B.C. Budget 2000 -- Report F: Economic Growth in British Columbia: A Modern, Balanced Approach

Ministry of Finance and Corporate Relations
Honourable Paul Ramsey, Minister

This electronic version is for informational purposes only.
The printed version remains the official version.


	Report F: ECONOMIC GROWTH IN BRITISH COLUMBIA: A MODERN, BALANCED APPROACH


	"Our focus will be on today's families and their changing needs; in health, in education, in the environment, and in the new economy".
	—	Premier Ujjal Dosanjh Statement at the Cabinet Swearing-in Ceremony February 29, 2000

Vast economic changes occurring within the province today mirror those occurring in the global economy. To stay competitive in this worldwide market, the British Columbia economy must adapt to these global forces. These changes affect some individuals and some regions of the province more than others. Government has an important role in helping people, business and regions make the transition to a modern economy.

The British Columbia Government's Goals

The government's goals are:

1.	A modern, balanced and sustainable approach to economic growth that meets the hopes and values of today's families.
2.	An economy operating at its full potential with rising incomes and living standards.
3.	Ensuring that all British Columbians benefit so that individuals, industries, communities and regions attain economic prosperity.

Achieving these goals requires a balanced approach where one set of interests or one measure of economic activity does not have priority over another.

Government's specific goals are to:

Provide education and training to maintain the well-educated, well-trained work force British Columbia needs in a changing, modern economy;
Cut taxes to ensure British Columbia achieves its economic potential;
Consolidate and build on our competitive strengths including high-quality services such as education and health care, a clean environment and a high quality of life;
Ensure a balanced and efficient regulatory environment;
Provide communities with the tools they need to build on their local and regional opportunities; and
Ensure a sound fiscal framework with a transparent and accountable budget process.

A Well-Educated, Well-Trained Work Force

British Columbia's economy depends on a well-educated, well-trained work force. Education is one of the best investments the provincial government can make.

Budget 2000 enables British Columbians to access the skills and knowledge they need to succeed in the new economy, building on previous investments. The budget creates more post-secondary spaces and keeps those spaces affordable.

—	The government has extended the tuition fee freeze to ensure continued accessibility to post-secondary education in British Columbia. This is the fifth year that tuition fees will be frozen.
—	Budget 2000 provides funding for 5,025 new student spaces in the public post-secondary system.
—	With the lapse of federal funding for Royal Roads University on March 31, 2000, the provincial government has pledged funds to continue operating this advanced education facility. Budget 2000 also includes additional funding for the Technical University of British Columbia.
—	Our universities are vital incubators for innovative technologies. Budget 2000 carries through in the third year of the six-year British Columbia Knowledge Development Fund, which invests in capital infrastructure for research at British Columbia's post-secondary institutions, teaching hospitals and non-profit agencies. The government will make a further investment of $117 million in this fund in 2002/03.

A solid educational foundation is fundamental to the life-long learning needed to succeed in a changing economic environment. In the Kindergarten to Grade 12 system, Budget 2000:

—	Provides funds to reduce further the number of school portables.
—	Advances the government's investment in British Columbia's future with an increase in per pupil funding and additional funding for 325 new teachers to further reduce Kindergarten to Grade 3 class sizes.
—	Provides more access to the tools of a modern economy by connecting every public school in British Columbia to the Internet through the Provincial Learning Network.

In addition, Budget 2000 takes a first step towards a publicly-funded child care system by supporting quality before- and after-school care in British Columbia's school system. In addition to creating a better environment and foundation for children, this will help working parents balance the demands of family and work.

Another aspect of the government's balanced approach to helping British Columbians deal with the changing economy lies in supporting people's transition to work. This budget builds on employment programs already in place.

To support the transition from welfare to work, the provincial government's BC Benefits program helps people with four major programs: Family Bonus, Healthy Kids, Youth Works, and Welfare to Work.

The government has helped British Columbians increase their attachment to work and removed structural barriers to employment. Since 1991, the unemployment rate has fallen from above 10 per cent to a 19-year low of 7 per cent in February 2000.

Also, since the introduction of BC Benefits in 1996, the number of income assistance cases has declined nearly 25 per cent. Programs for people on income assistance will continue to be refocused so that people are assisted in making the transition to employment.

If people are to succeed in the transition from welfare to work, adequate shelter is essential. In Budget 2000, the government of British Columbia continues its commitment to affordable housing. 2000/01 is the second year of the two-year initiative to construct 2,400 additional affordable housing units through the BC Housing Management Commission.

However, the government recognizes the difficulties faced by those unable to work and the need for an increase in minimum income levels. Accordingly, this year's budget provides an increase in income assistance rates for all recipients, effective July 2000.

Tax Cuts to Fuel Economic Growth

Tax cuts are an important feature of the government's balanced approach to economic growth in British Columbia. In order to assist in the transition to a new economy and boost the province's economic potential, the government has reduced taxes for all British Columbians, but has focused the cuts on low- and middle-income earners. Combined with reductions in the province's top marginal income tax rate and business taxes, these changes increase the capacity of the economy to generate jobs, higher incomes and profits.

Budget 2000 continues to move towards a more competitive personal income tax structure, while recognizing the need to maintain quality public services. Budget 2000 includes a two-year plan that will reduce personal income taxes by $310 million by 2001/02.

The personal income tax structure in British Columbia will be indexed to inflation, to protect tax payers from bracket creep. This will maintain the benefit of the tax reductions in Budget 2000 and previous budgets.

These changes will benefit all tax payers in the province, but particularly low- and middle-income earners.

Budget 2000 further reduces the small business corporate income tax rate to 4.75 per cent effective July 1, 2000, the lowest rate in the country.

To further encourage job creation through investment in plant and equipment, Budget 2000 introduces an investment tax credit for the purchase of new manufacturing and processing assets.

Increases in the corporation capital tax threshold announced earlier will mean that by 2001, fully 90 per cent of businesses will be exempt from the corporation capital tax.

Since 1995, changes made to British Columbia's taxes have already put money back into the hands of low- and middle-income earners, and upper-income earners who benefited from reductions in the top marginal tax rate. These changes will result in savings to British Columbians that will total $800 million by 2001/02. Since 1995, changes made to business taxes will have resulted in total savings of $500 million by 2001/02.

CHART F1
INTERPROVINCIAL TAX COMPARISONS

An Economic Reality: Constant Change and Evolution

British Columbia's economy, like other industrial economies, is continually evolving and changing. Statistics portray relative aggregate stability, with figures such as employment, unemployment and gross domestic product showing modest annual fluctuations. However, tremendous changes are continuously taking place. For example:

One in five workers separate from their employer every year, although the level of total employment typically fluctuates only 2 to 3 per cent.
Firms are created and go out of business at a rapid rate — there are over 20,000 incorporations in British Columbia alone every year. Statistics Canada estimates that 20 to 25 per cent of new businesses in British Columbia fail in their first year (the same as in Ontario, Quebec and Alberta, but less than in the other provinces). Only about one in five new firms remains in business for ten years.
Entire classes of businesses can appear and disappear in less than a generation.

—	The horse and buggy disappeared with the mass production of the automobile in the early 1900s.
—	The slide rule gave way to the calculator in the 1970s.
—	The corner video store was unheard of until the 1980s.
—	There were few local Internet service providers ("ISPs") in 1995, but most cities and towns now have several.
—	In the future, video rental and CD stores may be replaced by companies providing movies and music over the Internet, while mobile phone service may outstrip the traditional landline.

It is common to hear that the pace of social and economic change is accelerating. Today, the Internet and the communications revolution are fundamentally changing the way people work and live. Is this change faster or deeper than those brought about by the Industrial Revolution, the invention of the wheel or the airplane, or the discovery of electricity?

Only time will tell whether today's developments prove revolutionary. However, a lesson of history is that great technological leaps often create economic dislocation, social upheaval and turmoil even though they also bring great economic prosperity and opportunity. People and institutions often adapt slowly to these changes — human skills and knowledge are made obsolete and our institutions naturally reflect the economic and social realities of the recent past.

So, economic change is a certainty. The provincial government's objective is to help people successfully make the transition to the new economy.

Consolidating British Columbia's Strong Competitive Position

British Columbia's envied quality of life gives British Columbia investors and workers a strong competitive position over the long run. Investments the government is making in health and education, and in preserving British Columbia's clean and healthy environment consolidate that strong position.

A healthy, educated, and productive work force is a key to British Columbia's success in the modern economy. In addition to the education investments mentioned above, Budget 2000 includes funding for new continuing and acute care beds. This budget also includes funding for up to 600 new nurses. As well, the BC Health Innovation Forum will bring together health care providers, administrators and other experts to ensure that needed health care services are delivered efficiently, with the primary focus on patient care.

A strong competitive position encourages innovation and new opportunities because they have the right conditions to grow. Bright ideas and new companies appear to be flourishing:

— Between 1990 and 1998, high-tech employment in British Columbia grew at an annual rate of 7.2 per cent, faster than all industries combined.

— Knowledge-based products and services account for over 46,000 jobs in British Columbia, up from 32,700 in 1994.

— There are almost 7,000 high-tech establishments in British Columbia, up from 4,700 in 1994.

— High-tech companies are expanding beyond the Lower Mainland. One in three British Columbia high-tech companies is located outside Greater Vancouver.

To further encourage innovation in areas such as film and high-tech, the government will establish a BC High Tech Commission to market our high-tech advantage around the world.

The B.C. Film and Television Industry: A Successful Partnership

British Columbia is a prime location choice for filmmakers for a number of reasons. The province offers excellent and varied production locations, a well-trained and technically sophisticated labour force, and an expanding infrastructure including the government-owned Bridge Studios in Burnaby, a technologically advanced special effects studio, as well as privately run studios such as Lions' Gate Film Studios. Last year, the provincial government introduced two tax credit programs offering filmmakers refundable corporate income tax credits.

British Columbia's talented and skilled film industry workers have helped the industry grow at a rapid rate during the past ten years. In 1999, the value of British Columbia's film and television production industry increased 32 per cent from 1998. A total of $1.1 billion was spent on 198 productions in the province in 1999, up from $188 million and 50 productions in 1990.

Government and industry have worked together in other ways to improve competitiveness in British Columbia.

—	In May 1998, the provincial government announced the Oil and Gas Initiative, an agreement with the Canadian Association of Petroleum Producers. The initiative included streamlining the regulatory environment facing the oil and gas industry, improving local infrastructure and improving the competitiveness of the royalty system. The initiative established the Oil and Gas Commission, a single-window approach for all oil and gas licensing and permitting.
—	The Oil and Gas Initiative in 1999 contributed to sustained growth and investment in the oil and gas industry. Strong sales of oil and gas rights in northeastern British Columbia is evidence of the success of the initiative. Sales of Crown land drilling rights soared in 1999/00. During the first 10 months of 1999, 522 wells were drilled, close to 1998's record levels.
—	Building on the first phase of the Oil and Gas Initiative, the second phase was introduced late in 1999. A substantive road rehabilitation and maintenance program was introduced. This program is designed to provide better road access and to lengthen the drilling season. The second phase of the Oil and Gas Initiative also provides for further regulatory reform.
—	To reduce forest industry costs, stumpage rate reductions were implemented in 1998, saving the forest industry an average of $200 million per year.
—	The Forest Practices Code (FPC) was established in 1995 to ensure sound forest practices backed by tough enforcement. Changes to simplify the FPC and cut red tape were announced in 1998 and 1999. Further changes were made effective March 1, 2000 to streamline the administration process for roads, without reducing environmental standards. Most of the road-related amendments stemmed from the Cost Driver Initiative, which aimed to reduce government and industry costs, and improve efficiency.
—	To help British Columbia forest companies compete in a greener global economy, the Ministry of Forests is developing a province-wide environmental management system as a first step towards environmental certification.
—	The government is also re-investing in the forest resource and forest workers. Since its inception in 1994, Forest Renewal BC has invested more than $1.6 billion to restore damaged watersheds, nurture second growth forests to add to British Columbia's potential future timber harvest, train and upgrade skills of the work force, and create jobs through community diversification.

The government is also responding to society's changing environmental values. Economic and environmental sustainability must be a centrepiece of the government's approach so that we do not deplete our physical resources or degrade the environment. British Columbia is also well situated to build on its head start in environmental technologies.

—	Ecotourism is one of the fastest-growing areas of the tourism industry. To maintain and enhance British Columbia's "Supernatural" reputation, Budget 2000 funds an EcoTourism strategy. This will support tourism opportunity studies, to assist park and backcountry gateway community development and to develop best-practices guidelines for the ecotourism industry.
—	British Columbia will soon achieve the government's goal to preserve 12 per cent of the province's land base for parks and protected areas. A new Parks and Protected Areas Act will enshrine in law the protection of the province's 550 parks, 141 ecological reserves and 12 special protection areas.
—	Budget 2000 establishes the Green Economy Development Fund to support the development of new environmental technologies. The province's specific experience in this field of growing importance gives British Columbia a strategic niche in the modern economy.
—	The government issued the Environmental Tax Shift discussion paper in November 1999 and is seeking comment. Environmental tax shifting is one tool to help reform the tax system to better reflect society's environmental values. At least one pilot project will be introduced this year. (See Topic Box on Environmental Initiatives in Report C.)
—	The government has also taken steps to reduce greenhouse gas emissions through the Green Economy Initiative which promotes clean technologies through the Public Buildings Energy Retrofit Initiative and the Clean Energy initiatives. Additional information on British Columbia's green building industry is available on the Internet at www.ei.gov.bc.ca/greenbuildings.

A Climate for Success

As discussed above, the government has taken action to promote competitiveness and economic growth by putting tax cuts in place that will total $1.3 billion by 2001/02. In doing so, the government has recognized the need for a balanced approach that preserves key government services and ensures fiscal sustainability.

The government is also working to improve the investment climate by settling land claims. This contributes to the province's economic well-being by achieving certainty with respect to land and resource use through the negotiation of treaties and other agreements with First Nations and Canada. The provincial government believes that greater jurisdictional certainty will improve the investment climate. All British Columbians benefit as communities throughout the province experience business development and job creation. Through negotiated agreements, First Nations also acquire the means to build healthier and more self-reliant communities where they are able to maintain their culture and values, and thrive in today's society and economy.

A number of government initiatives, while designed to benefit all British Columbians, have had particularly positive effects on individual regions. These include:

—	Ecocertification and the Forest Practices Code: initiatives that strengthen the competitiveness of the forest sector by assuring buyers that British Columbia products meet stringent environmental standards.
—	Ecotourism promotion: initiatives help in the development of this growing tourist market.
—	The Oil and Gas Initiative particularly benefits the northeast.
—	"Buy BC" promotion: the government's participation in developing a brand and promoting and marketing produce aids the province's agriculture intensive regions.
—	The Columbia Basin Initiative: re-investing proceeds of the Columbia River Treaty stimulates economic activity in the region.

Co-operation vs Confrontation

"We all share Mr. Dosanjh's commitment to cooperation. CFIB and the small business community as a whole want an opportunity to work constructively and positively with him."

—	Suromitra Sanatani, B.C. & Yukon Vice President for the Canadian Federation of Independent Business Vancouver Sun, March 6, 2000.

British Columbia can and must do much better. For this to happen, the climate for private sector investment needs to improve. Here, government policy plays an important role, as does the attitude of the private sector.

The provincial government is committed to work with business, labour and other groups in a co-operative, non-confrontational manner to achieve higher living standards for British Columbians.

Political parties, civic organizations, research institutes and interest groups also play an important role in presenting policy alternatives, representing different points of view, and fostering debate. Recognizing that their views and opinions may be strongly held, British Columbia's image in Canada and abroad would benefit from a less confrontational style of public debate.

Government's role in the transition to a new economy includes providing tools to communities facing a changing economic base. The pre-budget submission by the Economic Development Association of British Columbia to the Minister of Finance and Corporate Relations noted that ". . . most 'top-down' provincial strategies tend to be a poor fit for most communities." In other words, Victoria does not have all the answers. Instead, the provincial government's approach is to provide the tools to communities facing a changing economic base, and let them decide what direction to take.

After several years of budget restraint, Budget 2000 boosts funding for ministries involved in economic development.

—	The Economic Development Association of British Columbia noted the importance of the Community Enterprise Program as a support for communities establishing economic development strategies. Budget 2000 maintains the funding for the second year of this program.
—	Budget 2000 also includes new funding for tourism initiatives that remove policy and regulatory barriers constraining tourism development.
—	Budget 2000 includes new funding to assist regional film offices to support film and television production in all regions of the province.

Potential investors in British Columbia need to have full and complete information on government finances. As well, the public should have all the information it needs to assess whether the government is doing a good job.

The government has presented a five-year fiscal planning framework (see Topic Box Five-Year Fiscal Planning Framework in Report B). This long-term planning framework combined with the full disclosure required by the new Budget Transparency and Accountability Act (see Report E — Implementing the Budget Process Review Panel Recommendations), provides a complete picture of the province's financial position.

Another important task in creating a better investment climate is to ensure that the government itself is competently and professionally managed and that tax dollars are used wisely and prudently.

The provincial government is working to improve efficiency in delivering government programs and efficiency in government operations. The Streamlining Initiative is part of the government's commitment to review unnecessary red tape and paper work, while protecting critical environmental and workplace standards. It is also an example of government and business working together for the benefit of British Columbians. These activities are outlined in the quarterly reports available on the Web site (www.streamline.gov.bc.ca). The Streamlining Topic Box provides more detail.

The Streamlining Initiative has resulted in faster and better service. For example, a change to the Taxation (Rural Area) Act eliminated the requirement for farmers to reapply for a payment extension each year, saving rural property owners and the ministry time and money that is better used elsewhere.

Other initiatives to improve program delivery include:

—	BC Business Connects: includes single-business-number pilot projects, one-stop business registration, consolidating forms across government, a municipal best practices guide and regional delivery of business information.
—	Payment Timeliness Review: an initiative to improve timeliness of payments to government suppliers.
—	Consumption Tax Administration: a modernization of systems used to manage the collection of revenue for the province.
—	Electronic Service Delivery: increasing electronic service delivery by government and facilitating electronic commerce in the private sector.
—	Environmental Assessment Project: applying lessons learned from environmental assessment processes in other jurisdictions.

On a broader scale, the requirement in the new Budget Transparency and Accountability Act that ministries have three-year business plans will promote better allocation of resources.

LINX BC: Business and Government Working Together

The government has worked directly with business to raise the profile of the province with investors. The LINX BC program is a successful example of targeted, co-operative marketing. The provincial government, five British Columbia communities and Telus entered a co-operative campaign to attract call centres. British Columbia boasts a large pool of skilled, multi-lingual workers and a sophisticated telecommunication network, features that are attractive to this growing industry. As a result, several significant leads were established, and three call centres have announced their intention to locate in British Columbia, including a new 600-job call centre currently being developed in Kamloops by Convergys Corporation. This means more investment and jobs for British Columbians.

Sound investment in public infrastructure — getting the largest long-term benefit from every dollar and every project is a top priority.

Public infrastructure can improve British Columbia's attractiveness as a place to work and live. The government is committed to providing public infrastructure that provides long-term economic benefits to the people of the province. Investments such as the SkyTrain extension not only make economic sense, but also provide environmental benefits by reducing greenhouse gas emissions and improving the quality of life.

Conclusion

The provincial government's goals are:

A modern, balanced and sustainable approach to economic growth that meets the hopes and values of today's families.
An economy operating at its full potential with rising incomes and living standards.
Ensuring that all British Columbians benefit so that individuals, industries, communities and regions attain economic prosperity.

To achieve these objectives, Budget 2000 invests in education and training, and cuts taxes in a balanced manner to assist in the transition to a new economy and boost the province's economic potential.

In addition, Budget 2000 consolidates and builds on British Columbia's competitive advantages including a clean, healthy environment and quality of life, and high-quality education and health care systems.

Budget 2000 encourages our modern resource sector and high-tech industries to respond to the demands of international markets by promoting sustainable forestry and green technology, and increases funding to government ministries involved in economic development.

In addition, sound investments in public infrastructure are being made, reforms to provincial budgeting and management practices are legislated, and reductions in red tape are occurring.

All these government initiatives, when combined with the efforts of individuals and businesses, are paying off in creating a climate for success.

STREAMLINING INITIATIVE

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—	Between 1990 and 1998, high-tech employment in British Columbia grew at an annual rate of 7.2 per cent, faster than all industries combined.
—	Knowledge-based products and services account for over 46,000 jobs in British Columbia, up from 32,700 in 1994.
—	There are almost 7,000 high-tech establishments in British Columbia, up from 4,700 in 1994.
—	High-tech companies are expanding beyond the Lower Mainland. One in three British Columbia high-tech companies is located outside Greater Vancouver.