Pop goes the budget - The Orca

Pop goes the budget

Maclean Kay

A new tax on sweetened, fizzy beverages and high-income earners will attract most of the attention – but the province is borrowing more and more to build.

Today in Victoria, Finance Minister Carole James revealed B.C. still has a surplus – thanks almost entirely to two new revenue sources, or more plainly, tax measures.

First, the good news: despite trends that made it look like a deficit was a real possibility, BC still has a surplus of $227 million. It’s projected to go down to $179 million next year, and jump up to $374 million in 2022/23 – but that’s after the election, and like forecasting NHL standings two years from now, much can and will happen in the interim.

To make sure the province stayed in the black, the provincial government added a few new revenue sources. The one that will get the most attention is the Pop Tax – applying PST on everything from Coke to energy drinks. (It’s technically the elimination of an exemption; pop was considered food, which isn’t subject to PST.)

The measure is expected to raise some $37 million per year. This was a recommendation of the Select Standing Committee on Finance, but James had previously ruled it out. Similar measures in the United States – famously, in New York under Mike Bloomberg – have been criticized as having a disproportionate impact on lower-income households.

The other measure isn’t as fizzy (sorry) but more important for the bottom line: a new 20.5% income tax bracket for the highest earners. This comes just two years after increasing it to 16%.

Not accidentally, the NDP is consciously framing this as a tax on “the 1%” – now more than ever, the party needs to burnish its activist credentials. And much like trying to manoeuvre the BC Liberals into defending personal injury lawyers, they’d like to force them to defend the “super-rich,” apparently defined as a household income of $220,000. Regardless, it’s expected to generate an additional $216 million this year.

Not accidentally, the NDP is consciously framing this as a tax on “the 1%” – now more than ever, the party needs to burnish its activist credentials.

Why suddenly tax pop and increase income taxes? Because they had to. This is crude math, but absent these two revenue streams, the province would be in deficit. Take the combined income from both ($253 million) and – voila! – you basically have your surplus.

Interestingly, budget materials provided some interesting context for these two measures, based on the provincial government’s new gender-based analysis of budget measures, a concept borrowed from the Trudeau government. For example, more men than women drink pop (percentages were not given). More substantially, 70% of those subject to the new highest tax bracket are men. Of those men, only 15% are married or have a partner also subject to the tax. Interestingly, 45% of the women in the new highest income tax bracket also have a partner subject to it.

Does this make for better policy? I have no idea. But it does make for some fascinating socioeconomic data.

The NDP will tout a host of measures in this budget, including $419 million more for CleanBC (including more incentives for electric vehicle charging stations), an expanded tuition grant for low- and middle-income students, and increasing the scope of benefits for kids up until the age of 18, and – not insignificantly – record capital plan spending.

Why suddenly tax pop and increase income taxes? Because they had to.

They are a little more reticent about debt. There’s no getting around this – it’s going up.

To finance the government’s capital plan, taxpayer-supported direct borrowing is increasing dramatically, more than doubling from $1,824 million in 2019/20, to $4,451 million in 2020/21. As a percentage, direct borrowing has gone from financing 34% of the capital plan, to over 62%.

Taxpayer-supported direct borrowing is increasing dramatically.

Taxpayer-supported debt is projected at $49.2 billion, and up to $52.9 billion next year and $58.6 billion the year after that. The two key indicators for how manageable and affordable debt are increasing; Debt-to-GDP ratio from 14.6% to 17.1%, and Debt-to-Revenue ratio rising to 94.4%.

The bottom line – the budget is balanced. But the NDP had to create two new revenue streams to get there, and there may be more to come; spending continues to outpace revenue.

Some more random observations from Budget 2020:

  • The Budget provides a glimpse into just how disastrous 2019 was for BC’s forestry sector. Compare the amount of wood projected to be harvested in last year’s budget (57 million cubic metres) with what was actually harvested 42 million, a difference of 15 million cubic metres. For 2020/21, things are projected to improve ever so slightly, with a harvest of 46 million cubic metres – but again, well below expectations of even a year ago.
  • Revenue stream? There’s an innocuous-looking entry buried on page 64, “Registration Requirements Expanded.” Canadian and foreign sellers of “software and telecommunication services” with revenues over $10,000 have to register as tax collectors. (Ministry officials confirmed this does include streaming.) In other words: is BC getting a Netflix Tax?
  • Positive big picture signs: Economic growth is at 2% – a modest increase from 1.8% last year. This is largely driven by two related projects: LNG Canada and Coastal GasLink.
  • Negative big picture signs: Consumer spending on durable goods (not services) actually decreased in 2019, down 1.7%. Retail sales were basically flat, up 0.5%. Perhaps more strikingly, BC housing starts are expected to decrease by a whopping 22% in 2020, which the finance ministry attributes to an anomalously – and apparently unsustainably – high number of starts in 2018 and 2019.
  • Reconciliation, and more specifically, relations with BC First Nations – and even more specifically, some Wet’suwet’en hereditary chiefs and their supporters – have dominated headlines. But while Reconciliation and some of the provincial government’s efforts in Indigenous childcare and education receive much attention in budget materials, the protests and blockades – including an incident at Premier John Horgan’s home Tuesday morning – were strikingly absent.

Maclean Kay is Editor-in-Chief of The Orca