British Columbia’s fiscal 2012-13 budget slaps handcuffs on most spending, seeks added revenue from business and, with a nod toward tough economic times globally, is peppered with words such as “prudence.”
However, there’s some good news for your clients, such as a one-time break for first-time homebuyers and no personal tax increases.
In addition, Finance Minister Kevin Falcon’s first-ever budget promises that the B.C. Liberal government will have the books back in balance by fiscal 2013-14.
“There is a new paradigm in today’s world economic environment,” Falcon said in his Feb. 21 budget speech. “It demands prudent fiscal discipline. With Budget 2012, we continue to hold the line on spending and will achieve a surplus in 2013-14, as required by law.”
The new budget also is a first for Premier Christy Clark, who had succeeded longtime B.C. premier Gordon Campbell early last year and faces her first provincial election on May 14, 2013.
The budget forecasts a $968-million deficit for the approaching 2012-13 fiscal year and a balanced budget in 2013-14, with a forecasted surplus of $154 million that year.
To reach a balanced budget in an election year, the Clark government is pulling more tax dollars from business, hiking taxpayer fees such as medical services premiums, and selling off provincial properties and other assets.
As for spending, the province is placing a three-year freeze on most ministries. Only the health, education and social services ministries are receiving targeted, controlled spending increases.
Overall, the budget anticipates revenue increasing by an average of 2.9% annually over the next three years and spending increasing by an average of 2% annually over the same period.
Regardless, the debt/gross domestic product ratio is forecast to increase to 17.6% in 2012 and then to 18.2% and 18.3% in the following two years.
There are no changes in personal income tax rates. But, beginning on April 1, the B.C. government is cancelling the previously planned elimination of its 2.5% small-business corporate income tax rate.
And if B.C.’s economy performs below the government’s outlook for 2012, the province will implement a provisional general corporate income tax hike to 12% from 11%.
“Our corporate income tax rates are now among the lowest in the country and G7 nations,” Falcon said. “I believe we can balance without the [general corporate tax] increase.”
Falcon also said previous B.C. Liberal governments have cut corporate tax rates five times since 2001 and that B.C. has the lowest personal income tax rates in Canada for individuals earning up to $120,000.
Regarding the provisional corporate tax hike, B.C. Business Council chief economist Jock Finlayson says: “We’re not jumping up and down about it.” However, the BCBC endorses the budget as “responsible” and taking a “cautious approach” in uncertain times, he says: “We are pleased to see B.C. showing leadership by charting a sensible fiscal policy course that will preserve our envied AAA credit rating.”
The new budget also closes off B.C.’s controversial four-year-old carbon tax on fossil fuels, with the final increase due July 1. That will bring the total carbon tax on gasoline, for example, to 6.67¢ a litre.
The B.C. Chamber of Com-merce also lauds the budget’s growth initiatives, including: the elimination of the fuel tax on international flights; the permanent capping of municipal property taxes for ports; and the planned privatization of liquor distribution in B.C., which, along with sales of other assets, should raise roughly $700 million.
And the Vancouver Board of Trade’s report card gives the budget an overall “B” grade.
As mentioned, first-time buyers of new homes get a special break. They will receive a one-time refundable personal tax credit equal to 5% of the home’s purchase price, to a maximum of $10,000. (This credit also is linked to the individual or couple’s net income.)
For singles, this bonus is reduced by 20¢ for every dollar in net income of more than $150,000 and is reduced to zero at $200,000.
For couples, the bonus is reduced by 10¢ for every dollar in family net income of more than $150,000 and zeros out at $250,000.
This temporary incentive should help to stimulate the sluggish B.C. housing market by offsetting the harmonized sales tax on new homes until March 31, 2013. That is when the HST is due to be eliminated in B.C.
The government has adopted an ultra-cautious approach to its growth forecast; its forecasts are lower in all three years than those of the B.C. government’s independent Economic Forecast Council, which is composed of non-government economists.
The Ministry of Finance’s GDP growth forecasts (with EFC forecasts in parentheses) are: 1.8% (2.2%) in 2012, 2.2% (2.5%) in 2013 and 2.5% (2.7%) in 2014. IE