What's to become of the 'best place on Earth?'

[mr.x]

Less government stifling/regulation needed for economic prosperity in BC?



Read more: http://www.vancouversun.com/business...#ixzz1tYFneCEm

What’s to become of 'the best place on Earth'?
By Harvey Enchin, Vancouver Sun April 27, 2012

...............In absolute terms, B.C. made considerable progress in the last decade as PDI growth was double that of the 1990s.

In relative terms, however, incomes in B.C. have been only slightly above or slightly below the Canadian average. At the end of 2010, the province had yet to fully recover from the 2008 recession and ended the year with incomes $406 below the Canadian average while the income gap between top-ranked Alberta and B.C. widened to 22 per cent from 11 per cent in 2000. On the absolute level of personal disposable income per capita — just $26,166 in 2010 in B.C. — the final report of the B.C. Progress Board in December ranked the province 55th out of 61 North American jurisdictions.

No surprise then that B.C. has the highest proportion of the population deemed low-income, earning it a last-place ranking in Canada. It wasn’t always that way. B.C. ranked fifth in 1990 with a low-income cutoff rate of 12.5 per cent, but in just eight years of government by the New Democratic Party the rate rose to 16.4 per cent by 1999. The rate has improved under the Liberals to half a point below the 1990 level, but B.C. still ranks last because other provinces have reduced their rates as well. It should be pointed out that B.C. has a higher proportion than other provinces of retired seniors, who tend to have lower than average incomes, and that this proportion will increase as the population ages.

On top of having relatively low incomes and a high poverty rate, the cost of almost everything in B.C. is higher than in the rest of the country — for housing, gasoline, groceries, wine, restaurant meals, private schools, children’s transit fares, and movie admissions, to name a few. Clearly, the level of income compared with other Canadian provinces and other countries is a problem that must be addressed.

Wages, salaries and supplementary income per employee (as computed by the Business Council of B.C. using figures from Statistics Canada and the Provincial Economic Accounts) in 2010 amounted to $46,379 in B.C., $64,504 in Alberta and $51,109 in Ontario.

To raise incomes, B.C. needs to not only increase the number of jobs, and the overall employment rate, but elevate the quality of jobs. Moreover, it has to tackle the province’s mediocre productivity record because achieving a higher value of gross domestic product for each hour worked (the standard definition of productivity) is how wealth is created.

All of this poses a daunting challenge that should drive policy-makers to take the necessary steps to support economic development and business growth. Besides the loss of $1.6 billion the federal government provided to assist in the HST transition, B.C. will incur costs of $30 million to set up a retail tax agency and $50 million to compensate vendors who are paid a commission to collect the retail sales tax, while businesses will face increased tax compliance costs estimated at $150 million a year.

Jon Kesselman, a professor in the school of public policy at Simon Fraser University and Canada research chairman in public finance, noted in a paper that the major cost to the province is the loss of investment and jobs that the HST would have generated, estimated in one study at $11.5 billion and 113,000 new jobs through 2020. Yet another study mentioned in his paper showed that harmonization in the Atlantic provinces in 1997 increased machinery and equipment investment, the forms that most improve productivity. Kesselman also cited a 2008 study by the Centre for the Study of Living Standards that concluded sales tax harmonization was “the most effective policy to deal with the B.C. economy’s lagging investment and productivity performance.”

The defeat of the HST compounds the difficulty of balancing the provincial budget and boosting the economy to achieve a real (that is, inflation-adjusted) growth rate sufficient to create jobs, which economists peg at a minimum of two per cent.

Forecasts of GDP growth for B.C. range from 1.7 per cent to 2.3 per cent this year, which does not augur well for robust job creation. Faced with a still sluggish U.S. economy and a slowdown in China, the B.C. economy, being more dependent on exports than other Canadian jurisdictions, will be under increasing stress. However, RBC Financial, among other forecasters, sees strengthening demand from the U.S. (it had nowhere to go but up) and good long-term prospects in Asian markets.

“We believe that external trade will no longer subtract from provincial growth but in fact contribute positively to it in 2012,” RBC senior economist Robert Hogue said in his latest outlook.

In order to make economic growth the job generator it should be, many economists hope to see continued fiscal prudence, evidenced by a commitment to return to balanced budgets as quickly as possible, mainly through cost control. Steady, predictable economic stewardship will restore business confidence and promote investment.

They also want B.C. to maintain its tax competitiveness and continue reducing red tape and bureaucratic meddling. Streamlining the regulatory process should be a priority. And leaving more money in consumers’ pockets will help them pay down household debt while bolstering retail sales. Many economists believe investment in education and skills training will pay dividends, although government has to carefully monitor spending. A large part of the employment problem is the mismatch between available jobs and workers’ skills. Some would like to see a more aggressive approach to eliminating uncertainty over land use, specifically aboriginal land claims, logging rights and protected areas.

B.C. should keep a tighter rein on municipalities, which can and do undermine provincial policies intended to ease the burden on business and residents. The municipal auditor is a step in the right direction.

Investment in infrastructure can boost economic development but government needs to find creative ways to finance such projects so they don’t increase public debt.

Sometimes just the right words can build enthusiasm. Premier Christy Clark’s oft-stated support of mining, and her pledge to have eight new mines opened by 2015, has the industry talking about a boom.

Although the economic forecast through 2013 is for only modest growth, now is the time to prepare for a more prosperous future. Maybe one day B.C. will be worthy of its former slogan.