Falcon considers business tax hike to balance budget
Published Tuesday, February 21, 2012 4:34PM PST Last Updated Saturday, May 19, 2012 4:31AM PDT
The BC Liberal government delivered a tight provincial budget Tuesday, doling out some modest goodies and signalling the start of a year-long campaign to convince voters it can deliver fiscal responsibility.
The budget promises to balance the books by the end of next year, a promise that would allow the party to campaign in the May 2013 provincial election with its economic record somewhat burnished after the disastrous repercussions of implementing and then backing out of the harmonized sales tax.
To get there, Finance Minister Kevin Falcon has promised to reduce the growth of health-care spending to 3.2 per cent by the end of 2015. That compares with an almost five per cent increase between 2010 and 2012 and a seven per cent increase in the three years prior to that.
Universities and colleges are being asked to find $70 million in administrative savings by the end of 2015, and the government is on the prowl to make just over $700 million by selling off buildings and land it is no longer using.
And Falcon broadly hinted his government will turn away from its groundbreaking carbon tax, an environmental legacy of former premier Gordon Campbell that was approved by B.C. voters during the 2009 election when the Opposition New Democrats ran against it.
And he said a proposed tax cut for small businesses would not be implemented, and larger businesses may have to pay higher corporate taxes if the economy doesn't improve.
The budget forecasts a deficit of $968 million this year and a surplus of $154 million in 2013-2014.
The deficit for the budget that wraps up the current 2011-2012 fiscal year on March 31 is forecast to hit $2.5 billion, better than the $3.1 billion deficit Falcon projected last fall.
"Keeping British Columbia's fiscal house in order does mean some tough decisions in the short-term," Falcon said during his speech to members of the B.C. legislature. "But consider what's at stake here. It's our future -- the future of this province, and the future of our people."
He said the New Democrats are not taking heed of the economic turmoil around the world and plan to introduce tax-and-spend programs that will only increase the provincial debt.
"That's the wrong direction," said Falcon. "The lesson is clear: the tax, spend and borrow approach is not just wrong. It is potentially catastrophic."
But Falcon's budget includes tax increases, along with tax breaks aimed at the elderly and families.
He said medical services premiums will rise by four per cent -- about $5 a month for a family of three -- after three straight years of six-per-cent increases.
Falcon said the government's commitment to balance the budget has reached the point where he is prepared to raise business taxes, actions once considered unheard of for the free-enterprise coalition.
NDP finance critic Bruce Ralston said it appears Falcon's pledge to balance the budget is more about the Liberals trying to save their political fortunes rather than helping British Columbians.
"Only a month ago he was really doubting the ability of the government to balance the budget on that timetable, yet now, for, I think, largely political reasons, he's decided that he's going to assert that he can," said Ralston. "Whether he can or not is really doubtful."
The 2.5 per cent small business tax, promised to be eliminated as part of the failed attempt to win the HST referendum, will stay and only be reviewed when the books improve, Falcon said.
Falcon said he is prepared to raise the general corporate income tax rate to 11 per cent from 10 per cent in April 2014 if the budget situation doesn't show signs of improvement.
"It underscores how serious we are about meeting our target and our requirement to balance the budget in 2013-2014," he said in a pre-budget briefing with reporters. "We've said we don't want to have to do it, but we've put it in (the budget). We felt it was important to signal to everyone they have to do their bit."
B.C. Business Council executive director Jock Finlayson said raising corporate taxes is not what businesses want to see from the Liberals, but he's prepared to stomach a temporary increase.
"It is not something my community is going to welcome," he said. "But in the grand scheme of things, it's a modest step."
The carbon tax was implemented in 2008 as part of a goal to reduce greenhouse gas emissions by one third by 2020
"We're proud in British Columbia that we were leaders," Falcon said.
But he added: "We had always anticipated that others would follow us down this path. That didn't happen. Because of that, we think now is the time to say no further increases (in the tax), and lets have an opportunity to have input from British Columbians."
Environmentalists said putting the carbon tax on hold is a step backwards for the province.
"We're missing an opportunity and a vision," said David Suzuki Foundation spokesman Ian Bruce.
Falcon introduced a series of family-oriented tax breaks aimed at new home buyers seniors and families with children.
First-time, new, home buyers will be eligible for a bonus of up to $10,000. Seniors will be eligible for a home renovation tax credit of up to $1,000, and families will be eligible to tax credits for arts and sports programs for kids.
Iglika Ivanova, a B.C. Centre for Policy Alternatives spokeswoman, said the budget and tax credits do nothing to help the record numbers of B.C. families and seniors living in poverty.
And the Hospital Employees Union and the B.C. Health Coalition decried the budget's apparent neglect to address last week's ombudsman's report into seniors.
"The ombudsperson's report clearly reveals that strengthening home and community care services will greatly improve the lives of seniors," said Alice Edge, co-chair of the coalition.
"The province has said it intends to act on the report, yet there is little evidence in this budget to suggest it intends to take serious action for better seniors' care."
John Cummins, leader of the B.C. Conservatives, a party which has been surging in the polls and threatens to split the Liberal vote in the next election, said the budget has delivered "ballooning debt levels, higher taxes and growing spending."
Cummins decried the decision to cancel the small business tax reduction, saying it will kill jobs.
But the provinces chartered accountants applauded the government's commitment to return to a balanced budget, including the changes to business taxes.
"Given the current global economy and fiscal challenges facing government, we are not surprised to see these tax measures," said Richard Rees, chief executive officer of the Chartered Accountants of B.C.
Here are some highlights of the 2012-2013 B.C. budget:
Projected economic growth: 1.8 per cent in 2012-2013; 2.2 per cent in 2013-2014; 2.5 per cent in 2014-2015
Projected deficit: $968 million for 2012-2013; deficit this year, $2.5 billion.
Balanced budget: Budget balanced next year. B.C. projects a $154 million surplus for 2013-2014 and a $250 million surplus for 2014-2015.
- MSP: A new, four per cent increase to medical service premiums.
- Corporate taxes: The small business corporate tax rate was to drop to zero with the HST in place. Now, it will remain at 2.5 per cent. The general corporate income tax rate could increase by one point to 11 per cent effective April 1, 2014 if the increase is needed to ensure the budget is balanced. The decision will be announced in next year's budget.
- First-time home buyer tax credit: There will be an income tax credit worth $10,000 for first-time home buyers purchasing newly built homes. The bonus begins phasing out for individuals and families earning a net income of $150,000 and is eliminated completely for individuals earning $200,000 in net income and families earning $250,000 net.
- Seniors renovation tax credit: Seniors will qualify for a tax credit worth up to $1,000 a year to renovate their homes to them to stay living there. It is available to seniors or family members sharing their home. The credit is available regardless of income.
- Arts and sports credit for kids: A new credit to compliment existing credits offered by the federal government allowing families to claim up to $500 in eligible expenses per child, per year for eligible sports or arts programs.
- Carbon tax review: There will be no further increases or expansions of the carbon tax, instead, the tax will be reviewed, including its revenue neutrality.
- In the last two years, more money was returned in personal and business tax measures than the tax brought in. The margin will decrease starting this year and in 2013-2014, the amount returned in tax measures will equal the amount brought in in revenue.
- Health: Spending growth will be brought down from 4.8 per cent between the budget years ending 2010 and 2012 to 3.2 per cent for the years ending 2013 to 2015. Between 2006 and 2009, the average growth in spending was seven per cent.
- Education: Spending growth will drop from 1.1 per cent between 2010 and 2012 to 0.6 per cent for 2013 to 2015. The average growth increase between 2006 and 2009 was 4.8 per cent.
- Justice: $237 million more will be spent on the justice system over three years, including money for increased RCMP costs, court staff, sheriffs and prosecutors and $3 million over the next three years to fulfil an arbitration decision giving Crowns and other legal staff a benefits increase. Another $2 million will go for enhanced benefits for judges.
- The budget predicts efficiencies in the justice area amounting to $22 million over three years
- No money has been set aside for possible recommendations made by the current review of the justice system, due in June.