B.C. tax hikes won’t take big bite out of econ­omy, econ­o­mists say

The Miracle - - National & Int -

Tax hikes for the wealthy and on cor­po­ra­tions in­tro­duced in Fi­nance Min­is­ter Ca­role James’ bud­get up­date Mon­day are un­likely to put an im­me­di­ate dent in the econ­omy but could dampen fu­ture in­vest­ment, ac­cord­ing to econ­o­mists. The 2.1 per cent in­crease in B.C.’s top mar­ginal per­sonal in­come-tax rate to 16.8 per cent and a one per cent in­crease in the cor­po­rate in­come-tax rate to 12 per cent will take ef­fect Jan. 1. The changes were tele­graphed as B.C. NDP elec­tion cam­paign prom­ises well ahead of Mon­day’s bud­get up­date, so they didn’t sur­prise any­one, said James Bran­der, an econ­o­mist in the Sauder School of Busi­ness at the Univer­sity of B.C., and they are rel­a­tively small. “They’re not big enough to cause an ex­o­dus to­mor­row or this year,” Bran­der said. “But I think they are big enough to have some ef­fect on (busi­ness) lo­ca­tion de­ci­sions down the road and on tax avoid­ance ac­tiv­ity (by in­di­vid­u­als) for sure.” The NDP brought in the in­creases on the premise that “those at the top can pay a lit­tle bit more to be able to con­trib­ute to the ser­vices and pro­grams for all Bri­tish Columbians,” James said in her bud­get speech. For busi­nesses, the one per cent in­crease is ex­pected to gen­er­ate an ad­di­tional $103 mil­lion in its first par­tial year from Jan­uary to the end of March of 2018, then $313 mil­lion in its first full year. But the rate will still be com­pet­i­tive with sur­round­ing ju­ris­dic­tions, said Jock Fin­layson, ex­ec­u­tive vice-pres­i­dent and chief pol­icy of­fi­cer for the Busi­ness Coun­cil of B.C. “Hav­ing said that, econ­o­mists would be unan­i­mous, I think, in say­ing that higher ef­fec­tive tax rates on earn­ings, al­most by def­i­ni­tion, have a neg­a­tive ef­fect on cap­i­tal for­ma­tion and in­vest­ment,” Fin­layson said. That means in a higher tax en­vi­ron­ment, busi­nesses need to earn a higher profit to jus­tify ad­di­tional in­vest­ment in that lo­ca­tion, he said, which is where a longer-term im­pact might come out of B.C.’s busi­ness tax change. The prom­ise to cut Med­i­cal Ser­vice Plan pre­mi­ums in half, then elim­i­nate them, has a sig­nif­i­cant pos­i­tive im­pact on com­pa­nies that pay those costs, Fin­layson said. The $5-per-tonne in­crease to the pro­vin­cial car­bon tax, how­ever, is neg­a­tive. Fin­layson said the in­crease to the top mar­ginal per­sonal in­come tax rate for peo­ple earn­ing more than $150,000 per year might be a big­ger con­cern, since it is com­bined with the four per cent in­crease added to the fed­eral top mar­ginal tax rate for those earn­ing more than $250,000 en­acted in 2016. Ac­cord­ing to Canada Rev­enue Agency statis­tics, about 80,000 B.C. tax fil­ers fell into that in­come bracket in 2014. For some­one earn­ing $200,000, the 2.1 per cent pro­vin­cial in­crease will add $1,050 to their tax bill, bring­ing it to $66,748 in 2018 (with $22,516 of that as pro­vin­cial tax, com­pared with $21,466 un­der the pre­vi­ous rate). That re­mains sub­stan­tially higher than the $15,158 in­come tax bill (with $4,231 pro­vin­cial in­come tax) of some­one earn­ing $75,000, ac­cord­ing to fig­ures cal­cu­lated for Post­media by CPA Bi­lal Kathrada and the firm Clear­line CPA. Fin­layson said it pushes Canada’s top to­tal per­sonal tax rates over 50 per cent when they were about 44 per cent a year ago. And taxes ap­pear to be ris­ing at the same time U.S. Pres­i­dent Don­ald Trump is try­ing to cut taxes south of the bor­der. “B.C. be­comes a lit­tle bit less at­trac­tive a lo­ca­tion to build your busi­ness in that con­text,” Fin­layson said. Ig­lika Ivanova, an econ­o­mist for the Cana­dian Cen­tre for Pol­icy Al­ter­na­tives, said that B.C.’s new top mar­ginal per­sonal in­come tax rate will still be the fourth low­est in Canada, lower than On­tario’s 16.7 per cent, but higher than Al­berta’s 15 per cent or Saskatchewan’s 14.75 per cent. Ivanova added that high-in­come earners will also get the same fi­nan­cial break as everyone in B.C. from the cut in MSP pre­mi­ums. Source: Van­cou­ver Sun

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