NDP, Greens axe secretive international tax program
Liberal-backed rebates failed to create many jobs in B.C., government says
VICTORIA B.C.’s Opposition Liberals tried but failed to save a contentious international tax rebate program that had attracted criticism for its secretive nature but advocates said helped encourage foreign investment.
Liberal finance critic Shirley Bond attempted this week to amend the NDP government’s budget bill to prevent the cancellation of the International Financial Activity Program until at least next year, so it could be studied to determine if its benefits justified it to continue.
“We’re getting rid of a program that actually has the potential to continue to attract international investors and companies,” Bond argued in the legislature. “We’re getting rid of it, despite the fact that there are very likely ... revenue implications for the province.”
The international tax program provided roughly $20 million annually in refunds to corporate income tax paid by as many as 67 companies, accounting for $163 million between 2008 and 2016.
It was created in 1988 to attract international companies to the province at a time when the corporate tax rate was 51 per cent. Now, with a corporate tax rate of 26 per cent, and more than 90 per cent of the beneficial companies involved in securities trading, foreign exchange and factoring (the transferring of monies owed by one company to another), the NDP government has argued the supports aren’t necessary and the program is not generating the promised jobs.
The program’s secretive nature has also attracted criticism, with the New York Times newspaper in a May 2017 article noting that “the incentives operate under a cloak of secrecy that is unusual for similar efforts in Canada and the United States” and the public is unable to get a list of the companies that receive the tax breaks. The program briefly became an election issue.
Finance Minister Carole James said the five largest recipients of the tax refunds are companies that were already located in B.C. before the program was expanded in 2004.
“Our government committed to building a strong, innovative economy that works for everyone. That is why our government has ended the International Business Activity program,” James said in a statement on Thursday.
“Ministry of Finance analysis, based on actual taxpayer data, clearly shows this tax subsidy wasn’t delivering the promised jobs or economic activity. When the B.C. Liberal government was provided with this analysis in 2010, they ignored it.
“The program was projected to cost $25 million in 2017-18 — money that is better invested in areas that matter to British Columbians, like education, health care and transit.”
A 2010 review of the program conducted by the Ministry of Finance was recently re-released by the province with previously redacted sections made public. The report noted the high number of companies involved in financial transactions that generate “low rates of employment associated with these activities.”
The amount of incremental job growth generated by the companies was “minimal,” according to the government report, which cited an estimated 122 to 271 “person years” of employment generated on average, although the figures have not been growing incrementally.
“It certainly seems clear from the report, which the member would have seen or other members would have seen in 2010, that there was not a clear link between the work that was being done, the tax break that was being given, and jobs being created,” James said in the legislature.
“As I said, most of the jobs and existing activities were already being done in British Columbia, so from our perspective, this was not a good use of dollars. That’s why we proposed that the program be eliminated.”
The vote Thursday on whether to save the tax program came down to the three-member B.C. Green caucus.
Green Leader Andrew Weaver said he took the Liberal proposal to rescue the program “very, very seriously” and required two briefings by the Finance Ministry before he concluded that the benefits and more recent positive studies of the program were based on assumptions, and that taxpayers shouldn’t be supporting the companies.
“The B.C. taxpayer is subsidizing those who don’t need a subsidy just for the commission,” he said. “It’s just wrong. I can’t see any justification for that.”
The amendment was defeated by a vote of 43 to 38, and the international tax rebate program remained cancelled.
AdvantageBC, the non-profit association whose corporate members benefit from the tax refunds, said it was disappointed.
“I think it’s been a very valuable program,” said CEO Colin Hansen, a former Liberal finance minister who helped expand the program while in government. “And I know first-hand how effective it’s been to attract companies to B.C.”
The B.C. taxpayer is subsidizing those who don’t need a subsidy just for the commission. It’s just wrong.