When politicians talk about how to pay for promised programs, Jock Finlayson goes into mathematical fact-checker mode.
“If you want to say, ‘Let’s raise taxes,’ you need to have the arithmetic in front of you,” says the executive vice-president and chief policy officer of the Business Council of British Columbia.
The BCBC’s research shows that the top 20 per cent of B.C.’s income earners are contributing 75 to 80 per cent of the province’s income tax revenues. The top one per cent of income earners provide 20 per cent of the province’s income taxes.
The Liberals’ recent balanced budget proposed a 50 per cent cut in MSP (healthcare) payments starting in 2018. The NDP and Greens are proposing to cut MSP payments altogether and replace the $2.5 billion in lost income with some combination of personal and payroll taxes, Finlayson said.
The NDP and Greens want to shift those costs to the province’s higher earners. Finlayson says,
“Our back-of-the-envelope estimates suggest that top combined federal-provincial marginal tax rates on upper-income earners, which stand at 47.7 per cent today, could easily climb to 55 to 56 per cent (or more) under the tax plans contemplated by the New Democrats and Greens.”
High taxation rates make it harder to attract and retain highly skilled people, Finlayson said. They also make it tougher on businesses and discourage entrepreneurial risk takers.
“Brains have legs,” Finlayson says of the risk of losing highly skilled workers such as managers, professional, entrepreneurs and researchers to high taxation rates.
There’s a “nuanced trade off” in how much we can expect people to pay in taxes to provide services and detrimental effects of high taxation on the economy
“I’m not a believer that we shouldn’t have taxes,” he added. “We need taxes and governments need revenues.”
In 2015, Metro Vancouver residents voted against a 0.5 per cent increase in the sales tax to pay for a regional transportation infrastructure plan. And yet a recent Angus Reid poll said 66 per cent of respondents preferred the NDP’s plan of spending more social services paid by increasing taxation.
“People are conflicted; they hold opinions in tension with one another,” said Finlayson. People want more money to be spent on issues that matter to them but rarely do they want pay more themselves.
The high cost of housing in the Lower Mainland and the growing disparity between income and housing costs are fostering a “distorted economy,” Finlayson said. “We have a bloated housing and real estate sector that I don’t think is healthy in long-run performance.”
The strongest economies are built on the backs of strong business sector; relying on housing and land prices as an economic driver produce an unbalanced economy, he said.
“To develop a top-performing economy, British Columbia needs more high-paying jobs, more fast-growing firms, more exporters, a larger number of corporate head offices, and a stepped up pace of innovation,” he wrote in his BCBC blog. Punitive tax rates “strike us as a risky policy direction.”
Finlayson also argues that the economy — and personal debt levels — have little cushion to absorb changes beyond their control. If we ever get hit with “some sort of shock”, such as a protectionist onslaught from the Trump government or higher interest rates, “we’d see a lot of distress because of high levels of indebtedness. We’d have a much healthier economy if we had lower housing prices relative to income and stronger industries.”
Jock Finlayson and Ken Peacock recently wrote a column "Income tax rates: Canada’s growing competitive disadvantage" in Business in Vancouver magazine.
