OPINION: Investment capital is nervous and subject to flight. How governments react will determine which jurisdictions recover soonest and which will sit on the sidelines wondering why their economies remain stalled.
The shutdown of our economy to control a pandemic was unfortunate, but necessary. As a former provincial finance and health minister, I understand the importance of growing the economy, while recognizing public health must always take priority.
This pandemic is an economic game-changer. Governments can no longer continue operating as usual, assuming the same level of economic activity they have grown accustomed to. Worldwide, we’ve seen an astonishing negative economic impact. Entire sectors in hospitality, tourism and retail have been upended. Investment capital is nervous and subject to flight. How governments react will determine which jurisdictions recover soonest and which will sit on the sidelines wondering why their economies remain stalled.
My first message to all three levels of government is to do no further harm. The combination of federal and provincial income tax increases result in B.C. having one of the highest top income tax rates in North America at 53.5 per cent. Hardly an inducement when trying to attract those “new economy jobs” that politicians so often go on about. Indeed, increases to B.C.’s income and corporate taxes since the last provincial election look particularly unwise in today’s environment.
Mis-named speculation taxes that primarily target B.C. residents while ignoring speculators only add to the problem. When combined with regulatory paralysis caused by costly and inefficient red tape, it’s disastrous.
Speed is a friend during a crisis. B.C. is not the only jurisdiction wondering how to re-instill consumer and business confidence. The NDP government should scrap its six-week public consultation on how they should handle the recovery. We elect politicians to lead, especially in a crisis. Make decisions. Think big and act boldly. Preferably select those options that spur economic activity while simultaneously addressing public policy objectives. New and higher taxes or more red tape will only smother any recovery.
Historically we’ve relied on our geographic location, plentiful natural resources and beautiful scenery to attract immigrants and boost our economy. These attributes alone no longer cut it. We need a clear plan going forward.
The federal response to the COVID-19 crisis, though uneven at times, is largely to be applauded. My concern is their lack of an economic plan once the anesthetic effect of billions of federal dollars comes to an end. I’d start by replacing the splurge in federal spending with tax incentives that spur economic activity while concurrently achieving public policy objectives. For example, there is a severe shortage of middle market rental housing in key urban centres across Canada. Government could start by eliminating GST on new residential rental/affordable construction started in the next 36 months.
Provincially the government must address the failure of local governments to ensure enough housing is being built to accommodate a growing population. Only Richmond and the City of North Vancouver achieved the housing goals set out in Metro Vancouver’s Regional Growth Strategy. The province should establish financial incentives that reward those Metro Vancouver municipalities that meet targets set out in their own Regional Growth Strategy and penalize those that don’t. This accomplishes two goals: much needed new housing for the missing middle and job creation in a sector that represents a meaningful portion of the provincial economy.
Local governments must act too. Lengthy and unwieldy approval processes, a multiplicity of charges and fees and an inability to address NIMBYism unnecessarily add to housing costs and discourage new supply. With rare exceptions, mayors and councils talk about the importance of affordable housing, yet utterly fail to deliver an increased supply of housing options. During good times, their intransigence and policy incoherence was overlooked. Today, these councils will discover there are few, if any, developers willing to invest in their communities when deciding where to place scarce risk capital.
Space doesn’t permit me to offer further ideas, so I’ll leave government leaders with an important reminder. The private sector and its employees are the foundation of a prosperous economy and the source of government revenue. Whether it’s economic growth, a greener economy or affordable housing, all that’s needed is a tax and regulatory environment that encourages investment and respects the need for speed.
Kevin Falcon is a former minister of finance and deputy premier of B.C., and is currently an executive VP of Anthem Capital Corp.