The Fraser Institute

The Fraser Institute

September 12, 2007 09:00 ET

The Fraser Institute: BC Government Has Historic Opportunity to Lower Taxes and Create 'BC Advantage' Compared to Rest of Canada

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Sept. 12, 2007) - British Columbia's current wealth of revenues gives the provincial government an opportunity to reduce taxes, providing BC with a tax advantage compared to all other Canadian provinces, says a new study released today by independent research organization The Fraser Institute.

"For years we've heard of the 'Alberta Advantage'. Now the BC government has a historical opportunity to create a 'BC Advantage' giving the province the lowest personal and business taxes in Canada," said Jason Clemens, Resident Scholar with The Institute's Fiscal Studies department.

"The government can achieve this goal with little effort: simply maintain current per person spending, acknowledge more realistic revenue expectations, and focus on a three-year tax relief plan."

The study, 2010: BC Tax Advantage, shows that the province has enjoyed year-end surpluses significantly larger than expected. Over the past four years, the BC government has taken in $10.6 billion more in revenue than it projected. In 2006-07 alone, the province received $3.1 billion in excess of budget expectations.

"Contrary to popular opinion, this excess revenue is the result of strong personal and corporate income tax revenues rather than natural resource revenues," Clemens said.

In 2006-07, personal income tax revenues exceeded government expectations by nearly $1.1 billion. Corporate income tax revenues also exceeded budget expectations by almost $200 million. On the other hand, natural resource revenues fell short of expectations by $860 million.

"With higher than expected revenues and large surpluses each year, the government clearly has the resources to reduce taxes."

By comparison, Alberta's provincial government has been increasing spending in excess of population growth and inflation, with the result that it has eroded the long-standing "Alberta advantage", Clemens added.

"That BC has an opportunity to surpass Alberta and offer the lowest tax regime in Canada would have been unthinkable even a few years ago."

The study outlines a three-year fiscal plan, starting in 2008 and extending to 2011, that includes adjustments to revenues to reflect a more accurate expectation of future revenues. More realistic revenue expectations allow for a $2.2 billion increase in spending to ensure that per person spending (adjusted for inflation) remains constant; an increase in the forecast allowance to provide a larger cushion against any unforeseen variances in expenses or revenues; and a three-year, $7.1 billion tax relief program.

Five-Point Tax Relief Plan

- Eliminate the top three personal income tax rates and reduce the remaining top rate from 8.15 per cent to 8.0 per cent. Estimated cost: $5.5 billion.

- Reduce corporate income tax rates to 8.0 per cent from 12.0 per cent. Estimated cost: $994 million.

- Eliminate the financial corporate capital tax immediately. Estimated cost: $361 million.

- Harmonize the provincial sales tax with the GST. Estimated cost: $0.

- Increase the threshold for small business to $1 million from $400,000 over the three years. Estimated cost: $200 million.

"This is a realistic plan that within three years would provide BC with a tax advantage better than all Canadian provinces including Alberta for personal income and business taxes," Clemens said.

"Although BC is currently enjoying a period of strong economic growth, the people of the province can still do better. The government has a historic opportunity to make the necessary moves to improve incentives for work, savings, investment, and entrepreneurial activity and ultimately, bring increased prosperity to all British Columbians for years to come."

The Fraser Institute is an independent research and educational organization based in Canada. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.ca.

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