Mini-budget a prelude to spending spree, B.C. business groups fear

NDP has already eliminated wiggle room needed in event of economic correction: GVBOT

B.C. Finance Minister Carole James presenting her first budget: “we believe those at the top can pay a little bit more” | Government of B.C.

Businesses in B.C. will pay higher corporate and carbon taxes, but will see some offsets in the form of lower sales taxes on electricity and – for those few that cover their employees’ Medical Services Plan (MSP) premiums – lower premiums.

The small-business tax will be cut 0.5%.

Half the earnings of British Columbians who are paid $150,000 a year or more will now be taxed, thanks to an increase in the marginal tax rate for the highest income tax bracket that – when combined with a recent federal hike – puts the combined income tax rate at 50% for higher-income earners in B.C.

“We believe those at the top can pay a little bit more to be able to contribute to the services and programs that need to be provided for all British Columbians,” Finance Minister Carole James said last week, when delivering her first budget.

The budget update calls for $2.7 billion in additional spending over three years – including $500 million to cover the cost of fighting this year’s wildfires – and $1.8 billion in additional tax revenue.

The budget continues many of the commitments made in the Liberal budget, with a few tweaks, including a move to cut MSP premiums and the PST on electricity by half.

The government will cut PST on power sales to 3.5% from 7% in the fall and eliminate it entirely by April 2019.

Despite the large increase in spending, the province is in such good fiscal shape that the government is forecasting a $246 million surplus for 2017-18.

B.C.’s gross domestic product growth has been higher than forecast in the Liberals’ February budget as employment, new housing starts, retail sales and exports have all exceeded expectations.

However, the Economic Forecast Council predicts a cooling in the economy from 3.6% GDP growth in 2016 to 3% in 2017 and 2.3% in 2018.

Overall, business groups say they can live with the new BC NDP government budget update and even praise it for at least being balanced, although the Greater Vancouver Board of Trade (GVBOT) warns that British Columbians haven’t seen the full bill yet for all of the NDP promises.

Citing rent supplements, $10-a-day child care and phasing out of MSP premiums, GVBOT CEO Iain Black warned: “Those are very, very expensive promises, and there’s no sign where they’re going to get the money for it to pay for them once they decide to implement them.”

The previous Liberal government left the NDP with a $2.7 billion surplus for 2016-17, which will allow the government to eliminate its operating debt by 2020.

“B.C. is lucky to be starting from a better fiscal position than any other province,” said Alexandre Laurin, director of research for the C.D. Howe Institute. “Not only is the budget balanced to start with, it has a very low debt, and looking at long-term projections, things don’t look so bad for B.C., compared to some other provinces.”

It’s not what was in last week’s budget update that worries some business groups, however – it’s what will show up in the new government’s first full budget in February.

Absent from last week’s budget was the NDP’s $10-a-day-child-care promise, which the Canadian Taxpayers Federation estimates will blow a $1.3 billion annual hole in the provincial budget.

The NDP does not yet have the BC Green Party’s backing on that plan, although the two parties have similar aspirations when it comes to dramatically increasing spending on child care.

Black warns that the NDP’s spending plans could, at some point, stall B.C.’s economic growth.

“They have inherited a red-hot economic engine that has been performing in the top of all Canadian provinces in most of – if not all of – the last 10 years,” he said, adding that is almost certainly due for a correction over the next two or three years.

“Rather than taking some steps to fortify the economic performance and extend the run that we’re on, our concern is they’ve set us up to take quite a stumble when the economy starts to slow down. And, indeed, it’s possible that some of their own decisions will trigger that slowdown.”

He also expressed concern about the shifting of self-sustaining debt from bridge tolls to taxpayer-supported debt and the impact that might have on B.C.’s credit rating.

Starting in April, the carbon tax will rise to $35 per tonne from $30. That will be new money, because the NDP government is abandoning the tax’s revenue neutrality requirements. Some of the additional revenue will be offset, however, with individual rebates to lower-income citizens.

For businesses, the most significant item in the budget is a 1% increase to corporate taxes. That is not a significant hike, compared with other provinces, said Rhys Kesselman, a professor at Simon Fraser University’s School of Public Policy.

“It leaves B.C. in the middle of the pack,” he said.

The updated three-year plan contains $14.6 billion in capital spending over three years, but doesn’t including funding for the $3.5 billion George Massey Tunnel replacement project. That project is now under review.

The $2.7 billion increase in spending over three years is mostly on the operating side: $1.8 billion over three years. Another $930 million is earmarked for additional capital spending.

Of the new operating budget spending, key line items include:

•$674 million for affordable housing;

•$681 million in increased spending for the K-12 public school system;

•$603 million for health care;

•$506 million to cover cost of fighting wildfires;

•$472 million to increase social assistance rates;

•$479 million to eliminate bridge tolls; and

•$322 million to deal with the fentanyl crisis.

New spending initiatives of note include:

•$208 million over four years for the construction of 1,700 new units of affordable housing;

•$291 million for 2,000 modular units for the homeless;

•$681 million over three years to reduce class sizes in public schools and the hiring of 3,500 additional teachers;

•$603 million for the base budget of the Ministry of Health – nearly half of which ($265 million) will be earmarked for the opioid crisis; and

•$25 million over three years to set up the new Ministry of Mental Health and Addictions and $32 million for additional policing to crack down on the fentanyl drug trade.