BC BUDGET 2018 BACKGROUNDER – FACTS AND FIGURES
Feb. 21, 2018
Key Messages:
- While the Chamber is pleased that the provincial government has delivered a balanced budget it appears to be balanced on the back of business. Budget 2018 makes key investments in housing attainability and available childcare, but business is facing the cumulative effect of crippling tax increases that will challenge their ability to invest and grow.
- Businesses will be footing the bill to the tune of almost $2 billion by 2020-21 through the Employer Health Tax to cover the phase-out of MSP premiums.
- Only some of the increased Carbon Tax revenue will be focused on support for emissions intense industry to transition to a low-carbon economy. New, as yet unidentified initiatives will be funded which may further impact tax neutrality.
- Budget 2018 does include the BC Chamber network recommendation to leveling the playing field by allowing online accommodation platforms to collect PST and MRDT (municipal and regional district tax).
- the Province is examining the property tax treatment of residential property in the Agricultural Land Reserve (ALR) as part of a broader review to ensure ALR land is being used for farming.
Balanced Budget, but with a caveat
Budget 2018 is balanced, revenues include large tax increases. especially to business:
Updated Budget
Forecast Estimate Plan Plan ($ millions) 2017/18 2018/19 2019/20 2020/21
Revenue 53,365 54,877 57,580 58,566
Expenses (51,818) (53,624) (56,778) (57,762)
Forecast allowance (100) (350) (500) (600)
Surplus before ICBC Impact 1,447 903 302 204
ICBC net loss forecast (1,296) (1,067) (801) (920)
Estimated costs of ICBC reform – 392 780 1,000
Surplus 151 219 281 284
Prudence Measures Continued
While the surplus amounts above remain modest, the provincial government maintains significant prudence in their budgeting process. Budget 2018 includes Forecast Allowances between $350 million to $600 million per year over the next 3 years. For the current 2017/2018 fiscal year, the government is budgeting $100 million in forecast allowance.
In addition, by budgeting at a lower growth rate for the economy – compared to the Economic Forecast Council – this reduced level of revenue provides the government some added cushion to protect against unforeseen circumstances.
Economic Growth Projections 2017 2018 2019 2020-22
Forecast Council 3.4 2.5 2.2 2.1
Ministry of Finance 3.4 2.3 2.0 2.0
A Comprehensive Housing Plan
The provincial government is investing $1.9 billion over 3 years and we’ll see up to $6 billion over 10 years, which will help build affordable housing, including homes for growing families, homes for seniors, housing options for women and children fleeing violence and student housing.
This total $6 billion investment will result in a total of 33,700 units of housing – over half of those units being affordable rental housing.
Aligned with Chamber policy on affordable housing, the provincial government is offering increased rental support through the Shelter Aid for Elderly Renters (SAFER) and the Rental Assistance Program (RAP) for lower income British Columbians.
Investing in Child Care
The Chamber knows accessible childcare – so our businesses can retain and attract employees returning from maternity/parental leave – is important to BC business. The proposed provincial government investments appear to support our recommendations.
The provincial government will invest $630 million over 3 years to help deliver affordable child care through licensed providers and a further $237 million to create more space.
The government will look to create 22,000 new licensed child care spaces, including incentives for licensed service providers to offer child care outside standard business hours. The Chamber will monitor this approach and hope to influence the creation of these spaces through non-profit and private services providers.
Elimination of MSP Premium; Decreased Revenue Replace with “Employer Health Tax”
Effective January 1, 2020, MSP Premium will be eliminated for all British Columbians. To pay for the elimination of the premium, the provincial government will create an “Employer Health Tax.”
While the government put a de minimis of $500,000 or less payroll – and a sliding scale for businesses with payroll between $500,000 and$1.5 million – to minimize the impact on small business, this will still be a $1.92 billion tax increase by 2020.
| Small Business Payroll | Tax as % of Payroll | Revenue hit to bottom line |
| $500,000 | 0% | $0 |
| $750,000 | 0.98% | $7,313 |
| $1,000,000 | 1.46% | $14,625 |
| $1,500,000 | 1.95% | $29,250 |
While the MSP premiums will not be eliminated until January 2020, the new Employer Health Tax will become effective January 2019. Thus some employers will be burdened with paying both MSP premiums and the Employer Health Tax that year.
The biggest concern with this policy shift is that business is now the only contributor to this health care top-up, while individuals pay nothing for a system where the individual receives the greatest benefit.
Tax Competitiveness Concerns
The BC Chamber continue to raise warning flags over the cumulative effect of massive tax increases and the impact that has on our overall tax competitiveness. In Budget 2017, we saw:
- Corporate tax rate going to 12% from 11%
- Carbon Tax increasing $5 per tonne per year starting April 2018 until it reaches $50 per tonne.
In Budget 2018, the ‘Employer Health Tax’ will be another $1billion increase to business, but we also see higher sales tax on ‘luxury vehicles, an increase in the Foreign Buyers Tax from 15% to 20%, and new speculation taxes.
While some of these tax initiatives are tied to laudable goals – like housing affordability and attainability – it is part of trend to increase taxes on business. At some point, these tax increases on business will challenge – if not hinder – their ability to invest and grow and (ultimately) hire more British Columbians.
Extension or Increases to Existing Tax Credits
- BC Mining Flow-Through Share Tax Credit extended to 2018 tax year
- Interactive Digital Media Tax Media tax credit extended effective September 1, 2018
- Purpose-built rental housing exempted from School Tax, if it receives a municipal revitalization certificate
B.C.’s Debt Picture
The BC Chamber continues to focus on B.C.’s debt picture.
Updated Budget
Forecast Estimate Plan Plan
($ millions) 2017/18 2018/19 2019/20 2020/21
Other Taxpayer Supported Debt 42,656 45,198 47,554 50,257
Direct Operating Debt 1,024 0.0 0.0 0.0
Total Taxpayer Supported Debt 43,680 45,198 47,554 50,257
Self-supported Debt 21,484 23,824 25,027 26,197
Provincial Debt before allowance 65,164 69,022 72,581 76,454
Forecast allowance 100 350 500 600
Total Provincial Debt 65,264 69,372 73,081 77,054
Taxpayer Supported Debt to GDP 15.6% 15.5% 15.7% 15.9%
Taxpayer Supported Debt to Revenue 84.3% 84.9% 85.1% 88.3%
Budget 2018 will see the operating debt paid as required in the balanced budget legislation (see above).
At the same time, taxpayer supported debt continues to increase due to capital investments mainly in transportation, education and health infrastructure. The provincial debt-to-GDP ratio will drop to 15.5% on the current of strong economic growth but starts to rise over the next three years.
We also see debt to revenue – a key metric credit rating agencies’ use to establish credit ratings – is at 84.3% and rising to 88.3%by 2020/21. This ration is an acceptable level – based on anticipated increased taxes – but should those revenue fail to materialize, then the debt to revenue ratio could rise faster. This could have a negative effect on the provinces credit rating.