The BC election is really heating up out here with the BC Liberals and BC NDP exchanging sharp barbs today, unsurprising since they are pretty much neck and neck in the various polls. As you may know, the BC NDP released their full platform just before the Easter long weekend and this has caused a lot of chatter. Overall, unlike the Liberal platform which was a bit of a meh (and for flips sake can’t they please correct their horrible error of calling a tax credit a tax deduction and not indicating which of the myriad of tax credits are refundable or non-refundable!), the BC NDP platform has a bit more to love (it was happily not released on flipsnack!), hate, and be confused by.

Renters Rebate

As always, I won’t go through every single thing, but instead focus on the elements that are in my bailiwick. First, is their renters ‘rebate’. To understand this, you have to understand a few things. In Canada, home ownership is subsidized up the yin yang, whether it be through the principal residence exemption from capital gains taxation, mortgage insurance backed by CMHC (ahem, taxpayers), the various tax credits to support buying or renovating a home, and the various ways we subsidize property taxes including through the Home Owner Grant (HoG) here in BC. The HoG allows those who live in their homes to obtain a minimum $570 grant that offsets their property taxes. Rental property does not qualify for the reduction in property taxes so renters, who pay the cost of property taxes through their rental payments, bear the full cost of property taxes while home owners do not. The proposed renters rebate then simply extends the HoG to renters to address the issue of fairness. Of course, the better way would be to eliminate the HoG, but while that is good economics that won’t win you an election.

For whatever reason, people who on one hand applaud the HoG and all the other subsidies we throw at home ownership for no good economic reason, came out guns a blazing against this notion of extending the HoG to renters, including the biggest proponents of home owner subsidies, the BC Liberals. Christy Clark said it would “line the pockets of wealthy tenants…” Hmmm, I guess she does not realize that most of her policies in fact line the pockets of wealthy home owners. Oh right, home owners good, renters (like me!) bad. If we look at average household income by ownership vs rental, we don’t seem to have much to be concerned about.

The BC Liberals also said it was unaffordable. Hmmm, the HoG costs the treasury more than $800M a year and applies to more than 91% of homes in BC, but that is affordable. The renter’s rebate is expected to cost about $265M a year, but that is not affordable. Okay! When this first came out, before we had the details, I had additional comments about why it was great for tax compliance reasons here. So this is one to love.

Tolls, fares, and infrastructure

It was announced more than a week ago that the BC NDP plan to do away with tolls on the last two bridges in which they are in place (both in Vancouver), reduce ferry fares on small routes by 15% and freeze all others, and bring back free ferry rides for the old farts (Hi mum!). In total, the BC NDP cost these initiatives at $190M/yr (tolls) and $20M/yr for ferry fares.

What is missing from this is (and the BC Liberal platform which plans to caps tolls at $500 and to provide tax credits (or is it deductions?) to riders in ferry dependent communities) is the rationale. A lot of transportation infrastructure in this province is heavily subsidized, but some are very dependent on user pay. There is, right now, no real rhyme or reason for the various models in place. Are there economic and policy arguments to make to 1. Subsidize (in full or in part) or 2. Base their funding on user fees. Yes. Has the BC NDP or BC Liberals made any of these arguments? No.

Look, infrastructure is expensive and needs to be paid for somehow (neither party, in fact, says exactly how infrastructure will be paid for in lieu of these tolls and fares) but there is a real distributional argument to be made for asking someone in Haida Gwaii to pay for a road to Vancouver, but not for someone in Vancouver to pay for a road (or in this case ferry) to Haida Gwaii. There are also real distributional concerns to asking someone who never drives to pay for the infrastructure for those who do. Or why is it acceptable for transit users to pay a user fee but to ask drivers to pay a similar fee to pay for the roads they use is outrageous?

The advantage of the user pay model (via road tolls, user fees, and related user charges) is that those who actually use the infrastructure pay for it. Because of this price, they are more apt to consider the true cost in their commuting decisions and possibly make alternative choices. That is, by pricing the roads directly commuters are better able to understand the cost of the infrastructure to commute and may find that taking the bus, riding a bike, and commuting by foot provides a cheaper alternative. And when these prices are always in place, people consider these costs when choosing where to live and where to work. With capped or reduced tolls we distort these decisions since we now make driving the cheapest form of commuting when, in fact, it is one of the costliest. This is why we should expand road/bridge tolls, not reduce or eliminate them (which is the approach being taken by the BC Green Party)

However, on the other side of things is taxpayer perception. Taxpayers often perceive a lot of little highly visible ‘taxes’ (economist like visible, taxpayers don’t) as being more burdensome than one larger less visible tax. As one person on twitter put it, all the tolls and user fees made the person feel ‘nickeled and dimed’. Perception is an important part of tax policy as it features prominently in tax morality and tax compliance. The larger number of smaller taxes is more efficient than the one larger income tax, but we do a terrible job of communicating that to tax payers. Of course, politicians don’t help.

In the end, how you evaluate this policy of no or reduced tolls likely depends on whether you live in Vancouver (yeah!) or elsewhere (who cares) but that is because the platforms (NDP and Liberal) don’t tell you the opportunity cost. How are we going to pay for bridges, roads, and ferries if not by tolls and user fees? Obviously, we are going to pay for them out of general revenues from income and other taxes, but neither the NDP or Liberals have said this explicitly. So both their policies mean your income, sales, and other taxes WILL be higher than they would be otherwise because we are moving away from user pay models to everyone pays models.

Oh and discounts (or worse yet, free) to seniors have just got to stop. There is nothing about being a senior that makes you unable to pay for the goods and services provided by government, let alone taking a ferry. In fact, as a senior you are very costly. You also benefited from high government spending supported by the massive accumulation of government debt. You are the wealthiest generation ever retiring. As a group, there is nothing about you to warrant special treatment. Such pandering has got to stop. This will queue outrage about senior poverty levels. Don’t bother. Yes, some seniors are in poverty. As are much more children and young adults with far fewer social programs and income supports available to them. Seniors don’t need help, low income people need help, regardless of age.

MSP and Day Care

The two biggest spending pillars in the BC NDP platform on these two items: $10/day day care and “eliminating” the MSP premium. With respect to day care, the pledge is a 10 year commitment which means the BC NDP need, wait for it, 3 mandates to fully implement the platform. That is not unreasonable in and of itself. It is complicated to roll this out and will take time. But the NDP platform only costs the commitment over a three year period. All in, this commitment is expected to cost $1.5B a year. Now before you all freak out, it is expected that such a program will result in increased economic growth from encouraging more parents to work. Estimates predict that this growth will result in increased tax revenues that will pay for half that price tag. That would mean that only half that price needs to come from new sources. The kicker is that the platform does not indicate what the source for that is. It could come from a progressive surtax on users, similar to that in Quebec, but right now we don’t know. Should these details be included in the platform? Yes.

With respect to MSP, this election is very much boiling down to the MSP as this is the biggest item in the BC Liberal platform. The BC NDP platform though is a bit hard to understand what they are committing to. First, the BC NDP will go ahead with the 50% reduction announced in Budget 2017 and will eliminate the fee within four years. But that elimination is not costed. Instead, the NDP say they will “make sure low and middle-income families come out ahead.” And they will appoint “a non-partisan MSP Elimination Panel [to] advise on how to protect health care funding, while phasing out this unfair flat tax. The panel will be required to ensure low and middle-income families all come out ahead.” This all sounds to me like MSP premiums will be folded into the tax system, similar to the model in Ontario and exactly like the model more clearly being proposed by the BC Green Party. Assuming this, there is nothing to cost because it will be a revenue neutral shift. This is exactly what was proposed by Iglika Ivanova last year and myself in 2015. I am not sure why the BC NDP couldn’t be more transparent in their platform.

Tax Rates

To pay for this there are three main tax proposals. First the BC NDP will bring back the temporary high income surtax. This is a 6th bracket for income over $150k. Currently income over $108,461 is taxed at a rate of 14.70%. The BC NDP are proposing to bringing back the rate of 16.8% for income over $150K. Here is the proposal with a comparison to Alberta

There are a few things to note. How many tax filers in BC are in the +$150K income class? About 1.4% of filers, according to CRA tax filer statistics. They report an average of $285,764 in gross income and $249,757 in taxable income. The average tax filer in this bracket then would pay an additional ~$2100 in income taxes, ceteris paribus. And the BC NDP predict this will raise about $250M in annual revenue. Looking at income statistics, the estimate seem credible but there is a complicating factor: as oil prices rebound and the Alberta economy rebounds many high income individuals who moved to BC in recent years will move back to Alberta for reasons related to the economy and unrelated to the high income surtax. Many will confound the move to the tax rate and academics will have to work very hard to dispel this mobility myths. If you are interested in research on high income tax rates read here and here.

Now when I was tweeting these facts out, this happened

I am not sure what in the above deserved that, but I leave it to you to form your own conclusions. In full transparency, I am often in the 1.4% who would be affected by this new surtax and I can honestly say, don’t cry for me BC. If I leave BC, it won’t be because of the tax rates, it would most likely be the result of a lack of investment in post-secondary education. Also remember that most of these high income individuals will live in Vancouver and they just benefited from the elimination of tolls so….one hand giveth, the other hand taketh away.

The BC NDP also propose, like to the BC Liberals to drop the small business tax rate from 2.5% to 2.0% (which matches the rate in Alberta). The BC NDP also will raise the corporate tax rate from 11% to 12%, again matching the rate in Alberta. Few things to note here. First, the BC Liberals raised the corporate tax rate in 2013 from 10% to 11% so I don’t think they have much to grouse about here. Second, because the rates match that in Alberta I don’t think we have much to worry about business flight. Third, I fail to understand why small businesses are good but big businesses are bad. It makes no sense. I’ll leave that there.

Now when it comes to who bears the burden of corporate income taxes there are three options: shareholders, workers, and consumers. Fortunately, a new paper from the School of Public Policy shows the affect of an increase of the AB corporate income tax rates. Drum roll please..a 2% point increase in AB CIT rate in 2016 resulted in reduced wage income for an average worker in the long run by $416/year.

Finally, the BC NDP are proposing a housing speculation tax but since they only give it two sentences in their platform I have no idea what it is or means so…*shrugs*.

Overall

Look, there is a lot in the platform and you really should read it yourself. I know there is a lot of chatter from the Liberals as to whether the BC NDP platform is balanced. What I can say is that over the three year horizon, the plan appears to be fully costed and balanced. However, and this can be said of the BC Liberal platform as well, the BC NDP platform makes commitments beyond the platform that are not costed, but no it is not the $6.5B crater (*cough* fake news *cough*) the BC Liberals are making it out to be. The BC NDP could and should be much more transparent with the details, but there is no doomsday device hidden in this platform. Read it and see for yourself.

And since the BC Liberals want to go down that road, I note that they themselves promised a BC ferry loyalty program that they did not cost themselves. How many millions of dollars will that cost that is not built into their platform? How many billions of dollars will the elimination of the MSP premium that is promised cost (ahem, even if it is an opportunity cost?)? And do you know the difference between a tax credit and a tax deduction because your platform does not? If I lived in a glass house, I would not throw stones.