Provincial taxes high, despite prosperity gap
B.C. has among the highest personal income tax rates in Canada and U.S.
B.C. is lagging behind its regional neighbours on key measures of economic well-being. Yet, despite this clear “prosperity gap,” the Eby government has failed to address the province's lack of tax competitiveness.
According to a recent study, among eight provinces and U.S. states (B.C., Alberta, Washington, Alaska, California, Oregon, Montana and Idaho), B.C. had the third lowest per-person GDP (a broad measure of overall prosperity) at $61,038 — barely ahead of Montana ($60,042) and Idaho ($56,838) and far behind top-ranked Washington ($97,590). On a different measure, median employment income, B.C. ranked last among all eight jurisdictions at $34,008, which was significantly lower than fourthplace Alberta, at $47,307.
More specifically, median employment income in Vancouver, B.C.'s largest urban area and commercial centre, ranked last among 11 other regional metropolitan areas with populations over one million, including Seattle, Portland and Calgary.
The data clearly identify a prosperity gap between B.C. and its neighbours — but what can be done?
For starters, the Eby government should address the province's lack of tax competitiveness.
When deciding where to live, workers — including high-skilled workers — consider many factors, including personal income taxes. When one jurisdiction has lower tax rates compared to another, that jurisdiction will enjoy a greater competitive advantage when attracting and retaining high-skilled and highly productive individuals such as doctors, engineers and entrepreneurs who contribute greatly to economic performance and prosperity.
Yet B.C. has some of the highest personal income tax rates in Canada and the United States.
For example, as noted in a study published by the Fraser Institute, B.C. had the fourth-highest top combined (federal and provincial) income tax rate (53.5 per cent) among 61 Canadian and U.S. jurisdictions in 2023, the latest year of comparable data, and the highest top combined rate among its regional neighbours, including Washington and Alberta. This is also the case when comparing combined tax rates at the $150,000 income level.
At the lowest income level measured ($50,000), B.C. has a lower tax rate than Alberta but a higher combined income tax rate than every U.S. state.
Not only do these high tax rates make the province less attractive to high-skilled workers, they also stifle economic growth by reducing the reward from productive economic activities such as work and investment.
Despite B.C.'s lack of tax competitiveness and clear prosperity gap in the region, the Eby government made no meaningful changes to the province's tax system in its budget in February. But if the government wants to help bridge that gap for British Columbians, it should lower taxes in the near future.