B.C. Business Matters:
BC Election Series: Party Platforms Devote Little Attention to Making BC More Competitive
This is the fifth in a series of policy staff blogs on the platforms released by the three main parties contesting the current BC election: the BC Liberals, the NDP, and the Greens.
For a cross-platform comparison of the three parties' election commitments, check out our summary document.
Blog 5: Party Platforms Devote Little Attention to Making
BC More Competitive
As a small, open and trade dependent economy, being competitive is vital to BC’s success and prosperity. There are numerous dimensions and factors affecting competitiveness, so what makes a jurisdiction competitive can be challenging to quantify. This is further complicated by the fact competitiveness also varies across industries. There is, however, widespread agreement that taxes, the overall regulatory environment affecting business, energy costs, infrastructure and access to markets, the availability and quality of labour, and the cost of office or industrial space all play a role in shaping the business climate, and hence the competitive environment. And the reality is that government policy matters in most of these areas. Against that backdrop, we find it concerning that the party platforms give little attention to the shifting competitive landscape facing business in BC.
Tax policy is one important aspect of competitiveness. Tax rates – both statutory rates, as well as “effective” tax rates that take account of credits, incentives, capital cost allowances, and other features of the tax system – can be compared across jurisdictions. High tax rates typically reduce pre-tax returns on investment and may deter companies from deploying capital to a jurisdiction over time. Imagine the impact on businesses if government decided to triple the corporate tax rate: new investment would surely plummet. Similarly, what would happen to the pool of skilled workers if personal income tax rates were pushed up sharply at the higher end of the income scale: managers, professionals and skilled technical employees would think twice about whether to remain in the jurisdiction, and attracting new highly skilled personnel would be much harder. Smaller increases in tax rates obviously have less impact, but at the margin any increase may affect decisions businesses make about deploying capital.
Currently, BC’s corporate tax rate is quite competitive in a North American context. Both the NDP and Greens have signalled that they will raise the CIT by one percentage point if they form government. This will have a negative impact on BC’s competitive positon, but by itself would not be expected to have a large impact.
The NDP and the Greens also propose to boost the carbon tax. In both cases, they would abandon the principle of revenue neutrality with respect to carbon taxation, meaning that neither party would reduce other taxes as the carbon tax rises. In contrast, the Liberals reaffirm a commitment to overall revenue neutrality. From this, we infer that the size of government, as proxied by the aggregate tax burden, would increase under the NDP and Green fiscal and tax plans, but not under the plan outlined by the Liberals. At the same time, a higher carbon tax means increased production and operating costs for most industries in BC, which points to an erosion of competitiveness (unless competing jurisdictions follow the same policy path).
Having the highest carbon price in North America is already a cost disadvantage for manufacturers and many other exporting industries in BC. Some companies in BC pay tens of millions of dollars in carbon taxes every year, but receive little or no benefits from the offsetting tax reductions the Liberals implemented in tandem with the carbon tax. Although the Liberal government continues to embrace the policy of revenue neutrality in aggregate, energy-intensive industries face a higher overall tax burden because of BC’s carbon tax policy. Moreover, it must be recognized that BC exporters are competing with companies in other jurisdictions where carbon levies are much lower or non-existent. Other jurisdictions that have priced carbon have taken steps to shield their export industries from this cost. BC has not done so in a significant way, with a couple of small exceptions.
To be fair, the Liberal platform indicates they will maintain the carbon tax freeze until 2021 while other provinces catch up to BC’s existing rate of $30/ton. It also pledges that energy-intensive, trade-exposed industries will be “fully protected from any potential increases in the carbon tax to maintain jobs and competitiveness for exporters.” We welcome that commitment, although it only applies to future increases in the carbon tax, not the existing tax. The NDP’s platform acknowledges the situation facing energy-intensive, export oriented industries in a world where BC ramps up the carbon price to $50/ton over the next few years, under the 2016 Pan-Canadian Framework on climate change. The Greens seem unconcerned about the effect of the carbon tax on competitiveness. The Greens propose to increase the BC carbon tax by $10 a year for four years beginning in 2018, irrespective of what occurs in other jurisdictions.
The regulatory environment for business is complex and multifaceted, encompassing such provincial policy domains as labour and employment laws and standards, environmental policy, and regulations that apply to specific industries and types of business, among many other areas. Regulation can be a significant driver of additional costs for companies operating or looking to invest in BC. Industries active on the land base arguably contend with the greatest regulatory burdens, given the nature of their activity.
In our judgement, none of the party platforms appears to attach a priority on understanding and managing regulatory costs. The Liberals commit to maintaining a “net zero regulatory requirement” which means an existing regulation is removed when a new one is introduced. This is positive, but as it has worked in BC it has not really gotten at administrative burdens or process costs – e.g., the cost of compliance. Introducing modern regulatory frameworks where business operators with excellent track records of compliance would benefit from streamlined monitoring and permit approvals would be a welcome step but is not something that seems to be contemplated in the party platforms.
The NDP signals its support for a “renewed environmental assessment process,” which includes recognizing the right to clean drinking water and addressing the issue of cumulative effects. The New Democrats also favour new provincial legislation for species at risk (a federal law already exists in this area). The Green Party wants to review the entire environmental legislative framework, “to ensure the regulatory environment promotes adoption of green technologies…”. We are not opposed to these suggestions, but they do raise the spectre of escalating regulatory, administrative and compliance costs and a more complex business environment, notably for industries that operate on the land base. There is also the question of increased federal-provincial duplication and overlap in the whole area of environmental policy.
The point here is not to review details in specific policy fields. Rather, the examples above are cited to underscore the fact that the party platforms pay scant attention to the competitive landscape and have little to say on how to ensure BC is well-positioned to attract investment and support the growth of companies. And the NDP and Green platforms include proposals that could have a detrimental impact on competitiveness in some industry sectors.
Of interest, each of the platforms is more than 100 pages long. Yet the words competitive and competitiveness appear just six times in the Liberal platform, three times in the NDP’s, and twice in the Green’s.
BC’s competitiveness is also shaped by national policies and Canada’s competitive positon is gradually eroding. According to the World Economic Forum’s Global Competitiveness Index, Canada ranks 15th in overall competitiveness. And this middling ranking is down from 13th position a couple of years earlier. In part, deteriorating competitiveness is a factor in the decline of Canada’s market share of US imports. Since 2000, the proportion of US merchandise imports supplied by Canada has fallen 5.5 percentage points.
In our work, we see many industries and companies represented in the Business Council struggling to find reasons to invest and grow in BC, which suggests that all is not well on the competitiveness front. Based on the election campaign, most of those seeking public office look to be complacent about BC’s place in a fast-changing and increasingly competitive global economy.