobs.
On natural resources policy: The forestry, mining, energy, and agri-food industries continue to supply the bulk of the province’s exports and manufacturing shipments. The economic vitality of these industries is central to our prosperity. Looking ahead, B.C. must strive to remain open for business across the natural resources sector – as well as for investment in the infrastructure assets that shape the competitive landscape for the broader western Canadian resource economy. Policies that add costs and undermine the competitiveness of our resource industries can only lead to job losses – both in rural communities and in Metro Vancouver.
On economic diversification: It is time to put greater emphasis on the economic contributions and potential of the high-technology sector, the digital economy, advanced manufacturing, tourism and other tradable services such as engineering, design, finance, and technical, scientific and environmental services. We believe B.C. would benefit from the creation of a high-profile ministry of industry, innovation and technology with a mandate to drive policy and program development in areas that influence the growth of these dynamic sectors.
On housing policy: We offer two suggestions.
First, the province should continue to reform real estate practices by requiring greater transparency around the identity of property purchasers, scaling back the use of offshore trusts and shell companies in real estate transactions, ensuring that individuals claiming the “principal residence” capital gains tax exemption actually qualify as residents, discouraging short-term flipping of properties and raising the property tax burden on non-residents and other non-Canadian owners who pay little or no Canadian income tax.
Second, the B.C. government should give a higher priority to boosting the stock of rental housing in urban communities. Here, consideration could be given to using tax incentives to spur the development (and redevelopment) of purpose-built rental housing targeted at middle-income earners and families. The province also needs to take a leadership role with local governments to reduce approval times for residential projects, lower (or waive) municipal development cost charges for new purpose-built rental units and encourage increased densification along transit routes. It is sometimes overlooked that one-third of households in the Lower Mainland rent. The reality, certainly in Greater Vancouver, is that homeownership is (or is fast becoming) out of reach for more and more working residents, due to a constrained land supply and a rising population propelled by immigration. In this situation, not only are land prices likely to stay high, they can also be expected to climb further over time. As in much of western Europe, renting needs to be seen as a viable long-term option for people living in increasingly expensive metropolitan regions.•
Jock Finlayson is the Business Council of British Columbia’s executive vice-president and chief policy officer; Ken Peacock is the council’s chief economist.