Budget: Balanced But At What Cost?

On February 19, 2013, B.C. Minister of Finance Michael de Jong tabled the B.C. provincial budget for the 2013/2014 fiscal year (Budget 2013). After a projected budget deficit of C$1.2-billion for the 2012/2013 fiscal year, Budget 2013 forecasts a return to balanced budgets with surpluses of C$197-million in 2013/2014, C$211-million in 2014/2015 and C$460-million in 2015/2016, to be achieved through a combination of tax rates increases, spending controls, asset sales and economic growth. As may be expected, Budget 2013 was likely influenced by both politics and policy coming as it does just three months before the provincial election scheduled to take place on May 14.

Tax Highlights of Budget 2013

• A 1% increase in the B.C. general corporate income tax rate effective April 1, 2013 will raise the general rate from 10% to 11% (the small business tax rate will remain at 2.5%). This rate is higher than the general corporate rate in Alberta (10%) but lower than such rates in Ontario (11.5%) and Quebec (11.9%).
• A temporary two-year 2.1% tax rate increase on individuals earning more than C$150,000 a year by way of the addition of a new tax bracket. This will raise the top tax rate on individuals from 14.7% to 16.8%, with the combined top federal/provincial rate for B.C. residents increasing from 43.7% to 45.8%. This measure will be effective for 2014 and 2015 and is scheduled to expire on December 31, 2015.
• A phase-out over two years of the school property tax credit for light industry.
• The introduction of a 3% minimum royalty for all natural gas wells that qualify for the Deep Well Royalty Credit Program and the termination of the Summer Drilling Credit Program.
• A C$2 per carton increase in tobacco tax.
• Increases in Medical Services Plan monthly premiums by C$2.75 per individual.

Budget 2013 contained no new information on the impending return to the provincial sales tax (PST) on April 1, 2013 and introduced no significant new measures to give relief to businesses affected by PST. This was perhaps surprising given that, in its September 2012 report, the Expert Panel on B.C.'s Business Tax Competitiveness commissioned by the province recommended several changes including a refundable investment tax credit equal to the PST paid on investments in machinery and equipment. Although B.C. corporate tax rates may be still be competitive in spite of the announced increases, the Expert Panel's report gave clear warnings about the effect of the PST, saying: "The return to PST will significantly increase the cost of businesses making the capital investments needed to remain competitive. Unless this issue is addressed, B.C.'s businesses will face the highest effective tax rate on new investments among the provinces in 2013." The reintroduction of the PST is widely considered to be a significant disadvantage for B.C. businesses.

Budget 2013 contains a brief discussion of the liquefied natural gas (LNG) prospects for B.C. mentioned in the throne speech on February 12. However, there are no new details on the potential additional tax on LNG mentioned in the Ministry of Finance's February 12 news release. The budget documents simply refer to "a potential new B.C. LNG revenue regime designed to be competitive with other jurisdictions".

Budget 2013 also contains a discussion of the results of the carbon tax review that took place as part of the Budget 2013 process (as announced in Budget 2012). Budget 2013 confirms that carbon tax rates will not be increased, the carbon tax base will not be expanded or broadened to include industrial process or other non-combustion emissions and the tax will remain revenue neutral. The only changes to the regime announced in Budget 2013 are a carbon tax relief grant for commercial greenhouse vegetable and floriculture growers and a carbon tax exemption for farmers for coloured motor fuels that they are currently able to purchase exempt from motor fuel tax.