ICABC Budget Submission

Following October's For the Profession article on the role CAs have played in the BC budget process over the past several years, here's a specific outline of the ICABCs 2004 submission to the Select Standing Committee on Finance and Government Services.

On behalf of the ICABC, CEO Richard Rees, FCA, appeared before the Committee at its October 14th meeting in Langley. In his presentation, Rees focused on debt management, contingency planning, competitive business tax rates, sales tax harmonization, enhancing productivity, and emphasizing education-themes stemming from our previous budget submissions and the issues raised in the 2004 edition of the BC Check-Up (mailed out to members with last month's magazine).

Debt management

As we've said before in Beyond Numbers, we're pleased that the government has fulfilled its commitment to balancing the budget, and we believe debt reduction must be its next priority. To this end, we've strongly urged the government to commit to a long-term debt management plan, and we've suggested that debt reduction be achieved not only through continued balanced budgets but also by applying any unused contingencies and forecast allowances to pay down the debt.

We were pleased to learn that the government is now expecting the taxpayer-supported-debtto-GDP ratio to drop below 20% in 2005/06 (2004/05 First Quarter Report), and see this as a move towards reducing the debt. We've urged the government to reduce the taxpayersupported-dcbt-to-Gul' ratio to less than 10% within the next decade.

As Rees pointed out to the Select Standing Committee, a plan that manages and reduces the debt, particularly as a portion of the GDP, will free up some of the $700 million spent annually to service the debt, creating the opportunity to use it for other government priorities. This kind of strategy is especially important in light of Alberta's debt reduction success. As our closest neighbour-and closest competitor for business and human resources-Alberta's fiscal flexibility in light of its debt elimination may pose serious competitive pressures for our province in the years ahead.

Contingency planning

A strong policy framework is essential for competitiveness and prosperity. However, the economy is also impacted by external events-as demonstrated by several unexpected events between 2001 and 2004, including the softwood lumber dispute, for instance.

While these events are beyond the government's control, they must be managed within the existing fiscal framework. If a balanced budget is derailed because of an external challenge, the governments overall fiscal management comes into question. The current government has shown an exemplary willingness to be both conservative and flexible when facing such situations.

We've encouraged the government to continue to provide for an adequate contingency fund, use conservative growth projections, and incorporate liberal forecast allowances as prudent measures to keep budget projections on track.

Competitive business tax rates

Last year, EC's GAs were surveyed to gauge their position on BCs economy and fiscal policy. According to the survey, 95% of CAs believe the business tax cuts announced by the government have been positive for the economy.

These recent changes have brought BC's business taxes in line with major competitorswith one exception: Our small business threshold is still lower. In order to address this gap, we've recommended that the government raise the small business threshold to $400,000, the same threshold used in Alberta and Ontario.

Sales tax harmonization

For several years now, the BC government has worked to reduce and simplify the regulatory burden on business. One way to simplify the business tax regime and reduce red tape further, as well as yielding millions in cost savings to government and business, is to harmonize the provincial social service tax (SSF) and the goods and services tax (GST). Quebec, New Brunswick, Nova Scotia, and Newfoundland have already done so, thereby reducing the administrative costs of running parallel tax collection systems.

We believe that a first step towards reaching these savings in BC would be to undertake a study on sales tax harmonization.

Enhancing productivity

Innovation is linked to productivity, and productivity is linked to competitiveness. The BC Check- Up, 2004 report found that two key areas of innovation where BC needs improvement are research and development spending (R&D) and patents per million population. While both measures have improved significantly in recent years, BC still lags behind other jurisdictions and the national average.

The BC government has undertaken a number of positive steps to improve innovation, including making tax changes aimed at promoting high-tech companies and funding "Leading Edge" chairs at universities and colleges. The ICABC recommended that the government consider new tax cuts to enhance productivity by spurring innovation, research and development, and the application of technology.

The results will not only bolster the economy, they'll also filter down to individual British Columbians. Productive workers attract the best incomes, and this kind of prosperity has a ripple effect on all our lives.

Emphasizing education

One of the keys to productivity is having a highly trained work force. In fact, 73% of new jobs created in BC through 2008 will require some form of post-secondary education.

To address the gap between the number of people who have a post-secondary education and the number of people who need a post-secondary education, the provincial government has announced the addition of 25,000 new student spaces at colleges, universities, and institutions across the province by 2010-the largest post-secondary expansion in BC in 40 years.

These activities must continue, and we've recommended that any surplus money not used for debt repayment be used to accelerate increases in the number of post-secondary seats available in BC.

The ICABC's complete budget submission is available in the "Government Affairs" section of our website at www.ica.bca.ca.

Feedback on the BC Check-Up

Is there an issue that's important to you and your clients that isn't covered in the current BC Check-op report? Send your comments and suggestions to me at mccormick@ica.bc.ca, We can't guarantee that all requests will be included in the next edition, but we do value your feedback.

By Michelle McCormick, Manager of Public Affairs

Copyright Institute of Chartered Accountants of British Columbia Nov 2004
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