Fiscal & Tax Policy
As a small, open trading region, BC depends on investment and trade to support ongoing economic development and public services. A competitive tax regime and balanced government finances are key advantages in attracting investments to BC. The Council plays an important role in analyzing BC’s fiscal policies relative to other jurisdictions and advocating for reforms that boost our competitiveness.
Finlayson, Ragan Op-Ed: We need a serious discussion about congestion pricing (Vancouver Sun)
In the past year, public debate in Metro Vancouver has focused heavily on how to pay for new transportation capacity. But there is a critical missing piece in this mobility puzzle. Improved transit services and more investment in roads are needed but they aren’t enough. Experience shows that we can’t just build our way out of gridlock. We won’t solve the problem of traffic congestion without also changing the underlying incentives. That’s why we need a serious discussion about congestion pricing.
This summer’s transit referendum was about how to pay for new transit investments. Its failure doesn’t signal that people are happy being stuck in traffic; nor does it signal that we are using our current infrastructure efficiently. There are several things that pretty much everyone agrees with regarding transportation in Metro Vancouver. First, traffic congestion is extremely costly: time lost in traffic costs people and businesses in the region at least $1.4 billion per year. Second, more and expanded public-transit options are necessary, as are maintenance, repairs and upgrading of existing roads and bridges. Third, those transportation investments somehow will have to be made, for neither businesses nor residents can afford to live without them indefinitely.
Another point of agreement is that traffic congestion is getting worse. Given that Metro Vancouver’s population is projected to grow by about million people over the next 25 years, one can easily imagine how bad things could get. As population and port activities increase, container truck traffic will also grow. Who pays for the time that trucks spend idling on backed-up highways and arterial roads? These time delays raise costs for businesses and increase prices for consumers. We all pay for traffic congestion.
Finlayson Op-Ed: 3 Reasons we don't need to worry about inflation (Troy Media & Business in Vancouver)
Across most of the advanced economies, inflation is running well below the rates targeted by central banks. In the United States, the principal inflation measure tracked by the Federal Reserve sits at barely 1 per cent, despite an expanding economy and a tightening labour market. In Japan and Eurozone, central banks have set policy interest rates at zero and are aggressively pumping money into the economy to avoid deflation – defined as a generalized fall in prices. In both the UK and Canada, the short-term policy interest rates directly controlled by central banks remain near all-time lows. Almost everywhere, financial markets seem to be discounting the prospect of higher inflation. As Bank of England Governor Mark Carney recently observed, even today, some six years after the bottom of the 2008-09 slump, “there are profound secular and cyclical disinflationary forces at work in the global economy.”
Looking ahead, an argument can be made that we should worry less about the prospect of escalating costs and prices across multiple markets for goods, services, labour, and raw materials – i.e., about inflation. There are several reasons why.
Finlayson Op-Ed: Tax policies discourage small business from getting bigger (Troy Media)
The latest federal budget confirms and reinforces what seems to be an enduring belief among many Canadian policy-makers that it is better for enterprises to stay small than to build up their top lines, bottom lines and employee head counts. According to Budget 2015, the Conservative government plans to lower the federal small business income tax rate from 11 per cent to 9 per cent by 2019. The rate reductions will come in four half-point steps, starting in January 2016. There is to be no change in the general federal corporate tax rate on income above the small business threshold level ($500,000) – that rate remains at 15 per cent.
All of the provinces follow the same general approach as Ottawa, by setting their small business tax rates below the rates charged to medium-sized and larger firms. British Columbia, to take one example, presently levies a 2.5 per cent small business tax, while imposing an 11.0 per cent tax on earned income above the threshold amount. The net result is summarized in the accompanying table: the combined federal/B.C. tax rate on small business income is currently about half of the rate on other income, with the gap set to widen over the next few years.
Amid an Oil Price Collapse…The Harper Government Delivers on its Balanced Budget Promise
The steep drop in the price of oil and related impact on federal finances prompted the Conservative government to delay bringing down the Budget. But despite a $6 billion hit to Ottawa’s revenues, Finance Minister Joe Oliver was determined to meet the government’s commitment to balance the operating budget by fiscal 2015-16, after seven years of red ink. Doing so required adding some modest amounts from asset sales and shrinking the contingency reserve, but in the end the government managed to erase last year’s small deficit ($2 billion) and is forecasting a razor-thin $1.4 billion surplus for 2015-16.
Canada’s Environment for Entrepreneurship Compares Favourably
Entrepreneurship is an important source of innovation, economic growth and job creation. As such, greater attention is being paid to the role of public policy in fostering entrepreneurial activity. Governments and international organizations are working to better understand and measure the factors that influence and support entrepreneurial activity. The Organization for Economic Coordination and Development (OECD), for example, has developed a framework – Indicators of Entrepreneurial Determinants – that outlines some of the different factors it has identified as influencing entrepreneurship. The framework provides international benchmarks for factors linked to business entrepreneurship. Recognizing the need to better understand and quantify entrepreneurship, Industry Canada has prepared a research series that applies the OECD framework to the Canadian context. The first in the Industry Canada series examines how Canada performs on two of the OECD’s six categories: Regulatory Framework and Market Conditions.
Finlayson Op-Ed: The Sobering Reality Behind Business Incentives (Troy Media)
Recent news stories from both sides of the Canada-U.S. border highlight the growing role of business incentives and “subsidies” in shaping the climate for corporate location and expansion decisions.
The big three U.S. automobile producers are in the midst of downgrading their presence in Ontario as they build new plants in various American states as well as Mexico. Asian and European automobile producers are also stepping up capital spending in the U.S. and Mexico.
One of the factors behind this trend is the rich incentive packages provided by U.S. state and local governments keen to secure auto-related manufacturing plants and jobs. While Ontario and the Canadian government have also been prepared to spend taxpayers’ money to lure automobile investment, so far they have been unwilling to match the stupendous sums on offer in states such as Kentucky, South Carolina, Tennessee, and Michigan.
A Note on Business Tax Competitiveness in British Columbia
It’s slightly more than one year since BC scrapped the Harmonized Sales Tax (HST) and returned to the former Provincial Sales Tax (PST) as the main tax on “consumption” in British Columbia. Now is therefore an opportune time to step back and assess the broader business tax structure and its impact on BC’s attractiveness as a place to invest and do business. This issue of Policy Perspectives considers several features of the tax system that impinge on business investment, expansion, and job creation. We do not examine the taxes paid by households – the focus here is on taxes that apply to enterprises and business activity.
A Snapshot of Government Debt Across the Land
The start of the 2014 government budget season is an opportune moment to update the figures on accumulated public sector debt for Canada’s ten provinces as well as the national government.
Federal Budget 2014 -
Following Through: No Surprises Federal Budget Moves to Surplus
Getting back to surplus remains the cornerstone of federal budgeting. With the deficit having swelled to more than $55 billion in the aftermath of the 2008-09 Great Recession and Financial Crisis, Finance Minister Jim Flaherty delivered a budget that has the government on the cusp of returning to the black. This is an admirable accomplishment, one achieved without any significant tax increases and involving a hefty dollop of restraint after spending had been ramped up during and after the recession.
The Location of Corporate Headquarters in a Shifting Global Business Landscape
Emerging economies now account for roughly half of world economic output (measured using purchasing-power-parity exchange rates), and their share is projected to continue growing over the next several years and beyond. As they loom larger in global markets, emerging economies are also becoming more important as centers for all kinds of businesses, including the major multinational enterprises (MNEs) that traditionally have been concentrated in a handful of mature Western economies.
The Economic Benefits of Encouraging Small Businesses to Grow
The role of small businesses necessarily features prominently in any discussion of the British Columbia economy. Indeed, it is no exaggeration to say that an orientation toward small businesses is a defining characteristic of the province’s private sector.
Finlayson: Tax the rich! Oh, wait, we already do (Vancouver Sun)
The federal budget presented last March offered a timely reminder of something that many Canadians may not realize: a surprisingly big slice of the federal government's overall revenues comes from a single source, the personal income tax (PIT).
BC Agenda For Shared Prosperity Final Report
September 25, 2013 (Vancouver, BC) – The Business Council of British Columbia and the British Columbia Chamber of Commerce today released the final report of the BC Agenda for Shared Prosperity initiative. For a year, the two organizations have sought expert and community-based answers to the question: “How can BC become a more prosperous province for all British Columbians?”
Finlayson: BC's Carbon Tax Hurting Businesses (Vancouver Sun)
Carbon taxes have been attracting renewed attention. In late July Ottawa-based think-tank Sustainable Prosperity issued a report claiming that B.C.’s carbon tax has triggered a substantial and rapid-fire decline in fossil fuel consumption, leading to a sizable drop in provincial emissions of greenhouse gases.
Then a few days ago The Sun published an opinion piece from a local consulting firm suggesting that the average household in B.C. benefits financially from the carbon tax because of offsetting personal income tax relief measures introduced by the government.
Within North America, B.C. is certainly a pioneer in carbon pricing. Initially set at $10 per ton of emissions in 2008, the carbon tax rose to reach $30/ton in July 2012. The government has now frozen the tax for five years.
To date, no other province or state has instituted the type of broad carbon pricing regime found in B.C.
News Release: Business Council Calls for Renewed Focus on Competitiveness as BC Returns to PST
The province’s leading business organization today called for a renewed focus on competitiveness, as British Columbia re-establishes the Provincial Sales Tax (PST) following the decision to eliminate the Harmonized Sales Tax (HST) regime.
“We accept the decision made to restore the PST,” said Greg D’Avignon, President and CEO of the Business Council of British Columbia. “But policymakers and legislators need to understand that returning to the PST represents the single biggest tax increase on business in the province’s history – and will be a significant blow to BC’s competitiveness across a wide range of industry sectors in an increasingly competitive world.”
Let's Tax the Rich - Oh, We Already Do
Last week’s budget offers a timely reminder of something that many Canadians may not realize: a surprisingly large proportion of federal government revenue comes from the personal income tax (PIT). The second biggest revenue source is the corporate income tax, followed by the GST. According to the budget, in the upcoming fiscal year Ottawa’s PIT revenue will reach $131.5 billion, which amounts to half of all of the money collected by the national government.
Who pays the personal income tax? Most Canadian households except those with quite low incomes generally pay something. But an examination of data recently released by the Canadian Revenue Agency indicates that the PIT burden falls mainly on the most affluent families. Consider the following summary statistics:
2013 Federal Budget: A Combination of Following Through, Fiscal Restraint and Some New Funding for Priority Areas
Against a backdrop of softer economic conditions, Finance Minister Jim Flaherty tabled a budget still centered around achieving the Conservative government’s 2015-16 balanced budget target. To meet that objective, the Budget imposes meaningful but not draconian spending restraint. In turn, this left little capacity for much in the way of new spending or tax relief. The Budget does, however, direct additional funding to a few priority areas such as skills training and infrastructure investment.
Presentation: Federal Budget 2013 KPMG Breakfast
Economic outlook presentation by Jock Finlayson to the KMPG Federal Budget Breakfast, March 22, 2013
The Different Faces of Government Debt in British Columbia
Last month’s provincial budget provides updated projections of the government debt that has built up over time in British Columbia. Some media reports on the budget referred to the “accumulated government deficits,” while other reports mentioned the “tax-supported debt” or the “total provincial debt.” What do these different debt-related terms actually mean?
Finlayson: Rethinking Canada's anti-big business tax policy (Troy Media)
Canada ranks as one of the best places in the world to start a new business, according to an annual survey by the World Bank. But the country does less well in encouraging businesses to grow – and in generating private sector innovation.
The two phenomena are linked: an economic environment that supports business growth should also produce a high level of innovation, since growth-oriented companies are more likely to adopt innovative business strategies.
In thinking about these issues, Canadian policymakers would be wise to focus on the outsized economic contributions made by the sub-group of rapidly-growing small- and medium-sized enterprises. A 2010 study by the Kauffman Foundation for Entrepreneurship estimates that, in a typical year, the top-performing five per cent of American businesses – measured by their rates of employment growth – create two-thirds of all new jobs. And the top one per cent of firms are responsible for a remarkable 40 per cent of net new jobs.