To hear Kevin Falcon speak to the Kelowna Chamber of Commerce Monday, one would think the Okanagan is in an economic boon capitalizing on overseas trade and investment opportunities, record low tax rates and a solid banking system.
“Canada has a great brand right now folks. If you don’t know it, you should know it because it’s very important to our future,” said Falcon in a speech even the host characterized as all about “opportunity.”
Without acknowledging the continued slide in real estate prices outside the Lower Mainland or concerns that saw the last civic election in this city fought over a desperate need to attract and sustain new business, the minister delivered a speech selling B.C.’s ability to succeed globally.
Interest in B.C. Bonds is so strong, this past summer Falcon became the first finance minister to make a trip to Europe since 2003 to sell the B.C. message. The provincial debt-to-GDP ratio, a measure of debt to Gross Domestic Product or the size of an economy, is 17.5 per cent. Its a figure so low its unheard of in a world where countries like Greece are redlining at 155 per cent, he told those gathered at the Coast Capri Hotel.
Canada, currently considered the most stable banking system in the world and rated at a AAA credit rating, boasts only a 30 per cent debt-to-GDP ratio, he said. The European financial players therefore gawk when presented with B.C.’s figures.
It saves B.C. taxpayers astronomical amounts when the province goes to borrow money, in the range of $10 million on $2.25 billion when compared with rates provinces like Ontario would be borrowing at.
In the 1990s, under the New Democratic Party’s leadership, B.C. was considered a “have not province,” scrounging for equalization payments from other provinces. The minister pegged the problem squarely on policies to tax the business sector and government “red tape.”
“It happened because we used to have the highest marginal income tax rate, not just in the country, but in the entire of North America right here in British Columbia, just over 53 per cent.…We had a general corporate tax rate, which is the rate you charge businesses that are sort of the larger businesses in the province at 16.5 per cent…And small business tax was at 8.5 to 9 per cent.”
With the advent of Liberal leadership, that corporate tax rate is down to 10 per cent and small business tax now hovers around two per cent with more businesses considered small businesses. The higher personal income tax thresholds have been pushed to the six-digit milieu, and government has tied itself to a fiscally responsible mandate, passing law to ensure ministers face salary cuts if the budgets aren’t balanced.
Even more importantly, according to Falcon, the Liberal government eliminated the corporate capital tax, which taxed businesses regardless of whether they were making money or not, effectively taxing investment. Characterizing that tax as one so insidious the federal government was willing to pay provinces to take it off the books, he noted the NDP has stated it would like to bring the tax back for banks and credit unions.
To that end, Falcon said what’s known of the NDP platform is high on spending with efforts to raise corporate and personal income tax, potentially threatening that all important debt-to-GDP ratio and AAA-credit rating.
“One of the things that we don’t want to lose is that fiscal rating we’ve build up,” he said. “…We want to hold that as our competitive advantage.”
He pointed to efforts to sell wood to China, and open new ports and trade routes, as evidence that the Liberal government has made an effort to diversify the economy and focus on job creation.
In a province where scandal has often produced government turnover, Falcon noted the financial industry will be watching spending habits and policy far more closely in coming years.
“Governments around the world are going to have to think differently about what the tolerance levels are going to be in the financial industry that we are asking to underwrite things,” he said.