The BC Budget and Construction Companies
There has been plenty of commentary about the provincial budget delivered last week in B.C. The budget is balanced, which in the big picture is good. It sends a message to the global investment community that B.C. is a prudent place – and a safe haven for investment.
ICBA’s major worry ahead of time was that the budget would be balanced by slashing critical investments in infrastructure. Though the total provincial capital budget (made up of government and Crown corporation projects) is going down (bad), it’s by a relatively small amount (good). Capital spending in B.C. will drop from $6.7 billion in 2012-13 to $6.2 billion in 2013-14, and then to $5.8 billion by 2015-16. As we pointed out in our recent Construction Monitor, infrastructure investment grows both the construction industry and the economy.
The challenge in the budget is a shift away from the governing philosophy we’ve been used to over the past 12 years. While the government’s driving idea used to be that tax cuts work, they’ve now adopted the contradictory idea that tax increases work.
Interestingly enough it is a topic we looked at last year with our Construction Monitor on higher taxes. As we pointed out Ontario increased personal income taxes recently – and provincial revenues DROPPED by $200 million.
Over the next year the government tax revenues are expected to bring in $1 billion. It’s important to remember this is a transfer of this amount from the private sector into the public sector.
Here’s a look at some of the impacts on your company and your personal bottom lines:
- Corporate Tax Increase: The increase of this tax to 11% from 10% pushes the B.C. rate higher than Alberta, Saskatchewan, and Ontario. It only applies to corporate income over $500,000. The first $500,000 is levied at 2.5% – the small business tax rate.
- MSP Premiums: Premiums have been hiked about four per cent. This will increases costs for companies that pay their employees MSP, or a portion of it.
- Pooled Retirement Pension Plans: Though not in the budget proper, in his budget speech the Finance Minister indicated that legislation is coming before the election making Pooled Retirement Pension Plans a reality in B.C. It’s something all provinces are doing in the wake of the federal government creation of the PRPP program last year. What this will mean is that all employers without an RRSP or pension plan will have to make a PRPP available to their employees through payroll deduction. It’s important to note that the system doesn’t require company contributions, and that an RRSP program like those offered by ICBA Benefit Services Ltd. offers companies more flexibility and an exemption to the program.
- Return of the PST: Also not officially in the budget, April 1 also marks the return of the PST. In the construction industry that means we will lose one of the big advantages we had under the HST – the ability to flow through sales taxes on business supplies and materials. Those costs will now be embedded into project costs. As well the PST is a complicated tax that is costly to administer so that will be a drag on productivity for companies.
- Lower Personal Exemption: Also a PST rather than a budget issue, owners and their employees will pay more provincial tax starting this year because of the reduction of the basic personal exemption from $11,354 to $10,276 this year and around $9,859 next year. That means tax will have to be paid on the difference.
- Personal Tax Increase: For the next two years, the government has hiked the provincial income tax to 16.8% from 14.7% on personal income over $150,000. The way this plays out is for a person making $160,000 they will pay $200 a year more. For someone earning $300,000 it translates to a $3,100 annual increase. It is important to note that despite the increases, the amount of provincial income tax paid is still far below what would have been paid in 2001 — $4,800 less in tax for someone earning $160,000 and $11,100 less for someone with a $300,000 income.