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2016 B.C. Budget Commentary©

B.C. Finance Minister Mike de Jong tabled the 2016 B.C. Budget in Victoria on 16 February 2016

On 16 February 2015, B.C. Finance Minister Mike de Jong tabled his budget. The 2016-17 budget (hereinafter known as the Budget) will be balanced for four consecutive years with a modest projected surplus. Direct operating debt is projected to be at its lowest point in more than 30 years. The B.C. Government suggests the possibility to be operating debt free by 2020 for the first time since 1975. The following is a summary of the tax change highlights. The information contained herein is current as of the last revision date below.

Tax Related Changes

Victoria Whitehorse Edmonton Yellowknife Regina Winnipeg Iqaluit Toronto Ottawa Quebec Fredericton Charlottetown Halifax St. John's Northwest Territories Saskatchewan Newfoundland and Labrador New Brunswick Victoria Yukon Whitehorse Edmonton Regina Yellowknife Nunavut Winnipeg Manitoba Ontario Iqaluit Ottawa Quebec Toronto Quebec City Fredericton Charlottetown Nova Scotia Halifax Prince Edward Island St. John's A clickable map of Canada exhibiting its ten provinces and three territories, and their capitals.

Hover your mouse to the name of the province to view the PPT as of 1 June 2012. Data source: "From the Provinces Land or Property Transfer Tax" by Peter Tomlinson, CCH Canadian Limited

Remarks

The Budget demonstrates an effort to address an increasing public concern on the declining affordability of housing in the Lower Mainland. The B.C. Government uses PPT as a tool to regulate housing market. PPT (aka Land Transfer Tax in some jurisdictions) is different among various Canadian provinces and territories. In certain jurisdictions, there may be additional land transfer taxes imposed by individual municipalities. The map on the left contains information on PPT in each jurisdiction.

Given our stable economy and political environment, it is not likely that the requirement to disclose buyer's nationality will deter foreign investors. Data of buyer's nationality are useful to ensure tax compliance. In the long run, real properties in a rising market are good hedges against inflation. However, there are entry/exit costs and carry costs. Unlike the unfriendly public sentiment on foreign real estate investors, governments welcome their influx of capital as hard currency in the state's coffers. Real estates generate huge tax revenue to all levels of governments. At the point of sale, PPT is levied in most provinces and creates business opportunities to builders, realtors, house inspectors and legal professionals. Once a real property is sold, it brings perpetual income by way of property tax. Rental income and capital gain tax on investment properties generate lucrative tax revenue on an ongoing basis. Renovations and maintenance of real properties create jobs and hence more taxes. A healthy real estate market is instrumental to a stable banking industry as many financial institutions hold real properties as collateral in their lending business. Furthermore, the Residential Tenancy Act is so lopsided against landlords that their properties are at times inadvertently used as social housing to provide free accommodations to bad tenants, hence reducing pressure for government to build more subsidized social housing.

In view of the higher PPT exemption, loss of revenue will be compensated by more tax revenue and employment created by encouraging new housing constructions and to assist Canadian citizens or permanent residents to buy their principal residence. Since few single detached houses in the Lower Mainland cost less than $750,000 nowadays, the new exemption of PPT could likely benefit only new condo and townhouse buyers in the Greater Vancouver region.

On another note, $355 million will be allocated to the BC Housing Management Commission over five years to support more than 2,000 new units of affordable housing for people with low-to-moderate incomes.

Waiving MSP premium on all children appears to be generous. However, the 4% increase in MSP rate on adults who do not qualify for premium assistance will generate a net gain in revenue of $77 millions. As political columnist Mr. Vaughn Palmer duly noted, this is a tax increase, not a tax relief.

According to the Budget, B.C. remains the only province in Canada with a triple-A credit rating from both Moody’s and Standard & Poor’s due to the province's low debt-to-GDP ratio. This will enable the B.C. Government to borrow at a lower interest rate. However, this could also encourage more government spending.

The Budget announced that a Commission on Tax Competitiveness will be set up to examine if current tax policy encourages business investment and growth, taking into account changes in the province’s economy. The examination will not consider the return of the harmonized sales tax (HST), obviously to avoid getting into political hot water.

The most disturbing spending is an additional allocation of $673 million over the next three years to the MCFD. Part of this increase ($217 million) is to implement recommendations in the first part of the Plecas report called "Decision Time". It is noteworthy to remark that the Plecas report only asked for an additional funding of $50 million in the fiscal year 2016/17 (page 56 under the heading of "Section 5.8 Financial implications"). We do not understand why the Budget gave more than 4 times over what the report seeks.

2015 is a year of annus horribilis for the controversial Ministry. Several high profile deaths of children in care (for instance Nick Lang and Alex Gervais) drew unwanted attention on the child protection industry. The most embarrassing and devastating incident is the unprecedented judgment from the Supreme Court of B.C. "J.P. v. British Columbia (Children and Family Development), 2015 BCSC 1216" in which child protection workers were found, first time in Canadian legal history, liable for misfeasance in public office, breach of fiduciary duty and breach of the standard of care. This decision provides a credible psychological deterrence to those who choose to abuse their power and casts doubt on their moral high ground. Needless to say, the child protection industry will vigorously appeal this court finding. Former bureaucrat and the creator of MCFD, Bob Plecas, was hired by the B.C. Government to conduct a review shortly after the judgment was handed down. As expected, his review recommended more funding to finance state-sponsored child removal. The MCFD turns out to be the biggest winner in this Budget. With assistance from various lobbying groups, the industry hits a jackpot after the Supreme Court of B.C. handed down a 341-page long scathing judgment. Child protection workers in question were promoted instead of being fired and criminally prosecuted. We leave it to the discretion of our readers to determine whether this absurd action defies principles of good governance.



[This page was added on 18 February 2016, last revised 21 February 2016.]