B.C. government should tell British Columbians about any tax hike plan

Will the Eby government increase personal income taxes if it wins the provincial election in October? Only the government can answer that question. But if tax hikes are part of the plan, the government should tell British Columbians.

Why might the government be contemplating tax hikes? In short, to finance its spending problem. Due to high spending, the government is projected to run large budget deficits in each of the next three fiscal years. After accounting for long-term spending on capital projects (e.g. schools and highways), the government’s net debt (total debt minus financial assets) will reach a projected $128.8 billion by 2026/27—more than twice the $60.7 billion in 2022/23.

Consequently, S&P Global Ratings, one of the world’s preeminent credit-rating agencies, downgraded British Columbia’s credit rating (its third downgrade in three years) and warned there may be future downgrades if the province doesn’t change its fiscal trajectory. Generally speaking, the lower the credit rating, the more expensive it is to borrow money.

Put simply, the B.C. government is borrowing massive amounts of money to fund its spending and lenders believe it’s becoming a bigger and bigger credit risk. If the cost of borrowing is too high, in the absence of spending restraint, the government must raise taxes.

It wouldn’t be the first time that an NDP government raised taxes on British Columbians in recent years. From 2017 to 2020, the Horgan government increased B.C.’s top personal income tax rate from 14.7 per cent to 20.5 per cent. Combined with a federal personal income tax hike in 2016, which created a new top federal tax rate of 33.0 per cent, B.C. now has the fourth-highest top combined (federal/provincial) income tax rate in Canada and the United States at 53.5 per cent.

For perspective, the top personal income tax rate in both neighbouring Alaska and Washington State is 16.5 percentage points lower than in B.C. And any increase in B.C.’s personal income tax rates would make the province even less competitive that it already is in attracting high-skilled workers such as entrepreneurs, businessowners, doctors and scientists who provide vital services and help fuel strong economic growth.

Indeed, while workers consider many factors when deciding where to live and work, personal income taxes remain a key factor.

At the same time, high personal income tax rates discourage productive activity by reducing the reward from work, savings, entrepreneurship and investment. As a result, high income tax rates tend to negatively affect economic growth. Given that the B.C. government expects negative economic growth on a per-person basis this fiscal year, it can’t afford any more economic headwinds.

If the Eby government plans to increase taxes it should be clear with British Columbians. After all, they’re the ones who will have to deal with the consequences.