Jock Finlayson is executive vice president and chief policy officer of the Business Council of BC. (Submitted)

Jock Finlayson is executive vice president and chief policy officer of the Business Council of BC. (Submitted)

COLUMN: Higher tax bracket ‘a risky game’ in the 2020 B.C. budget

Jock Finlayson is executive vice president and chief policy officer of the Business Council of BC

Finance Minister Carole James delivered the NDP government’s 2020 budget on Feb. 18.

The government continues to aim for small annual operating surpluses and hopes to avoid getting into a deficit position. In addition, the NDP remains committed to a handful of signature initiatives, including incrementally advancing its plan to expand child care spaces and ramping up capital investment in the transportation, health care and education sectors. It’s also worth noting that the new budget is built on a relatively conservative macro-economic forecast, as was also the case with the 2018 and 2019 budgets.

READ MORE: Budget 2020: B.C. NDP taps top tax bracket for more revenue

Despite this, Budget 2020 does contain a few surprises that warrant a closer look.

The first is the absence of any clear strategy to diversify and strengthen the foundations of the province’s economy over the medium- and longer-term, beyond investing in infrastructure and other public sector capital assets. There is very little in Budget 2020 that will benefit the high technology, advanced manufacturing, or tradable service industries that occupy important places in B.C.’s increasingly diverse economy. Nor does the budget do much for the natural resource industries that supply the lion’s share of the province’s exports and underpin regional economies across most of B.C. And the NDP government is missing in action when it comes to new measures to spur the business innovation and productivity growth that are essential to support and sustain a high-wage economy.

A second surprise is the budget’s assumption that housing starts are set to decline steeply over the next few years. After reaching a record 45,000 in 2019, starts are expected to fall to 35,000 this year, before dropping further to 31,000 by 2022. A slump in residential construction is projected to occur even though B.C.’s population will continue growing at a steady clip and the government itself is allocating more money to develop social and other types of non-market housing. Dwindling starts will crimp new supply – and likely lead to higher housing prices — at a time when the government is rightly concerned about affordability.

KEEP READING: Budget 2020: ICBC ‘dumpster fire’ to turn into $86M surplus, NDP say

A particularly ill-conceived surprise in Budget 2020 is the NDP’s new higher tax bracket for upper-income individuals (those earning at least $220,000 a year). This follows an earlier NDP tax hike imposed on people earning $150,000 and up.

For a left-leaning government, the politics around “taxing the rich” may appear attractive. But on economic policy grounds, the government is playing a risky game. Combined with federal income taxes, the top marginal tax rate in B.C. will now be just shy of 54 per cent, fully 17 points higher than in Washington State and almost six points higher than the top marginal rate in Alberta. As individuals exposed to the new, higher income tax rate adjust their behaviour to minimize tax liabilities, the government will likely collect less extra revenue than it is expecting.

By treating the most productive slice of the population as an ATM machine for government, B.C. will make it harder to recruit talent, discourage entrepreneurial activity, and lead to the loss of high-paying managerial, professional, and technical jobs across a mix of industries. In embracing a high tax path, the NDP government, perhaps inadvertently, seems intent on turning British Columbia into a graveyard for professional and business ambition.

READ MORE: Budget 2020: Weaver ‘delighted,’ minority B.C. NDP stable

All in all, Budget 2020 counts as a disappointment to the business community. It reflects an unwarranted complacency about the underlying health of the economy. It provides very few reasons for companies, entrepreneurs or investors to direct their capital and attention to advancing economic development opportunities in B.C. And it sends a signal to highly skilled people that they would be wise to at least consider taking their talents elsewhere.

Jock Finlayson is executive vice president and chief policy officer of the Business Council of British Columbia

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