Ben Eisen is a senior fellow and Tegan Hill is a senior economist with the Fraser Institute. A recent op-ed in the Vancouver Sun by Iglika Ivanova, executive director at BC Policy Solutions, examines British Columbia’s fiscal situation. Unfortunately, the op-ed is flawed in fundamental ways. First, it minimizes the seriousness of BC’s budget deficit and pace of debt accumulation. And it identifies the wrong cause of BC’s fiscal disaster — and as a result, proposes the wrong solution.Ivanova begins by noting that while the Eby government’s current $11.6 billion budget deficit may “sound enormous,” the province ran higher deficits (relative to the size of the economy) in 1982 and 1991.But in fact, the government’s deficit doesn’t just sound enormous, it is enormous. And due to accounting changes over time, deficit figures from the 1980s and 1990s aren’t directly comparable to today’s. The fact that the province ran very slightly larger official deficits (relative to the size of the economy) during two long-ago recessions shouldn’t diminish BC’s fiscal problems today. .EYRE: Beware the ‘nation-building’ boosters: Why governments shouldn’t pick winners and losers.For perspective, this year’s deficit is larger than deficits run during the COVID-19 pandemic and the 2008-09 recession, and it’s part of a long string of large budget deficits, which are only set to grow in coming years. Once you factor in long-term spending on capital projects, provincial net debt has nearly doubled since the Eby government took office three years ago and is projected to reach $111.7 billion this year, climbing to $155.3 billion over the next two years. If the bleeding continues at this pace, BC will become more indebted (relative to the size of its economy) than either Ontario or Quebec by the end of the decade.The second problem with Ivanova’s commentary is its proposed solution — a massive increase in taxes on BC residents and businesses. .This ignores the cause of BC’s fiscal woes — namely, rapid spending growth. Indeed, the Eby government has recorded record-high levels of per-person (inflation-adjusted) program spending. And according to our recent analysis, inflation-adjusted per-person spending increased by 32.5% from 2016/17 to 2022/23. In the absence of this spending increase, the current debt explosion would simply not be occurring. Moreover, it’s hard to overstate the damage tax hikes would do to BC’s economic competitiveness. For example, Ivanova suggests raising the general business income tax rate. But in fact, if the Eby government restored BC’s rate to its 1999 level, the province would have the highest business tax rate in Canada at 16.5%, more than double Alberta’s, and five percentage points higher than Ontario’s. This is a particularly bad idea given the province’s business tax environment is already uncompetitive because of a poorly designed provincial sales tax, which applies to some businesses’ inputs (including machinery and equipment) and imposes high compliance burdens on firms due to its complexity. BC’s burdensome business tax structure remains a key reason why the province struggles to attract private-sector investment. A business tax rate increase of this magnitude would make a bad situation even worse. .OLDCORN: The public square is for everyone — not just the ‘tolerant’ Left.Ivanova also wants the government to increase the top personal income tax rate on high-income earners, but BC already has the fourth-highest top combined (provincial/federal) income tax rate (53.5%) of any Canadian province or US state. BC’s relatively high tax rates — which already discourage doctors, engineers, and tech professionals from locating in the province — would only worsen BC’s ability to attract and retain top talent, entrepreneurs, and investment. BC is on the path to being one of Canada’s most indebted provinces by the end of this decade. It would be a mistake to minimize the problem, and an even graver mistake to try to address it by imposing higher taxes on workers, entrepreneurs, and businesses. Instead, this government should reverse the rapid spending growth that has caused a fiscal disaster.Ben Eisen is a senior fellow and Tegan Hill is a senior economist with the Fraser Institute.
