BCBC In The News
Abbotsford News: Metro Vancouver home tax could send foreign buyers to Abbotsford
The province's new 15 per cent property-transfer tax on the purchase of Metro Vancouver homes by foreigners could send some of those buyers looking to Abbotsford but is unlikely to significantly increase demand for local homes, according to one economist.
The tax applies to non-Canadian citizens without permanent residency status.
Jock Finlayson, executive vice-president of the Business Council of B.C., said the new tax will likely dampen demand for residential property in Vancouver, Richmond, the North Shore and other municipalities where prices have skyrocketed in recent years.
But while some buyers will turn to the Fraser Valley, the Victoria area and other regions outside the Lower Mainland, such movement will be minimal, he predicts.
"We're talking about more of a dribble than a flood, simply because foreign investors who have been coming in to the real estate market tend to have very strong locational preferences," said Finlayson.
He said foreign buyers from China are more attracted to the west side of Vancouver and Richmond because of existing strong Asian population groups there as well as the neighbourhoods' luxury market.
Economists such as Finlayson and Central 1 Credit Union's Helmut Pastrick both say more can be done to increase the supply of housing units in the market, through speedier municipal approvals for development projects.
But both also acknowledged that more rapid redevelopment and densification of single-family neighbourhoods would result in even fewer detached houses available, likely widening the price gap between multifamily units and detached houses.
Finlayson also suggested parts of the Agricultural Land Reserve that have never been productively farmed could be opened up to development.
Black Press: Pundits split on whether foreign buyers tax will cool market
The province's decision to charge a steep 15 per cent property transfer tax when foreigners buy Metro Vancouver homes may help cool the region's "bubbly and overpriced" housing market, one B.C. economist says.
Jock Finlayson, executive vice-president of the Business Council of B.C., said it should have "some effect in dampening the demand" for real estate, particularly the single-family houses that have shot up much faster in price than townhomes and condos.
He said there's some evidence the housing market is cooling already and that cooling may accelerate after the extra tax kicks in Aug. 2 on purchases by foreign nationals or companies they control.
He also noted the province's decision to apply the new tax only in Metro, at least for now, could shift the foreign appetite for B.C. real estate to neighbouring regions.
"It may in fact lead to greater foreign demand for housing in areas like the Fraser Valley, Squamish, Greater Victoria and the central Okanagan," Finlayson said.
Finance Minister Mike de Jong indicated the new tax could be extended to other parts of B.C. if needed.
Finlayson said he hopes the province uses the revenue, which will go into a Housing Priority Initiatives Fund, mainly to assist renters, who face steeply rising rents in some urban areas.
That should be a priority, he said, because home ownership, particularly detached house ownership, is "just not going to be the future" for many area residents.
Vancouver Sun Editorial: Time to fix the PST
While the defeat of the Harmonized Sales Tax in the 2011 referendum may have been a victory for democracy, it demonstrated that sometimes the people get it wrong — witness Brexit or the rise of Donald Trump.
The arguments put forward by the proponents of the HST are as valid today as they were then and the flaws of the Provincial Sales Tax have become more apparent over time.
Of course, no politician who plans to survive the next election would dare to propose bringing back the HST but there are other options.
It should be understood that the B.C. government will need more revenue to provide the programs the electorate demands, most importantly those related to health care. Ideally, it should be able to raise the necessary revenue through economic growth rather than raising taxes.
The PST fails on two counts here: First, it is focused on taxing goods when growth in the economy is increasingly being driven by services. Second, the PST is imposed on business inputs — effectively a tax penalty on productivity-enhancing investment — making it more difficult to grow the economy.
In a recent study commissioned by the Business Council of B.C., Kevin Milligan, an economic professor at UBC, laid out several options for the B.C. government to consider.
• Replace the PST with other revenue sources, such as the carbon tax.
• Improve the PST by exempting business inputs and expanding it to cover more services.
• Replace the PST with a new B.C.-VAT, an alternative form of value-added tax.
Each one presents opportunities and challenges for the government.
In the first case, replacing PST revenue with incomes taxes would shift the burden on middle-income earners, who would see no benefit from eliminating the PST and could legitimately complain that the tax is unfair. Replacing it with carbon tax revenue could erode B.C.’s tax competitiveness with other jurisdictions.
In the second case, improving the PST by expanding its coverage and providing relief for business inputs meets the test of revenue generation and fairness, but the political cost might be high as it begins to resemble the rejected HST.
Finally, a new B.C.-VAT offers greater efficiency (i.e. ease of compliance, lower collection costs to government) but the obligation falls to firms which may balk at paying a profit-insensitive tax rather than explicitly collecting it from customers on each transaction.
It is all well and good that the B.C. government has established a Commission on Tax Competitiveness chaired by economist Bev Dahlby, but with respect to the PST, the problems are well known, have been studied extensively, and the options are clear. It’s time to make a decision.
BC Business Magazine: Weekly Roundup
"What’s wrong with the PST? A new study finds it’s neither fair nor efficient. By covering goods more than services, the tax doesn’t provide sufficient revenue—plus it doesn’t support investment."
Talking Taxes with UBC Prof Kevin Milligan
UBC Prof Kevin Milligan joined Kirk LaPointe on Roundhouse Radio to talk about the pressures on the BC tax system. The discussion was based on a recent paper commissioned by the Business Council and authored by Professor Milligan.
Business in Vancouver: Province can no longer tip-toe around tax reform: report
Despite the sour taste that remains from the failed harmonized sales tax, B.C. remains in dire need of tax reform, says a new report from the Business Council of British Columbia.
Kevin Milligan, the report’s author, said the province needs to broach this prickly subject once again to ensure future financial stability.
“Whether a revamped sales tax option is too close to the HST is something that voters and politicians have to decide,” he said in an email response to Business in Vancouver. “I just hope that we can still talk about reforming the PST while respecting the HST referendum mandate.”
The report, titled Fiscal Options for Building a Prosperous British Columbia, proposes a B.C. value added tax (BC-VAT), which is similar to the HST in some respects, but differs in others.
“The BC-VAT would be billed directly to businesses, not levied directly on consumers,” said Milligan, a professor of Economics at University of British Columbia’s Vancouver School of Economics. “To the extent this was passed through to higher prices, it might end up as close to the same net impact, but the visibility would be very different. The other main difference is that B.C. could control what is taxed and what is not, without having to negotiate with Ottawa.”
Milligan noted his report has been passed along to the B.C. tax competitive commission, which will be chaired by economist Bev Dahlby. The commission’s mandate is to make business more competitive in global and national markets while analyzing tax fairness.
Originally announced in February with the provincial budget, the commission was created to modernize British Columbia’s aging tax policy, which includes a PST first implemented back in 1948. Former premier Bill Vander Zalm led a referendum in 2011 to overturn the province’s HST—which replaced the PST—a mere 13 months after its adoption.
Milligan noted in the report the global economy is shifting, becoming more competitive and complex, which adds cost pressures to employers and governments across the country.
“British Columbia is competing in a world where capital is fleeting, consumer purchases are being facilitated through technology and data, healthcare costs and social services expectations are rising and the provincial economy is tilting in favour of the services sector.”
Peter O'Neil, The Vancouver Sun: UN declaration doesn't give Canadian First Nations a veto: minister
The Trudeau government’s embrace earlier this year of a United Nations declaration does not confer on First Nations a veto on natural resource projects in their territories, according to Indigenous Affairs Minister Carolyn Bennett.
Bennett, whose statement this week was greeted positively by a B.C. business group, noted a number of authorities who have rejected the notion of a blanket and unilateral ability by First Nations to prevent projects from proceeding.
They are Assembly of First Nations Grand Chief Perry Bellegarde, the Supreme Court of Canada, and one of the authors of the UN Declaration on the Rights of Aboriginal Peoples, James Anaya.
They “do not believe this is an outright veto,” Bennett said in an interview.
Jock Finlayson, of the B.C. Business Council, said Canadian and foreign investors have been confused by mixed signals from the federal Liberals about the ultimate meaning of UNDRIP.
He said he’s “comforted” by Bennett’s assurance that a veto isn’t being conferred.
“Hopefully, the federal government’s position on this point will be consistently and intelligently communicated so that it is understood by First Nations, project proponents, and both domestic and non-Canadian investors seeking to commit capital to Canadian-based ventures,” Finlayson said.
He noted that Canadian judges have made clear that the Crown has “extensive” obligations to consult with aboriginal communities, and accommodate them.
While the main responsibility for consultation falls on the shoulders of government, “the business community recognizes that it must respectfully and meaningfully engage with aboriginal communities when looking to develop projects in First Nations’ traditional territories and also find ways to ensure that economic development benefits aboriginal Canadians.”
In a recent interview Prime Minister Justin Trudeau neither confirmed nor rejected the notion he has handed out effective political vetoes.
“What I’ve heard from business communities is they’ve recognized that ignoring community voices, trying to run roughshod across environmental concerns, has resulted in not getting … pipelines and projects built that people wanted,” he said.
BIV on Roundhouse Radio: Is Brexit good for Canada-EU free trade agreement?
Dr. Pascal Spothelfer, CEO of Genomics BC, joins Business In Vancouver on Roundhouse Radio to discuss a new initiative between his organization and the University of British Columbia that's geared toward sparking new innovations.
Later on, a panel of experts drops in to discuss how the U.K.'s decision to leave the European Union will impact future free trade agreements.
Greg Tereposky, a lawyer specializing in international trade at Borden Ladner Gervais LLP, says Canada should expect the Comprehensive Economic and Trade Agreement (CETA) with the EU to be shelved for quite some time. But this could ultimately benefit Canada.
Meanwhile, Jock Finlayson, chief policy officer at the Business Council of British Columbia, taps into the forces at work in American politics that may prevent the Trans-Pacific Partnership from being ratified.
Business in Vancouver: Anti-free trade goes mainstream
British voters’ decision in the June 23 Brexit referendum to leave the European Union sent shock waves through financial markets.
But the anti-free trade, anti-globalization sentiment behind Brexit is not confined to the U.K., and it could bode ill for other trade liberalization pacts like the Trans-Pacific Partnership (TPP), say a number of economists and political scientists.
Populist politicians in the U.K. and U.S. have tapped into a wellspring of disaffection with free trade, economic co-operation, globalization and unelected quasi-governmental bodies, from the EU to the G20 and International Monetary Fund.
“Global momentum in favour of trade liberalization has ebbed very visibly over the past few years,” said Jock Finlayson, executive vice-president and chief policy officer for the Business Council of BC (BCBC).
“The challenge is not going to be advancing trade liberalization; it’s going to be preventing and forestalling a potential descent into a protectionist kind of spiral. That is the real risk that we’re facing.”
Finlayson agreed. He said the TPP is “as good as dead.” Democratic presidential candidate Hillary Clinton has officially said she doesn’t support the TPP either.
“It appears that American politics have effectively killed the TPP,” Finlayson said.
It’s not clear whether the federal Liberal government would ratify the TPP. If it does, it might be signing onto a deal that lacks one of the country’s most important trading partners.
“If the TPP doesn’t go ahead with the 12 members, there could be the possibility that Canada and the other 10 signatories could go ahead without the U.S.,” Finlayson said.
One other trade agreement Canada has signed, but which is not yet ratified, is the Canada and European Union Comprehensive Economic and Trade Agreement (CETA).
Economists like Finlayson think that the U.K.’s exit from the EU could put that agreement in question as well.
“I think the prospects that CETA would be ratified and implemented would diminish in the event that the European Union is thrown into turmoil because the second-largest member state [had] decided to exit.”
BIV: U.K. departure from European Union could bode ill for global economy: analysts
Trade between Canada, the U.K. and the European Union is not likely to be affected much by Britain’s decision to leave the EU, say a number of Canadian economists and political scientists.
The bigger concern is that the U.K. could slide into recession and an already fragile European economy will be destabilized by the loss of its second-largest member, not to mention the potential loss of other “Eurosceptic” members following Britain out of the EU.
The U.K. is Canada’s third-largest trading partner, according to Statistics Canada. Ontario accounts for the bulk of that trade. The U.K. is B.C.’s seventh largest trading partner, according to BCStats.
Jock Finlayson, executive vice-president and chief policy officer for the Business Council of BC (BCBC), agrees that the U.K.’s withdrawal from the EU will not have much impact on trade between Canada and Britain.
“It’s the knock-on effect on Canada, including British Columbia, from an even weaker economy, recognizing it’s already weak without Brexit,” Finlayson said. “Growth is pretty tepid, at about 3% per year. The real issue here has very little to do with the direct effects on British Columbia, which would be minor. It’s the impact that Britain leaving the European Union [will] have on the global economy and on financial markets and business confidence and, frankly, political stability.”
The formal withdrawal is expected to take two years to complete.
But, in the meantime, there are fears of a U.K. recession.
Within a span of about five hours, as the votes started coming in, the British pound sank to a 31-year low, losing about 9% of its value, pushing up gold prices and safe-haven currencies like the Japanese Yen.
“All the economic modelling shows that Britain pulling out of the EU would cause Britain to go back into recession,” Finlayson said. “Growth, which is anemic anyway, in the European Union without Britain would slow somewhat compared to the status quo projection.”
However, Finlayson, who said he was disappointed by the referendum’s outcome and worried about its financial and economic fallout, added that the global economy is already fragile and does not need any additional shocks right now.
“The world backdrop is simply not positive at the moment, so you introduce a shock like this into the system, particularly in an environment where central banks have already pushed policy interest rates to zero, [and] there’s very little additional that they can do.”
The Vancouver Sun: B.C. government between rock and a hard place on new climate plan
When the B.C. Liberal government unveils its updated climate plan in the next week or two, the critical question of whether the province’s carbon tax will increase (and when) will not be answered.
In a recent interview, B.C. Environment Minister Mary Polak revealed that a provincial decision on carbon pricing is not likely until after the federal government has made its own decision on pricing, possibly late this year.
The chief concern of business interests is that B.C. is getting ahead of other jurisdictions, which could make industry uncompetitive.
B.C.’s nascent LNG industry, represented on the climate action committee by the BC LNG Alliance (which includes companies such as Shell, Chevron and Malaysian state-controlled Petronas), did not endorse the carbon increase.
The Business Council of B.C., which represents 250 major companies in the province including energy heavyweights Suncor and Encana, has argued that reduction targets set nearly a decade ago are too ambitious and the province should not increase its carbon tax until other jurisdictions catch up.
But there is no escaping the need for new initiatives to reduce emissions if the province wants to meet its far-reaching targets.
The Business Council of B.C. has argued, however, that the province’s initial greenhouse gas targets were unrealistic and didn’t take into consideration that B.C. was already a low emitter of carbon on a per-capita basis.
Alberta and Saskatchewan have significantly higher rates of carbon emission output per capita than B.C., which ranks about the same as Ontario and Quebec, according to Statistics Canada data.
B.C. should be given credit for its lower-carbon-intensive economy, with most electricity supplied by hydro power, said Business Council of B.C. president Greg D’Avignon.
He said business is not opposed to a carbon tax, only that the province needs to be careful it does not get ahead of other jurisdictions and, as result, create an uncompetitive business environment.
“What we’ve said is the carbon tax can go up, but it’s got to go up in lock-step and parity with other jurisdictions because we are still going to be ahead of most other places five years from now,” said D’Avignon.
He said there should also be a consideration of items such as tax incentives for investments that reduce greenhouse gas emissions, perhaps similar to a program to reduce acid rain in the 1980s.
The Vancouver Sun: B.C. biomass producers brace for post-Brexit uncertainty
The United Kingdom power is British Columbia’s biggest buyer of wood-pellet biofuels and Thursday’s Brexit vote to leave the European Union just made the province a more expensive place for them to do business.
The value of the pound plummeted by seven per cent against the Canadian dollar in currency trading Friday on international markets, which makes it tougher to negotiate new sales into the U.K., said Gordon Murray, executive director of the Wood Pellet Association of Canada.
“In theory, there shouldn’t be any impact on existing business,” Murray said, “except the fact is when they’re buying with a devalued currency, it makes it more expensive for them.”
In the broad scheme of Canada’s economy, the U.K. is our country’s biggest European export market. Within that though, the U.K. only represented about 1.1 per cent of B.C.’s external trade in 2015, said Ken Peacock, chief economist for the Business Council of B.C.
In 2015, B.C.’s exports to the U.K. totalled $398 million (compared with $19 billion to the U.S.). The province’s imports from the U.K. totalled $395 million (compared with $20 billion from the U.S.).
“In the broad context of the provincial economy, the impact (of the Brexit vote) is more negligible,” Peacock said.
Business in Vancouver: Brexit: The sky won't fall, but the British pound has
British citizens have voted to leave the European Union, according to British press – a move economists say will not likely affect Canada's trade relations with the UK, but which could push the UK into recession and further cool an already “tepid” global economy.
In a referendum June 23, the leave camp was declared the victor by major media outlets even before the vote was finalized.
Trade between Canada, the UK and the European Union is not likely to be affected much by Britain’s decision to leave the EU, say a number of Canadian economists and political scientists.
“It’s the knock-on the effect on Canada, including British Columbia, from an even weaker economy, recognizing it’s already weak without Brexit,” said Jock Finlayson, economist and chief policy officer for the Business Council of BC (BCBC) “Growth is pretty tepid, at about 3% per year.”
The British pound's fall will boost safer haven currencies, including the Canadian dollar, economists say.
Business in Vancouver: Gas a big part of British Columbia’s carbon diet
B.C. risks falling behind Alberta and Ontario on climate change policies and will blow its greenhouse gas emissions diet with a single liquefied natural gas plant.
That’s the gist of recent criticisms, including damning letters from climate scientists and the government’s own Climate Leadership Team (CLT), on B.C.’s climate change policies and liquefied natural gas (LNG) ambitions, which are being characterized as incompatible.
But has B.C. really become a climate change laggard? Or is it so far out in front that it can afford to pause until the rest of North America catches up?
An update to B.C.’s 2008 climate change action plan is expected sometime this month. Federal Environment Minister Catherine McKenna is keen to see it, because it could factor into her decision on whether to approve Petronas’ Pacific NorthWest LNG project in B.C.
When the Business Council of BC (BCBC) compared B.C.’s carbon tax with all other jurisdictions, it concluded that the province’s carbon prices are already “among the highest in the world.” (While the price is higher in some European countries, it is applied less broadly than in B.C.)
It has already had negative impacts on B.C.’s cement industry and greenhouses, so the province has hit the pause button to avoid crippling energy-intensive industries like mining, cement plants and pulp and paper mills.
“It would probably contribute to a gradual shrinking of those sectors, if there was not some relief,” said BCBC chief economist Ken Peacock.
TruckNews.com: BC trucking industry on steady climb
It may not have achieved the lofty numbers of the real estate sector, which grew by 23% in British Columbia this past year, but the trucking industry still saw some steady growth, up over 5% in 2015.
During a speech at the BC Trucking Association’s (BCTA) annual AGM Meeting and Management Conference in Kelowna, BC April 10-12, Ken Peacock, chief economist and vice-president for the Business Council of BC, told conference attendees that the trucking industry in Canada’s most westerly province was doing quite well.
“In this post-recession environment – 2010, 2011 onwards – the growth of the trucking industry has outpaced other industries,” Peacock said. “From these numbers that economists looked at, it would appear to be a good-news story for your sector.”
Peacock underscored this point by calculating industry averages in growth from 1997 to 2014, and found that the trucking sector in BC had grown by 3.3% over that period, ranking it 21st on the list of all industries in the province.
“Often in this province you hear people say that the future is all high-tech and all knowledge-based industry and we can’t continue to develop resources, and that’s not at all the story,” Peacock said. “The resource industry is part of the mix and part of BC’s success, as well as high-tech and knowledge-based industries. I absolutely despise that narrative that it’s an either-or; to me it’s a both.”
Peter O'Neil, The Vancouver Sun: Central bank's 'talk down' of hot Vancouver housing market won't work: B.C. economists
The Bank of Canada’s bid on Thursday to “talk down” Vancouver’s skyrocketing housing market will likely fail, say B.C. economists.
In an unusual move, Governor Stephen Poloz warns in a report that soaring housing prices in Toronto and especially Vancouver are unsustainable and that a “correction” is possible if the economy falters.
Poloz also says the surge appears to be driven in the two markets on the assumption by buyers that the recent, staggering increases will continue.
The benchmark price for a detached home in Metro Vancouver soared to more than $1.5 million in March, 37 per cent higher than a year earlier, according to the Real Estate Board of Greater Vancouver.
The governor is engaged in an age-old practice by central bank leaders of using words rather than action to temper enthusiasm, said B.C. Central 1 Credit Union chief economist Helmut Pastrick and B.C. Business Council chief economist Ken Peacock.
But that warning, and government hints of possible policy changes to deal with the impact of deep-pocketed foreign investors, won’t likely frighten determined buyers, they said.
“I don’t see the market cooling any time soon,” said Pastrick, though he agreed that annual increases in the 20- to 30-per-cent range are unsustainable.
But he said only a major recession would, as Poloz acknowledged, cause a significant market “correction” that would move prices south, according to Pastrick.
Peacock said the central bank is hoping to avoid a real estate “bubble” that could cause serious economic damage if it bursts. One of the key elements of a bubble — purchases made solely on the assumption price surges will continue — is clearly driving many purchases, he said.
Like Pastrick, he said it will take more than a Bank of Canada press release to contain the speculative frenzy in many Metro Vancouver markets.
BIV on Roundhouse Radio: Ken Peacock, Stewart Muir and Matt Horne
Ken Peacock, chief economist, Business Council of B.C. - Stewart Muir, executive director, Resource Works & Matt Horne, associate director of B.C., Pembina Institute discuss the ongoing conflict between B.C.’s traditional resources sector vs. efforts to go green and move away from a reliance on mining, lumber, energy, etc.
Roundhouse Radio: BCBC's Chief Economist, Ken Peacock on the Canadian Economy
Following the Bank of Canada rate announcement, Ken Peacock joined the Business in Vancouver team on Roundhouse Radio to discuss implications for the Canadian economy. (Begins at 32 minute mark.)
Business in Vancouver: Report on Vancouver's economy highlights threat of residential real estate disconnect
The soaring price of residential real estate is one of the biggest impediments to Vancouver’s economy, and could weigh on future business growth and formation, says a prominent local economist.
“How do you grow a global-scale company in Metro Vancouver if your employees, particularly your employees in the age where they start families, can’t afford to live here?” said Jock Finlayson, vice-president and chief policy officer for the Business Council of BC.
“Looking ahead I am fearful of a hollowing out of corporate Vancouver.”
Vancouver falls squarely in the middle of the pack when it comes to economic performance, according to a report comparing Vancouver to 20 other cities in Canada and around the world. Vancouver comes in ninth on economic benchmarks and seventh on social factors. The Conference Board of Canada report was commissioned by the Greater Vancouver Board of Trade (GVBOT).
While Vancouver scores high on quality of life, housing affordability is a big negative. The city also scores low on income levels, labour productivity and the size and number of head offices.
“We fall down on what I would call some of the core economic measures: productivity, incomes, productivity growth over time, and we fall down on housing prices.”
For Finlayson, the bright spots in Vancouver’s economy — like the growing tech sector — are overshadowed by the exorbitant price of real estate.
“This disequilibrium between median household income and the cost of living, particularly the cost of [housing], is the single biggest problem we have in this region,” he said.
Business in Vancouver: Canadian forestry finding its footing despite market challenges
[Excerpt] Forestry company executives might also need to start factoring more global economic data into their decisions.
Their industry is increasingly affected by oil-linked currency fluctuations, changing demographics that affect home-building – their bread and butter – and a “choppy” and “risk-prone” global economy facing innovations of its own, including unprecedented low, and in some cases negative, interest rates.
The good news is that market conditions and profits are improving for Canadian lumber and pulp and paper producers.
The recent numbers are promising.
First-quarter financials show that B.C.’s major forestry companies have been posting increased earnings, thanks to higher lumber prices, a low Canadian dollar and an improving U.S. housing market.
U.S. housing starts were up 6% in the fourth quarter of 2015 compared with Q4 2014, according to PwC.
New housing starts in the U.S. have been recently calculated to be an average of 1.1 million. Business Council of BC chief economist Ken Peacock said they’re forecast to rise to 1.2 million to 1.4 million between now and 2025.
“Essentially, the story is low interest rates, better job market and demographics are going to continue to drive the U.S. home-building market over the next five to six years,” Peacock said.