The B.C. government will balance the budget, eliminate its operating debt one year early, invest $1 billion in universal daycare, break records for capital spending, eliminate Medical Services Plan (MSP) premiums by 2020 and increase taxes by $4.4 billion over three years.
For businesses, the most significant new measure is the replacement of MSP premiums with a 1% to 2% payroll tax that will be paid by employers.
Employers who currently cover their employees' MSP premiums may feel little impact, but for those businesses that don't cover MSP premiums, it amounts to a new business tax.
The “employer health tax” will cost a business with a payroll of $1.5 million $29,250 annually. A business with a payroll exceeding $1.5 million would pay $29,250 plus 1.95%. A business with a payroll of less than $500,000 would pay no tax.
The new payroll tax will raise an estimated $463 million in the first year and rise to $1.9 billion in 2020-21, which only partly offsets the loss in revenue from the elimination of MSP premiums.
In her first full budget Tuesday (February 20), B.C. Finance Minister Carole James announced a three-year plan that projects annual surpluses of $219 million to $284 million, despite having to absorb $800 million in debt from the Insurance Corp. of British Columbia (ICBC).
James credited a strong and growing economy for being able to increase spending without resorting to deficits, although it does include a range of new taxes or tax increases.
“Budget 2018 is balanced, with surpluses forecast each year,” James said. “It's affordable, and it incorporates several layers of prudence, including robust forecast allowances and contingencies.
“Our economy is growing and because of that ... Government's direct operating debt is projected to be eliminated in 2018-19, one year earlier than forecast. This will be the first time government has been direct operating debt-free in over 40 years.”
To pay for the increased spending, the government will increase tax revenue by $4.4 billion over three years, through the new payroll tax, a suite of new real estate related taxes – mostly aimed at curbing speculation – rising carbon taxes, and hikes – announced in the last mini budget in September 2017 – to corporate taxes and higher income earners.
The government is anticipating only $50 million in the first year in taxes from recreational marijuana, which becomes legal this summer, and $75 million annually over the next two years.
Asked to defend more than $4 billion in tax hikes, James said: “We believe it does provide a balanced approach to a fair tax system.”
She pointed out that some of the new taxes are aimed at correcting speculation in real estate and are offset by things like the elimination of PST on power sales for business.
The government expects to see revenue from income tax increase by $1 billion this year, compared with the 2017-18 fiscal year (from $8.8 billion to $9.8 billion), and reach $10.6 billion by 2020-21.
That represents annual per capita increases of 5.2% for income tax revenue, while tax revenue from natural resources is expected to fall 4% annually.
The three-year plan includes $26 billion in capital spending for schools, hospital, bridges and roads – the largest capital spending program in B.C. history, James said. She added that the capital spending will create 50,000 construction jobs.
Line items in the capital budget include the replacement of the Pattullo Bridge, but not the George Massey tunnel.
New spending on the operating side over three years includes:
•$1 billion for child care
•$1.6 billion on housing
•$1.5 billion for health care
•$409 million for K-12 education.
While businesses will pay a new payroll tax, they will see the PST they pay on electricity, which has already been halved, eliminated by April 1, 2019 – a move the government calculates will save companies $150 million annually.
Other measures on taxes and fees include:
•foreign buyer’s tax increases from 15% to 20% and is expanded to five other regional districts;
•PST on luxury vehicles, new or used, increases to 15% from 10% for vehicles worth $125,000 and to 20% for vehicles worth $150,000 or more;
•PST on electricity sales for business to be phased out by April 1, 2019;
•tobacco tax increases to $0.27 from $0.25 per cigarette;
•property tax revenue expected to rise 9.3% annually;
•BC Ferries fares frozen on three major routes and cut by 15% on minor routes.
James' budget focuses heavily on affordability issues, from housing and daycare to increased spending on health care and reducing prescription drug costs.
James said the 2018 budget “marks the beginning of a made-in-B.C. universal child care program” that will be good for businesses, not just families.
“Businesses are also feeling the impact of parents who can't get back into the workforce ... or they're struggling with days off because their child care situation isn't working out,” James said.
The child care spending plan includes a new child care benefit of up to $1,250 per child per month, $350 per child in direct funding to licensed child care providers, as well as funding to train more early childhood educators.
One potential storm cloud on the fiscal horizon is ICBC, which faces a $1 billion deficit in 2018-19 that the government is assuming. The government recently announced reforms that reduce ICBC's costs by about $800 million.
Even with those reforms, however, the government is projecting ICBC will still be in the red for the next two years: $684 million in 2018-19 and $21 million in 2019-20. James said she hopes to have ICBC restored to a balanced budget by 2020-21.
“I continue to be concerned about what we're seeing with ICBC, and so that's one that we're going to have to watch” she said.
“I think what's so frustrating about the issue of ICBC and the situation we're faced with is that that could have been predicted and there were changes that could have taken place to be able to address this crisis.”
Despite ICBC's drain on government coffers, the government is projecting it can both retire the province's operating debt in 2019, one year earlier than expected, and bring in surpluses ranging from $219 million to $284 million over the next three years.
The government conservatively estimates GDP growth of 2.3% in 2018, and 2% in 2019, and has built in forecast allowances of $350 in 2018-19.