Transcript
Speaker: Hello and welcome to today's episode of Red Eye. I'm Jane Williams.
Speaker: On the podcast today, economist Alex Hemingway joins us with a critical look at the tax breaks proposed in the NDP election campaign and some suggestions for a fairer approach to taxation in BC.
Speaker: During the BC election campaign, both the Conservatives and the NDP put significant tax cuts on the table in their policy platforms. While they were framed as a way of easing pressures on the cost of living, economist Alex Hemingway points out that the tax cuts will do little to address the structural problems underlying those cost pressures.
Speaker: Now that the provincial election has been decided and the BC NDP will return to government, Alex Hemingway joins us to take a closer look at the impacts of the tax cuts that they proposed during their campaign. Alex Hemingway is a senior economist and public finance policy analyst at the CCPA's BC office and his research focuses on tax fairness public finances, public services, and economic inequality in BC and Canada. Hello, Alex. Hi, Jane. Thanks for having me. Nice to have you back on the show. Now, we're living with the legacy of the BC liberal tax cuts of the early 2000s. What are the some of the effects that we still see today of those across the board, personal and corporate tax cuts?
Speaker: Yeah, I think it's concerning you know in in this context that we're in now where you know we saw tax cuts on the table from both of the big parties in the election, of course, even bigger ones from the BC Conservative Party. To think back to you know what happened 20, 25 years ago in BC, we've been down the road of tax and spending cuts before.
Speaker: on the tax cut side back in the early 2000s under that B .C. Liberal government, first of all, it's worth noting that those tax cuts disproportionately benefited the rich. And the consequence of that was very substantial cuts to public services.
Speaker: in a whole range of areas. You know, I was in high school in Prince George back then, and I saw firsthand, as as many others have, the cuts in the education system. and We had a couple of dozen schools close just in Prince George, and that happened in many other parts of the province as well. Class sizes grew, you know, in health care. We saw health support workers with their jobs being privatized facing large wage cuts.
Speaker: degraded working conditions and I think we see the after effects of that in our healthcare system today where it's still struggling in many dimensions and we saw the government largely get out of the business of building affordable housing at that time under the BC Liberals and that helped set the stage for the housing crisis and shortage that we have today. That government in that sort of austerity era failed to invest in areas like affordable child care which were emerging and becoming increasingly important and we saw underinvestment in infrastructure and even the sell -off of public lands
Speaker: in many parts of the province, lands that were needed for things like schools and hospitals. And and that has increased the challenges today in many places, including, I think, most prominently in Surrey, where they've struggled to find land for some of those key pieces of social infrastructure. Now, when the BC NDP came into power first in 2017, they brought in some tax policy changes. What did they do back then?
Speaker: Yeah, so I think we saw with that change of government, they did shore up provincial revenues a little bit. So we saw some small tax increases on the highest incomes and the provincial income tax. We saw a tick up of one point in the corporate tax rate.
Speaker: And we saw some innovative tax policy as it relates to the high end of the housing market. So we have the additional provincial property tax on properties worth over $3 million. dollars We've got the speculation of vacancy tax. On the other side of the ledger, we saw one of the biggest tax cuts in BC history. And this, I think, was actually a good one. This was the elimination of MSP premiums.
Speaker: which was an extremely regressive tax, extremely unfair. and you know That revenue was partly replaced by a new employer health tax, a payroll tax, similar to that found in other large provinces. When you add that all up, these tax policy changes did improve the fairness of the tax system. But because there were both revenue increases and decreases, there's no structural increase to our provincial revenue capacity.
Speaker: And I think that's worth keeping in mind at a time when we need increased social investment and we've had some of that, but ultimately we need more revenue to be able to sustain and increase those types of investments. So ah one way to help BC's economy and to help revenues grow is to invest in infrastructure. But can the province afford to do that?
Speaker: Well, I think we can't afford not to. We have an infrastructure deficit, an infrastructure gap across Canada, actually. And the estimates of that vary across the country. At the low end, it's maybe a $150 billion dollars infrastructure gap, because we've been underinvesting in our our infrastructure. We underinvested in it for decades. There's been some reinvestment in recent years, and that's been positive. But there's a big catch up to do there.
Speaker: And that is necessary to make our society function, but also to make our economy function. So if we were to neglect infrastructure investment now, we would not only feel that in our daily lives, it being more difficult to get around, you know, commuters stuck in the misery of traffic because there's not enough investment in public transit, mass transit.
Speaker: not being able to get your kid into the school in your neighborhood because it's overflowing. That's a problem for households, but it's also a problem for business. Workers need to be able to get to their jobs. People need affordable housing to be able to move to a region like Metro Vancouver and contribute to the economy here. So it all ties together, but it does pose a challenge for the government of the day when there's so much catching up to do.
Speaker: Does this mean that BC would have to run a deficit? Well, I think there's an ah important distinction to make here. So, you know, sort of standard public sector accounting, there's a ah distinction between operating spending on the operation of programs and services and capital spending on things like infrastructure. so When we talk about the deficit, and we are running deficits in BC right now, that's largely on the operating side. So when it comes to capital investment in infrastructure, we spread out the costs of that investment over time. So we borrow upfront from capital markets to make these types of investments, and then we amortize those costs
Speaker: and the interest payments over years and decades, essentially over the life of these assets, all to say the cost of capital investment and infrastructure is spread over many budget cycles in a way that operating spending at the provincial level isn't.
Speaker: And we have a pretty good credit rating here in BC, right? Yeah, you know, it's an interesting situation in BC. you know There's been a lot of talk in the past couple of years that we are running substantial operating deficits right now. But despite that, we actually have the highest credit ratings of any provincial government in the country. And we also have a very low debt to GDP ratio. So you know that low starting point of debt actually leaves considerable room to maneuver when we're looking at borrowing to catch up on infrastructure investment.
Speaker: You know, having said that, look, running deficits is certainly preferable to shortchanging public investment because that's only going to deepen social and environmental deficits and cost BC and its economy more in the long run. But that doesn't mean that we should plan to run large deficits indefinitely.
Speaker: We want to be running our provincial finances and provincial government such that we can sustain and actually increase important public investments in the years ahead. And to do that, we should really be looking at increasing provincial revenues.
Speaker: So what's the cost to the province of the NDP's proposed middle class tax cut, as they call it? Yeah, so and that it's in that context that I think you know putting tax cuts on the table is concerning. So the the projected revenue loss from the tax cut, middle class tax cut that the and NDP promised in the election is $1 .3 billion dollars annually on an ongoing basis.
Speaker: And actually, the cost would be a little bit larger in the first year because they're going to do it as a rebate in the first year. And they're estimating that will cost $1 .8 billion. dollars Likely because it's not entirely clear from the platform document, but that's likely because as a rebate in that first year, dollars will actually flow to those on the lowest income. So that's a good thing.
Speaker: But the ongoing tax cut, you won't benefit from it if you're not paying much or perhaps no provincial income tax at all. And that's sort one of the design flaws of the proposed tax cuts that we saw in the election from both parties, in in addition to the revenue loss, which is really concerning when we should be looking at structural solutions to the cost of living. We know households are squeezed, and so you know the idea of more dollars in your bank account $500 for an individual over the course of the year in the NDP's proposed tax code. That may sound enticing and that will genuinely help some households in the short term, but it doesn't address the underlying structural cost of living pressures, whether that's housing prices or the cost of childcare or the need to own a car or two to get to work because of not having adequate transit services. So I think there may be a short -term gain, but a long -term cost if that reduction in revenue actually means we're investing less in social services and in infrastructure. I'm curious, how does that $1 .3 billion dollars cost for the tax cut proposed by the and NDP compare with what the BC Conservatives proposed?
Speaker: Yeah, well, there's a positive comparison there in that the conservative proposal was to punch an even larger revenue hole in the provincial budget. The estimates, cost estimates that were being widely cited during the election for the conservative tax cut was $3 .5 billion. dollars I think, you know, there's some question marks about whether that was the right number and their platform costing, as people may recall, came out very late and it was very incomplete.
Speaker: so It's hard to say, but yeah it looked to be a much larger revenue loss from the conservative proposal. Would you describe the NDP's tax cuts as fair? Well, I wouldn't. so you know there's Part of it is what we've been talking about to the extent that it leads to money being diverted from social investments. you know That's going to be taking money away from from services that can help low and middle income households and help address some of those structural causes of the cost of living pressures people are facing. But even just as a tax policy design, you know one of the issues here, and this was true and actually even worse in the case of the conservative tax cut proposal, we have a challenge here where this tax cut on an ongoing basis
Speaker: as it's been proposed, is not going to help those who need it most. It's not going to help those on the lowest incomes. Because as I alluded to a moment ago, it's essentially what they're doing is increasing the basic personal amount, which is a deduction from your income tax. It's increasing the minimum amount above which you start paying provincial income tax. But if you're very low income and you're not paying provincial income tax,
Speaker: at all or you're only paying a very little bit of it, you won't get the full benefit of this tax cut or potentially any of the benefits. so you know I'm not sure that this tax cut is a good use of $1 .3 billion dollars to begin with, but if they They are going to go ahead with it. One thing to consider would be to redesign it. So those on the lowest incomes actually do benefit on an ongoing basis and perhaps do that by bringing down the cap. This is a tax cut that's going to phase out for those with incomes above $125 ,000 from what we've been told so far. Maybe reduce that cap closer to the middle of the income distribution so that funds could go to those with very low incomes.
Speaker: if this type of tax cut must go ahead at all. Now, you say that that BC is a wealthy but a highly unequal province. What's it going to take to address that inequality? I mean, you mentioned one thing there, CAP, but what kinds of tax policies would really get us moving towards a more equal society here in BC?
Speaker: Yeah, and I think this is really the key here is in that context of an unequal society. And in the context of BC, which is actually a very low tax jurisdiction, it remains so as a result of that earlier wave of tax cuts in the early 2000s. Much of that hasn't been undone. ah We really need to be looking at raising additional revenue. And of course, we should do that in the most inequality reducing way possible.
Speaker: And that means taxing the rich and large corporations. You know, we have a lot of latitude to do that in British Columbia, whether that's taxing the wealthiest landowners. You know, we've seen massive increase in real estate and property wealth in B .C. It's up about one point seven trillion dollars just in the last 20 years. We should tax some of that real estate wealth at the top end more robustly. There's room for increases to the top income tax brackets to bring in more revenue. And there's room to increase revenue from corporate taxation.
Speaker: And you know the idea of raising more provincial revenue you know is that's not a pie in the sky proposition. yeah Even if you look at what institutions like the credit rating agencies tell us, who are relatively conservative,
Speaker: on these types of issues. you know Rating agencies like Moody's tell us that we have the flexibility to raise taxes in BC while still remaining competitive with other jurisdictions. So this is a realistic thing to do. And you know the other piece of context that I think is is really essential here is As a result of the tax and spending cuts of the early 2000s under the B .C. Liberal government, and when you look at provincial revenues and provincial spending as a share of GDP, so as a share of our total economic pie, that's still lower today than it was 25 years ago as a result of those earlier cuts.
Speaker: you know We've seen reinvestment under the BC NDP government in the past several years, but not even enough to raise spending to the same share of GDP that we had 25 years ago. So there is room to maneuver there, but it does require taking on those at the very top. And you know I think there is a discussion to be had as well for more middle and upper middle income earners. you know Are we willing as a society to forego something like a $1 .3 billion dollar tax cut, or maybe even chip in a little bit more together to structurally address some of the big challenges that we're facing that will ultimately leave us all better off, but we've got to build that social trust and and have that discussion, I think, as a society
Speaker: if we're going to tackle some of the really big challenges that we're facing right now. I understand that the Green Party platform actually called for some of those inequality -reducing tax policies, and I wonder if with the slim majority that the and NDP has, whether there will be a possibility for movement from that direction.
Speaker: Yeah, I certainly hope so. there were There were some positive proposals along those lines in the green platform. I should say there was also one good tax policy proposal in in the NDP platform, which was an increase to the speculation of vacancy tax. Relatively modest though, only a sort of $60 million dollars revenue increase, much less than the tax cut.
Speaker: But I hope there's appetite for that from both of those parties and maybe even and MLAs from the other party, I don't know, because there was a recognition in the election that we're going to need to continue to invest in social services and infrastructure. And despite a lot of sort of deficit scolding that we heard, for example, from the PC They're also saying, we're not going to get rid of the deficit if we come to power. So there's there's almost a consensus on that. you know Both the NDP and the conservatives were saying, yeah, like we're going to keep running deficits for the years to come. We'll try and gradually reduce it over time. And that's a fine goal, but it's really important how we go about it, that we don't go about it by cutting vital public services, and that instead we go about it by by raising revenue in ways that can reduce inequality.
Speaker: with wealth and income increasingly concentrated at the top of our society. Well, thanks so much. It's always good to talk to you, Alex. We appreciate it. Thanks for having me, Jane. I've been speaking with Alex Hemingway, Senior Economist and Public Finance Policy Analyst at the CCPA's BC office. You can read his recent analysis of the proposed tax cuts at policynote .ca.
Speaker: The Red Eye Collective is based in Vancouver. You can check us out at coopradio dot .org slash redeye.
