Policy & Positions Manual
Policy Priority Area - Competitive Taxation and Regulation
A Sustainable Fiscal Policy For British Columbia (2010)
Over the past few years, the Provincial Government under the direction of the Ministry of Finance has made credible and very laudable strides in balancing its budget while maintaining many of the services that British Columbians both expect and rely on. However, the onset of the global financial crisis has demonstrated that external global realities will have a direct impact on the revenues of government (at the provincial and federal levels) and, therefore, on governments’ ability to fund services and programs relied on by many British Columbians.
The Chamber believes that there is an immediate need for Government to undertake a focused review of its approach to fiscal prudence to ensure that BC remains the envy of the world. This requires specific focus on the foundations of sound fiscal management; spending, debt and taxation.
Spending
As we strive to ensure that all programs and services that rely to some degree on government funding are provided certainty and security around their funding arrangements, the Chamber believes that there is a need for fundamental reform of the manner in which Government approaches funding.
This is particularly relevant given the fact that we have seen a marked increase in Government program spending over the past five years in BC. The figures below (in millions of dollars) illustrate the spending per year:
Total for BC:
- 2001-2002: 27,923
- 2004-2005: 28,340
- 2008-2009: 36,106 (Increases have been roughly 1.5 – 2 M per year since 2005)
Per Capita:
- 2001-2002: 7,917 3
- 2004-2005: 7,235
- 2008-2009: 8,052
While the Chamber recognizes that much of the current funding goes towards maintaining essential services, the current fiscal reality has highlighted the need for all spending needs to have measurable outcomes and avoid unsustainable situations that both increase the deficit and contribute to provincial debt.
Despite this strong foundation, BC is a small, open trading jurisdiction which has experienced similar economic impacts as other parts of the industrial world. There have been dramatic reductions in Provincial revenue and as a result. The Government has been forced to table a deficit budget, and projects continued deficits through to 2013-4. This has resulted in government announcing significant cuts in a range of areas; cuts which have been greeted with significant concern in the public arena. The Chamber believes that much of this opposition is a direct result of increases in ongoing, open-ended program spending that have come with no achievable and measurable outcomes. This has led to a sense of entitlement from many recipients of public money that feeds an unsustainable cycle. Increases in public spending lead to increased expectations, which in turn lead to increased demand.
This does not mean that the Chamber is calling on government to arbitrarily reduce or eliminate program spending to organizations and agencies that provide critical services to the community. Indeed the Chamber has been clear, provision of services on a cost effective basis will often mean that these services should be provided by independent agencies. With that said there is little public information and transparency regarding the renewal provisions of these programs, both in terms of frequency and in terms of measurable outcomes. As such it seems clear to the Chamber, reform over the provision of government funding requires fundamental reform to ensure that that the public interest is measured against the public purses ability to pay.
The BC Government projected a balanced budget by 2013 when Budget 2010 was delivered. The keys to achieving this must be through spending restraint, not through tax increases. Given the current economic climate following the crisis of 2008- 2009, the Chamber is calling for prudence and selectivity for future provincial spending projects. The Chamber accepts that some investments in the recovery climate of 2010 will increase the debt, providing that the increased debt brings a good return on the investment and allows for additional program spending during times of relative surplus. Reducing the deficit can be achieved by the Government selectively pursuing spending programs and infrastructure projects to ensure that public money is being used efficiently to create growth. This will help to decrease the deficit more quickly and ensure that the total provincial debt does not continue to climb.
Crown Corporations
The Chamber recognizes that many Crown Corporations in BC provide critical services for British Columbians (insurance for example). However, the fact that these are important services does not necessitate that these services should be provided by a public entity, nor that this entity provides a better, more cost sensitive approach than that which would be provided by a private sector organization operating under agreement with the province.
The Provincial Government has recognized the need for review of organizations that provides critical services with the report of the Comptroller General’s review of the governance model of Translink and BC Ferries. At its core this review was focused on the taxpayer interest in the current structures of these organizations. The Chamber believes that this principle should be extended to a review of all other Crown Corporations, to review whether the services provided by these entities can be provided more cost effectively, while maintaining service levels and public trust, through the transfer (either in whole or in part) of a public organization into private ownership or operation.
For too long Crown Corporations have enshrined monopolies in areas that are not the remit of government but are rightly the role of the market to ensure choice, innovation and competition. It is the belief of the Chamber that the principle tenet of government must be to focus its activities on providing the services and providing the security that is the inherent transfer of trust and responsibility between the people and their government. As a stark example, participating in the retail business of liquor and insurance sales does not meet this central tenet and simply reduces choice and open competitive markets – principle philosophies of the current government.
Debt
The Chamber appreciates that much of the increases to the provincial debt have derived from the Provincial Government’s commitment to a significant capital infrastructure investment program. The Chamber continues to support the need to address the significant investment deficit that is the result of a long history of under investment in capital infrastructure. However, the current economic climate necessitates that future investments also mitigate costs for future generations.
The effects of the global economic downturn and current projected increases in program and infrastructure expenditures contained in Budget 2010 will greatly increase the provincial debt.
Provincial Debt
|
Sept |
Updated |
Budget Estimate |
Plan |
Plan |
Government direct operating debt |
7,467 |
6,182 |
7,511 |
8,209 |
7,838 |
Taxpayer-supported debt |
30,593 |
29,093 |
33,748 |
36,720 |
38,329 |
Total debt |
42,332 |
41,318 |
47,757 |
52,363 |
55,862 |
Government direct operating debt-to-GDP ratio |
4.0% |
3.3% |
3.8% |
4.0% |
3.6% |
Taxpayer-supported debt-to-GDP ratio |
16.2% |
15.5% |
17.2% |
17.9% |
17.8% |
Total debt-to GDP ratio |
22.4% |
22.0% |
24.3% |
25.5% |
25.9% |
The provincial debt burden is expected to continue to climb from $ 42,332 billion in 2010 to $ 55,862 billion by 2012/13. Growth in the taxpayer-supported debt burden in excess of 30% is of considerable concern to the Chamber, especially without a legislated plan to reduce the burden for future generations.
A key measurement of debt is the taxpayer supporter debt to GDP ratio. This covers the amount of debt that is born by taxpayers in relation to the amount of money the province earns from economic activity. This will climb from 15.5% in March 2010 to 17.9% in 2011/12.
Budget 2010 reaffirms the commitment that once the province returns to balanced budgets in 2013, all surpluses will be dedicated to paying down the Province’s operating debt (should this be eliminating the province’s operating deficit). This will be important to reduce one contributing factor to the overall debt, but it will not have any effect on the total debt itself; which is the main area of Chamber concern. Furthermore, waiting three years to begin such payments means that the taxpayer-supported debt will continue to rise, mainly due to the significant infrastructure investments planned over the next three years.
Taxation
British Columbia has one of the lowest tax rates for both personal and corporate income in Canada, which is a direct result of action taken by the Provincial Government. The Chamber is very supportive of this initiative, and looks forward to 2012 when there will be further reductions in this area as outlined by Budget 2010.
Indeed by 2012 BC will have a personal income tax rate that means anybody earning $118,000 or less in BC will have the lowest personal income tax rates in Canada (if you earn more than $118,000 you will have the second lowest). BC’s corporate income tax rates will be 10%, meaning it will have a combined provincial/federal rate of 25%, the lowest in Canada and joint lowest in the G8 for small business (defined as $500,000 or less annual revenue), and the small business tax rate will be zero.
The combination of these tax reductions with the introduction of HST will see the province become one of the most competitive taxation jurisdictions in the world. The Chamber believes that it is critical that government not only ensure that these tax cuts are fully implemented within the timetable announced but also that government continue to review our competitive position in relation to key competing markets on an ongoing basis. BC currently has a competitive advantage. The Chamber does not believe that tax cuts are needed beyond those already announced, but should other jurisdictions reduce taxes then it is incumbent on the provincial government to take the necessary steps to maintain our comparative advantage.
Should further tax cuts become necessary the Chamber believes that it is important that these cuts focus on personal and business income taxes, which act as an impediment to investment, work and savings. While the Chamber does not believe that further tax cuts are either fiscally feasible or required to maintain our competitive position, the Chamber does maintain that there is a need to fundamentally reform one key area of taxation that is having a significant impact on our competitiveness and is unfairly burdening business, property tax.
The Chamber believes that the government’s cautious approach to Provincial revenue projections, as outlined in Budget 2010, is an overly prudent one. In order to reduce the taxpayers’ exposure to financial risk, the government will need to ensure that the deficit is reduced in advance of the 2013 projection. This can be achieved through a less cautious approach to the growth of provincial revenue, and by pursuing provincial program and infrastructure spending on a selective basis. British Columbia has not been immune to the global recession, nor will it be immune to increases in international interest rates. Pursuing program and infrastructure spending in 2010 that will not directly create economic growth will unduly expose British Columbians to certain financial risk. Judicious government spending and a less cautious approach to provincial revenue growth can reduce the deficit before 2013 and limit the growth of provincial debt.
THE CHAMBER RECOMMENDS
That the Provincial Government:
Spending
- Starting in fiscal 2011 adopt a Smart Spending Program that:
a ) introduces a coordinated approach to government spending by ensuring
increases are within the range of growth in real GDP across all government
spending;b) continue to review all direct program spending and operating costs on a four-
year cycle that does not coincide with an election year to determine the cost-
effectiveness of government spending;
Crown Corporations
- introduce a taxpayer lens which would allow government to review, on a cycle that is in keeping with the fundamental planning of the crown corporation, all Crown holdings to see whether taxpayers interests are better served by transferring control, in whole or in part, of a publicly owned and operated enterprise to the private sector;
Debt
- Once balanced budgets are achieved, legislate a requirement that the provincial budget dedicate at least 50% of surpluses directly to debt repayment;
- Maintain this requirement until the total provincial taxpayer supported debt-to-GDP ratio is reduced to 10%; and
Taxation
- Continue with their plans to make BC one of the most tax competitive regions in the world by implement the plans laid in Budget 2010 to further reduce personal and corporate income tax and to the rates set for 2012.
