- Planning surplus estimated at $2.8 billion in FY 06-07
- Further black ink targeted over the next few years
- 10% personal income-tax cut the budget’s centrepiece
- Announced measures to address the affordable housing challenge
Fiscal 2006-07 another banner year
Owing to a booming economy, total revenues stormed in $2.7 billion higher than planned .... Not all of the windfall flowed through to the bottom line, as the government booked an additional $900 million in spending, some of which was related to new measures announced today, such as the establishment of a $250 million Housing Endowment Fund. Meanwhile, with the risks to 2006-07 forecasts now having diminished, the government has scaled back its forecast revenue allowance by $550 million. If not used, the remaining $250 million cushion would transform the year-end tally to $3.15 billion, surpassing last year’s rosy performance and the highest on record.
Tax cuts to take a bite out of revenue growth
The cornerstone of this year’s budget on the tax side was an announced 10% reduction in personal income taxes for individuals earning up to $100,000, effective January 1, 2007. Although this tax cut was “sold” in the budget as a measure that will help defray the costs of home ownership, the implications are much broader. Indeed, at this threshold or lower, B.C. will surpass Alberta as the jurisdictions with the lowest PIT bill among the provinces. The measure is slated to save an individual earning $50,000 per year $315 and $864 for someone earning $100,000.
Other more modest tax reduction initiatives tabled today included an increase in the threshold for the First Time Home Buyers’ Program for property transfer tax exemption, a beefed up Home Owner Grant and sales tax rebate for the purchase of hybrid cars. Together, these measures are projected to shave about $1.5 billion from revenues.
Program spending is expected to increase by a moderate rate of 4% per year during the forecast period, with much of the increase front-end loaded into 2007-08. There were a slew of housing-related measures, including increased funding for shelter beds, a lifting of the shelter rate for individuals on social assistance and housing support for low income seniors. Still, the usual suspects – health care and education – were far from forgotten. In fact, new funding in these areas still accounted for more than half of the total new spending.
Tax supported debt
British Columbia’s improving fiscal path, and falling debt burden, continue to increase its flexibility in confronting head on the province’s longer-term challenges – a fact recently supported by Moody’s decision to upgrade the province’s credit rating to AAA. While housing topped the headlines today, the environment is poised to become a dominant theme in future budgets. The good news is that taking measures to improve the environment – and at the same time dealing with the province’s Achilles Heel, weak productivity – are not mutually exclusive goals. The benefit to both areas of shifting the overall government revenue mix from income taxes to consumption taxes/user fees is case in point.
I don't comment much on politics because it tends to get emotional but I couldn't resist commenting on the BC Budget for 2007 because of the spin it has been given - making housing more affordable for BC residents.
Clearly, by allowing BC residents to keep more of their own money by reducing income taxes and the property transfer tax, it will free up more money to spend or save. They may decide to spend it on housing but they may not. Economically speaking, giving potential buyers or renters more money actually gives incentive for prices to rise, assuming demand will rise with the 'newfound wealth' we will all experience (a few hundred dollars a year is hardly worth writing about but every little bit counts)!
That said, if prices rise, supply should increase as well, providing some downward pressure on prices but I think we've already seen the supply situation explode so I'm not sure the budget will have any significant effect on the housing situation relative to these effects given the relatively minor nature of the tax cut. Assuming the the BC government knows that the BC housing situation is precarious on the pricing front, I am wondering at this point whether the government is going to try to 'take credit' for improving affordability in the future by positioning the budget this way.