THE BLOG

Tax Credits are a Bad Business

06/25/2013 11:34 EDT | Updated 08/25/2013 05:12 EDT

It's bad enough that many municipalities are hiking property taxes this year, but the provincial government's decision to kill a light industry tax credit is piling on B.C.'s job creators -- and highlighting why such tax credits are bad policy in the first place.

In its 2013 budget, the province announced it would phase out, over two years, a 60 per cent school property tax credit for light industry.

This change came as a surprise to businesses like Maple Ridge's Time Access Systems Inc. The loss prevention and asset management company could have located virtually anywhere, but chose the Fraser Valley community.

This year, its property tax bill for a unit on Meadow Gardens Way, valued at $327,000, jumped to $6,577.98. That's a one-year increase of 16.5 per cent, due in large part to the government revoking half of its light industry tax credit. And that's only half the proposed increase; Time Access can expect another double-digit property tax jump next year when the credit is fully phased out.

Time Access is just the tip of the iceberg. A Business in Vancouver article estimated the tax increase on a 210,000 sq. ft. Purolator building in Richmond at 14 per cent - from $453,000 in 2012, to $516,000 when the tax credit disappears next year.

Similar tax increases will happen on every light industrial property from Victoria to Valemount, from Cranbrook to Kitimat.

The tax credit was brought in by Premier Gordon Campbell in the 2009 B.C. budget as a way to help businesses make it through the global economic downturn. "Industrial employers who are working hard to maintain jobs will benefit from a new property tax credit, saving them more than $115 million over three years," Finance Minister Colin Hansen told the Legislature.

Not only did the B.C. government get businesses hooked on this tax credit, they actually increased it from 50 to 60 per cent in 2011. Then, in the 2013 budget documents, the BC Liberal government announced it would claw the tax credit back over two years.

Inexplicably, the tax credit will remain in place for major industries, such as sawmills, pulp mills and mines. But light industry owners have been left scrambling to make up the extra money, which comes on top of any local property tax increase approved by the municipality.

According to the Business Owners and Managers Association of B.C. and the National Association for Industrial and Office Parks, the change was made without consulting property owners.

Bringing in, increasing, and now scrapping the light industry tax credit proves again why these credits are inelegant and unfair. Why is light industry losing their credit, but major industry keeping theirs? Why did industry get one in the first place? What did this five-year tax credit accomplish, besides making light industry reliant on it?

Tax credits have become the hip thing for governments, of all levels and all stripes, to do. It's why the federal income tax code has grown from 11 pages to more than 3,000. It's why cities like Abbotsford throw around tax credits for industrial land near their airport, forcing thriftier councils like Prince George to say no to similar proposals.

The best way to use tax dollars to encourage businesses to grow is to fairly apply lower tax levels across all sectors. No favorites, no special exemptions: just neutral, across the board tax reductions. Second, governments should leave more money in individuals' pockets so we can choose which businesses to support.

The Canadian culture of tax credits is corrosive to a free market. It's time the playing field was level for every business.