Barbara Yaffe: In my opinion
Report: Archaic PST, costly carbon tax and rising electricity rates make B.C. an unappealing place to invest
The provincial government must address in its next budget the fact that B.C. is not an appealing place to invest in.
The Christy Clark government must act in its spring budget to address the fact that “B.C. is not a particularly appealing location for new investment.”
That assessment was advanced last week in a pre-budget submission by the Business Council of B.C., which is also calling for a wholesale review of the province’s taxation system.
According to the council, B.C. is no longer a competitive place within North America to do business. The situation applies particularly to “trade-exposed” companies, and has developed “in the past several years.”
“There are few compelling reasons to locate or to invest in an export-oriented business in B.C. ... Returns on capital deployed in B.C. tend to be low relative to other jurisdictions.”
Make no mistake, what this means is the province probably won’t be able to attract the private-sector investment needed to grow the economy and create new employment.
The 50-year-old business council, representing 250 member companies, says conditions remain reasonably positive for specific sectors, such as housing, commercial construction, advanced technology, film and animation, as well as parts of the natural resources sector such as LNG development.
But it points to a “triple whammy” of negative influences harming a large proportion of B.C. businesses:
• B.C.’s reinstated PST is costing companies $1.6 billion annually because it now applies to equipment purchases by business. In provinces with HST, such inputs are tax exempt. The council wants the province to expand exemptions or reduce PST payable by companies on their equipment purchases. B.C. businesses also are spending up to $200 million a year on PST compliance costs.
• B.C.’s $30-per-tonne carbon tax is “the highest price on
Make no mistake, what this means is the province probably won’ t be able to attract the private-sector investment needed to grow the economy and create new employment.
carbon emissions anywhere in North America,” putting companies here at a disadvantage. The council says B.C. should freeze the tax until other jurisdictions introduce their own such levies.
• Electricity rates (rising faster than inflation) are pushing up production costs, especially for energy-intensive exporters. The council wants B.C. to make electricity PST exempt, which would allow industrial and commercial firms to save $160 million.
In addition to the above trio of woes is the fact that industries operating in B.C. often incur delays and extra costs related to aboriginal land claims, environmental battles and social licence debates.
Beyond the costly carbon tax and archaic PST, “B.C. now has one of the highest business tax burdens” in North America, one that has grown substantially since 2011.
The province last year had a marginal effective tax rate on new capital investment for all industry sectors of 27.5 per cent, the second highest in Canada after Manitoba. Alberta’s was 17 per cent, Ontario’s, 18.2 per cent. The council also criticized “ever escalating government fees and regulatory costs” and municipal property taxation rising beyond the inflation rate.
In some municipalities, businesses pay 12 to 15 times as much as homeowners for the same assessed value of property.
And while provincial per capita spending between 2000 and 2010 rose by 10 per cent, Metro Vancouver municipalities collectively boosted their per capita spending by 32 per cent, without any noticeable improvement in municipal services.
Indeed, the business council sees a need for “a comprehensive review of all aspects of the provincial tax system, to be undertaken by a small group of nonpartisan experts.”
It warns a growing portion of the population will be retiring, paying less income tax and consumption tax. B.C. may need to rely more heavily on user fees, property taxes and estate taxation to fund its operations. It also may not be able to get by without finding a way to tax services now exempt under the PST.
The business council suspects underground economic activity will increase, with more homebased businesses, ecommerce activity and self-employed people.
Even now, “underground economic activity in B.C. is both extensive and expanding.”