Following the NDP government’s re-election, Premier David Eby’s new cabinet will be sworn in Nov. 18. The first priority of this government? Well, it should be tax reductions and spending cuts.
British Columbia’s GDP per person, a key measure of the economy and living standards, will by a projected two per cent in both 2023 and 2024. In fact, GDP per person is essentially the same today as it was six years ago.
Moreover, government accounts for nearly all in the province since 2019. Indeed, from 2019 to 2023, private sector employment in B.C. increased by just 12,000 jobs while the number of government jobs—provincial, federal and local—in the province increased by 102,100. Put differently, 89 per cent of all net job creation in B.C. was in government. That’s a big problem as the private sector ultimately pays for the government sector, including the salaries and benefits of government employees.
Clearly, B.C. needs a plan for job creation, higher incomes and economic growth. Where to begin?
Firstly, reduce taxes and make B.C. a more attractive place to work, invest and engage in entrepreneurial activities.
High tax rates economic growth by reducing the reward from productive activities such as entrepreneurship, work and investment. B.C. currently has the top combined (federal and provincial) statutory personal income tax rate (53.5 per cent) among all 10 provinces and 50 American states, and significantly higher (16.5 percentage points) than in neighbouring Alaska and Washington.
When deciding where to live and work, high-skilled workers including doctors, engineers and entrepreneurs consider (among other factors) personal income . Jurisdictions with lower tax rates have an advantage in attracting these high-skilled and productive people who fuel economic growth, create jobs and drive prosperity. To make the province more attractive, the Eby government should reduce the province’s upper income tax rates.
Secondly, to attract investment the government must address B.C.’s provincial sales tax (PST), which applies to a wide range of inputs (equipment, new technologies, etc.) used in the production process by businesses and entrepreneurs. This is unlike other provinces such as Ontario that have an integrated provincial sales tax with the federal GST, or Alberta which has no provincial sales tax. Consequently, compared to other provinces, it’s more expensive to do business in B.C., which has the on investment in Canada. Higher rates of investment fuel economic growth, which is key to job-creation and prosperity across income levels.
Finally, due to massive spending increases by the Horgan and Eby governments over the last few years, the Eby government will run a projected budget deficit in 2024-25 (for perspective, after adjusting for inflation, that’s larger than B.C.’s deficit at the height of the pandemic in 2020). The government will likely use this deficit as a reason not to reduce taxes.
But in reality, the government could reduce taxes for British Columbians if it simultaneously reduced spending. There are some obvious places to start. For instance, the province spends of dollars annually on subsidies (AKA corporate welfare) to favoured industries and businesses, despite a large body of research showing these subsidies generally fail to generate widespread economic benefit.
Put simply, B.C. needs an agenda for prosperity—and it begins with reducing spending and cutting taxes. This is the first step towards a brighter future for British Columbians.
Tegan Hill is a senior economist at the Fraser Institute.
