It’s time for BC to raise and reform taxes: There is a clear need to restore our fiscal capacity and fairness

January 29, 2013

British Columbians are being inundated with government ads trumpeting that we have the lowest taxes in Canada. But BC’s low taxes are nothing to boast about. They’ve starved key services of needed funds and left many of our social and environmental needs unmet. And the kicker is that we’ve very little to show for it.

Lower taxes have failed to deliver on their economic promise. BC’s economic performance, job creation and business investment levels are all around the middle of the pack compared to other provinces, and no better than when BC’s taxes were higher.

More than a decade of cuts to both personal and business taxes have eroded our fiscal capacity to maintain and enhance the public services so vital to our quality of life. And in the process the tax system has become much less fair. Taxes have been shifted from corporations to families, and from upper-income families to middle and modest-income ones. As a result, British Columbians now pay more out-of-pocket for a host of programs, through school fundraisers, post-secondary tuition, seniors care fees and more.

Consider these startling facts:

  • If BC collected today the same amount in tax revenues as a share of the economy (GDP) as it did in 2000, we’d have $3.5 billion more in public funds (meaning, no deficit, and the ability to invest in enhanced or even new public services).
  • If BC collected the same amount of personal income tax as the average for other Canadian provinces (including BC’s MSP, which is unique in the country), we’d have an additional $2.4 billion in revenues.
  • Last year, the global accounting firm KPMG examined businesses taxes in 55 major cities in 14 countries. Their finding: Vancouver has the second lowest taxes after Chennai, India.

Simply put, our province’s taxes are too low, and there is plenty of room to increase them without undermining economic “competitiveness.”

Many in the punditry, however, insist there is little room for tax increases. They claim the only choices before us are for very modest increases targeting the top 1 or 2 percent of earners at most, raising only a small amount of additional revenues.

Not so.

A new report we have authored models an array of options for raising new revenues while reducing inequality. We focus mainly on personal income taxes (the most progressive, or fair, element of any tax system), but other possibilities include changes to property taxes, corporate taxes and resource royalties.

Our report doesn’t recommend adopting every possible option. Our purpose is to inform an open public discussion about taxes by highlighting a range of scenarios, along with estimates of the revenues that could be raised with each one. 

Some examples could include:

  • Two new upper-income tax brackets affecting only the highest-earning 2 per cent of British Columbians would raise about $700 million — enough to build, for example, 2,000 units of new social housing per year, and to restore class sizes, class composition and specialist teacher staffing to 2007 levels.
  • Add in a modest increase to the current top tax bracket and the amount we’d raise rises to over $930 million – enough to also provide much-needed increases to welfare rates (frozen since 2007). Only the top 6% of British Columbians (those making over $100,000) would be impacted.
  • Continue with $5 annual increases in the carbon tax, and expand the tax to capture currently excluded industries (such as gas production). This would raise $2.2 billion within four years (twice what it raises today) and could pay for environmental protection, climate action initiatives, and an enhanced carbon credit. The bottom half of BC households would be net beneficiaries (receiving more from the credit than they pay in the tax).

The good news, as revealed in a recent CCPA opinion poll conducted by Environics, is that most British Columbians are prepared to entertain tax increases, and not just for those at the top and major corporations. A majority are also willing to pay slightly more taxes themselves if it means greater access to public services and a better standard of living.

If most people pitched in the cost of a cup of coffee a day, with high earners contributing more, together, we could raise up to $2.3 billion per year –enough to strengthen our communities and build a province we can all be proud of.

British Columbians deserve a thoughtful conversation about the need for tax reform. This isn’t about soaking the rich or punishing success. It’s about being realistic, taking stock of our unmet needs and asking: What programs should we pay for together through taxes, and how can we raise the money needed in a way that ensures everyone pays a fair share? We hope our report can help kick-start that conversation.

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Seth Klein is the BC Director of the Canadian Centre for Policy Alternatives, and Iglika Ivanova is Economist and Public Interest Researcher. They are co-authors ofProgressive Tax Options for BC: Reform Ideas for Raising New Revenues and Enhancing Fairness.