When former finance minister Kevin Falcon first announced the members of B.C.’s tax-competitiveness panel, there was lots of applause. As a member of the new tax panel, I smiled. Then Falcon joked: “Enjoy it. This is the first and only time people will be clapping for you.”
The panel was assigned a critical mission: to make recommendations to improve B.C.’s tax competitiveness, while respecting the decision to bring back the Provincial Sales Tax.
When the PST is reintroduced on April 1, 2013, taxes on new investment in B.C. will become the highest among all the provinces – currently we are in the middle of the pack. The tax panel heard from a number of groups who are very concerned about the impact this will have on productivity, business investment, job creation and ultimately our standard of living.
These groups used statistics and arguments to make the case that we need to do something to relieve the negative impact of returning to the PST.
Impressive as they were, it was a short conversation with a small-business owner who runs a shake-and-shingle operation in Powell River that shook me the hardest. He simply said: “I’m worried that this is going to put a freeze on capital investment in the province.”
I looked around at all of the equipment in his yard and saw the people whose jobs depend on the investment in that equipment. If he’s worried, so am I.
Investments in new machines, computers and software enhance the ability of our workers to produce more, and hold on to market share, which makes it possible for them to be paid more.
Punishing investments in capital by taxing them has never made sense. In a world where punitive business taxation is increasingly the exception and not the rule it makes even less sense. Some business expansion won’t happen as a result. Some businesses will choose to locate elsewhere as a result. Our communities will suffer as a result.
That’s why the tax panel’s key recommendation is to introduce a refundable investment tax credit equal to the PST paid on machinery and equipment and technology. This will address the most negative impact of the return to the PST. If this pro-posed change is accepted, B.C. would no longer have the dubious distinction of being the highest tax province for new investment.
Falcon joked that the tax panel would never hear applause for our recommendations – likely because they had to be revenue neutral. To offset our most important tax proposal, we had to suggest increases in other taxes affecting businesses and consumers. For example, a half-point increase in the corporate income tax rate and extending the PST to a few areas where it doesn’t currently apply, such as snack food and basic phone and cable.
We also propose an offsetting credit for lower-income families.
We know we won’t win any popularity contests with our ideas but for the sake of B.C.’s future, I hope there will be enough applause to get the key recommendation of eliminating the PST on machinery, equipment and technology adopted soon.
Laura Jones is executive vice-president of the Canadian Federation of Independent Business and member of the Expert Panel on B.C.’s Tax Competitiveness.