Jock Finlayson

Jock Finlayson

FINLAYSON: Where does the money come from? The B.C. government’s top revenue sources

Governments around the world have taken on mountains of debt during the pandemic to support the economy

The recent unveiling of new social and business restrictions by the Provincial Health Officer is a stark reminder that the COVID-19 saga is far from over, notwithstanding the arrival of vaccines. It is likely to take a few more months – at least – before life returns to something resembling normal. In the meantime, British Columbians will gain fresh insight into the state of the province’s economy and public finances when Finance Minister Selina Robinson tables the NDP government’s 2021 budget on April 20.

Governments around the world have taken on mountains of debt during the pandemic to support economic activity. B.C. is no exception, and the forthcoming budget will tally up the fiscal damage done to date. At last count, the province’s operating deficit for 2020-21 was on course to reach a record $13 billion, according to the Ministry of Finance. All of this sizable sum will need to be borrowed. The government didn’t expect a gusher of red ink when the previous budget was released in February 2020.

The return of big deficits highlights an important issue: apart from running deficits, which in B.C. were eliminated in the years leading up to 2020, where does the provincial government get the money to pay for services and programs? To answer this question, we look back at the most recent pre-COVID budget year, which ended on March 31, 2020.

In that year, the provincial government collected $58.7 billion from a mix of revenue sources. At a high level, the funds can be divided into two buckets. The first is “taxation revenues” derived from taxes paid by individuals and businesses. These include taxes on personal and business income, consumption, energy, alcohol and tobacco, property, real estate transactions, and much else besides. Taxes provided 57 per cent of the province’s revenues in 2019-20.

The rest came from “non-taxation revenues.” They consist of cash transfers to B.C. from the federal government, the net earnings of provincial Crown Corporations, natural resource royalties, and a grab-bag of fees and charges.

Looking more closely at the data, the accompanying table shows the province’s main sources of revenue in 2019-20.

Personal income tax has long been the number one source of cash for the provincial government, supplying 18 per cent of revenues in 2019-20. Next was money transferred to B.C. by the federal government (16 per cent), B.C.’s sales tax (13 per cent), corporate income tax (9 per cent), and the combined net earnings of provincial Crown Corporations (5 per cent). Other significant revenue sources are fees paid to education institutions, taxes on property and property transactions, direct natural resource royalties, the Employers’ Health Tax, and carbon and other fuel taxes. Added together, the top five revenue sources accounted for almost three fifths of the funds available to the B.C. government before the arrival of COVID-19.

Many of the revenue sources in the table have been dampened by disruptions caused by the pandemic. That’s a principal reason why the province will be posting a record deficit in 2020-21. However, most of the affected revenue streams have been rebounding since the summer and should continue to revive in 2021-22. This will narrow the size of the government’s annual deficit. But given the magnitude of the COVID hit to our economy, it will take time to return to a balanced provincial budget.

B.C.’s top revenue sources in 2020-21.

B.C.’s top revenue sources in 2020-21.

Restoring the economy to health is the best way to boost government revenues going forward. Indeed, fostering economic growth and job creation should be the primary focus of the 2021 provincial budget. The government should steer clear of tax and fee increases for now. If necessary, options for raising additional revenues can be considered once the economy has fully recovered from the epic COVID-19 shock.

Jock Finlayson is a senior policy advisor with the B.C. business council.

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