Review of 1995/96

In 1995/96, the government's surplus was $16 million, $98 million less than budgeted due to the loss of the $250-million payment expected for Columbia River downstream benefits. The surplus in 1995/96 represents a significant improvement from the $446 million deficit in 1994/95, and is the first surplus in six years.

Revenue was $128 million below budget as the loss of the downstream benefits payment was partly offset by higher-than-budgeted revenue from forests, federal contributions, investment earnings, gasoline tax, motor vehicle licences and other sources. Spending was $30 million below budget as savings measures introduced during the year resulted in most ministries being underspent. These savings helped offset unexpected pressures in income assistance earlier in the year, and in physicians' services, hospital contributions, flood compensation and criminal injury compensation.

The govemment used the surplus and excess cash balances to finance disbursements for financing and working capital transactions (see Table B1). During the year, additional cash requirements occurred that were not expected at the time of the budget. For example, although expenditures related to the renegotiation of the Vancouver Island natural gas pipeline assistance agreement were recorded late in 1994/95, payment did not occur until 1995/96. Unforeseen delays in collections from the federal government also resulted in a cash shortfall. These relate to the federal decision to withhold a portion of British Columbia's entitlement under the Canada Assistance Plan and federal delays in processing corporate income tax on refunds of countervailing duties on softwood lumber.

TABLE Bl
SUMMARY OF TRANSACTIONS CONSOLIDATED REVENUE FUND


Budget Estimate 1995/96(1) Revised Forecast 1995/96 (1)Budget Estimate 1996/97
($ millions)
Revenue(2) 20,258.020,130.0 20,659.0
Program Expenditure 19,165.0 19,135.019,571.0
Program Surplus (Deficit) 1,093.0 995.01,088.0
Management of Public Funds and Debt979.0 979.01,001.0
Surplus (Deficit) 114.016.0 87.0
Net Receipts (Disbursements) from Financing and Working Capital Transactions(3) 300.0(252.0) (34.0)
Decrease (Increase) in Cash and Short-Term Investments -200.0 -
Net (Increase) Decrease in Provincial Government Direct Debt(4)414.0 (36.0)53.0

  1. To conform to the 1996/97 budget estimate, the estimated and revised forecast amounts for 1995/96 have been restated to reflect the transfer of the motor vehicle branch and a portion of motor vehicle licence revenue to the Insurance Corporation of British Columbia. The effect of this restatement is to reduce both revenue and expenditure by $42 million in the 1995/96 estimated and revised forecast amounts. The restatement does not affect the surplus.
  2. Excludes dedicated revenue collected on behalf of, and transferred to, crown corporations and agencies.
  3. Financing and working capital transactions represent either a source or use of funds, such as the payment or collection of loans and accounts payable/receivable, or non-cash transactions including allowances for doubtful accounts. They do not cause a change in the annual surplus but only a change in the composition of the provincial government's assets and liabilities.
  4. Includes direct debt incurred for government operating purposes. (For information on total provincial debt, including Crown corporations and agencies, see Table G7.)

Revenue

Revenue totalled $20,130 million in 1995/96, $128 million or 0.6 per cent lower than the 1995/96 budget estimate and up 3.0 per cent from the comparable figure for 1994/95. (See Table B2.) The loss of $250 million of revenue in 1995/96 due to the cancellation of the Columbia River downstream benefits agreement was offset by higher revenue from other sources.

Forests revenue was $81 million or 5.3 per cent above budget due to higher revenues from timber sales and logging tax which offset lower revenue from the small business forest enterprise program.

Established programs financing (EPF) revenue, which is replaced by the Canada health and social transfer starting in 1996/97, was $72 million or 5.4 per cent above budget. As required by legislation, the federal government made a special adjustment payment to the provinces to ensure that total EPF contributions grew at the same rate is the national GDP deflator.

Investment earnings were $30 million above budget due to higher-than-expected gains from sales of sinking fund investments when interest rates were low.

Contributions from government enterprises were $11 million above budget as higher revenue from WLC Developments Ltd. and British Columbia Railway Company offset lower revenue from British Columbia Hydro and Power Authority and the Liquor Distribution Branch.

Fuel tax revenue increased $20 million from budget due to higher fuel sales volumes volumes of jet fuel and natural gas showed the strongest growth.

Petroleum and natural gas revenue was up slightly from budget as higher sales and leases of Crown land drilling rights offset lower natural gas royalty revenue.

The $75-million decrease in social service tax revenue resulted from lower-than-expected consumer and investment spending. In 1995, retail sales grew by 5.2 per cent and machinery and equipment investment spending by 4.9 per cent, compared to the budget forecast of 5.5 per cent and 9.5 per cent, respectively.

Personal income tax revenue was $38 million or 0.8 per cent lower than budget due to lower-than-anticipated growth in personal income.

Revenue from tobacco tax was down $30 million or 5.9 per cent from budget due to lower taxed consumption volumes.

Property transfer tax revenue fell $20 million or 6.9 per cent from budget due to a slowdown in the housing market. Sales volumes declined 21 per cent from 1994/95.

Expenditure

Expenditure of $20,114 million in 1995/96 was $30 million below budget and 0.6 per cent higher than in 1994/95. Early in the year, unexpected spending pressures were identified in the Ministries of Health and Social Services. The government responded with general spending cuts which resulted in most ministries being under budget (see Table B3)

TABLE B2


REVENUE BY SOURCE(1)CONSOLIDATED REVENUE FUND


Budget Estimate 1995/96(2) Revised Forecast 1995/96 (2) Budget Estimate 1996/97 Increase (Decrease) (3)
Taxation Revenue ($ millions) (per cent)
Personal income 5,040.05,002.0 5,216.04.3
Corporation income1,325.01,315.0 1,450.010.3
Social service 3,0342,959.0 3,127.05.7
Property 1,250.01,247.0 1,275.02.2
Fuel 678.0698.0 673.0(3.6)
Other 1,426.01,379.0 1,478.07.2
12,753.012,600.0 13,219.04.9
Natural Resource Revenue:
Petroleum, natural gas minerals390.0395.0 431.09.1
Forests 1,522.01,603.0 1,700.06.1
Water and other 539.0289.0 270.0(6.6)
2,451.02,287.0 2,401.05.0
Other Revenue1,741.0 1,831.02,018.0 10.2
Contributions from Government Enterprises970.0981.01,112.0 13.4
Contributions from the Federal Government
Canada health and social transfer(4) 2,205.02,276.0 1,798.0(21.0)
Other 138.0155.0 111.0(28.4)
2,343.02,431.0 1,909.0(21.5)
TOTAL REVENUE 20,258.020,130.0 20,659.02.6

  1. Revenue amounts exclude dedicated revenue collected on behalf of, and transferred to, Crown corporations and agencies.
  2. To conform to the 1996/97 budget estimate, the estimated and revised forecast amounts for 1995/96 have been restated to reflect the transfer of the motor vehicle branch and a portion of motor vehicle licence revenue to the Insurance Corporation of British Columbia. The effect of this restatement reduces the 1995/96 estimated and revised forecast amounts by $42 million.
  3. Percentage change between the 1995/96 revised forecast and the 1996/97 budget estimate.
  4. In 1996/97, the federal government introduced the Canada health and social transfer, replacing the former established programs financing and Canada assistance plan programs.

Ministry of Social Services expenditure was $94 million above budget mainly because of higher income assistance expenditures early in the year. However, between July and September 1995, the government introduced regulatory reforms designed to curb the unnecessary use of income support programs. These measures led to declines in income assistance caseloads beginning in October 1995.

Ministry of Health expenditure was $103 million above budget mainly because of higher spending for physicians' services and contributions to hospitals.

Spending by the Ministry of Attorney General was $34 million above budget due to increased expenditures for flood damage compensation and criminal injury compensation.

TABLE B3

EXPENDITURE BY MINISTRY
CONSOLIDATED REVENUE FUND


Budget Estimate 1995/96 (1)Revised Forecast 1995/96 (1) Budget Estimate 1996/97 Increase
(Decrese) (2)
$ millions (per cent)
Legislation 25.326.2 24.3(4.0)
Auditor General7.77.7 7.4(3.9)
Office of the Child, Youth and Family Advocate0.7 0.71.0 42.9
Conflict of Interest Commissioner 0.20.30.2 -
Elections B.C. 3.86.524.0 -
Information and Privacy Commissioner 2.62.4 2.6-
Ombudsman5.0 5.04.8(4.0)
Office of the Premier 2.62.6 2.4(7.7)
Aboriginal Affairs 33.731.2 32.0(5.0)
Agriculture, Fisheries and Food 69.760.7 66.1(5.2)
Attorney General 875.1908.9 905.53.5
Education, Skills and Training 5,582.15,556.1 5,794.73.8
Employment and Investment 199.0154.5 150.8(24.2)
Environment, Lands and Parks 240.8237.7 234.1(2.8)
Finance and Corporate Relations 118.0103.3 112.3(4.8)
Forests711.4 680.8655.3 (7.9)
Health6,644.8 6,747.86,936.4 4.4
Labour317.1 310.9328.8 3.7
Municipal Affairs and Housing 464.5395.3 440.5(5.2)
Small Business, Tourism and Culture 149.3147.8 141.9(5.0)
Social Services 2,637.82,731.8 2,600.8(1.4)
Transportation and Highways(3) 633.4610.0 630.1(0.5)
Women's Equality 212.5208.5 237.211.6
Other Appropriations
Management of Public Funds and Debt 979.0979.0 1,001.02.2
Contingencies and New Programs 47.425.3 51.07.6
BC Benefits 143.1143.1 143.20.1
Amortization of change in unfunded pension liability(24.8) (24.9)(24.9) 0.4
Anticipated year-end lapses -(10.0) --
Other(4) 62.264.8 68.510.1
TOTAL EXPENDITURE 20,144.020,114.0 20,572.02.1

  1. Restated to conform to the 1996/97 budget estimates.
  2. Percentage change between the 1995/96 budget estimate and the 1996/97 budget estimate.
  3. To conform to the 1996/97 budget estimate, the estimated and revised forecast amounts for 1995/96 have been restated to reflect the transfer of the motor vehicle branch and a portion of motor vehicle licence revenue to the Insurance Corporation of British Columbia. The effect of this restatement is to reduce expenditure by $42 million in the 1995/96 estimated and revised forecast amounts.
  4. Other includes the Corporate Accounting System Vote, the Environmental Assessment and Land Use Coordination Vote, the Environmental Boards and Forest Appeals Commission Vote, the Forest Practices Board Vote, the Office of the Police Complaints Commissioner Vote, the Public Sector Employers' Council Vote, the Public Service Employee Relations Commission Vote, the Office of the Transition Commissioner for Child and Youth Services Vote, the Insurance and Risk management Special Account, the South Moresby Implementation-Forestry Compensation Special Account and other appropriations.

Ministry of Municipal Affairs and Housing expenditure was $69 million below budget due to slower-than-expected grant payments to local governments under the Canada British Columbia infrastructure works program.

Ministry of Education, Skills and Training expenditure was $26 million below budget as savings from lower-than-expected enrolment in independent schools, skills training programs and Skills Now programs offset higher costs for public school enrollment and student financial assistance.

Ministry of Employment and investment expenditure was $45 million below budget mainly because of savings from the renegotiation of the Vancouver Island natural gas pipeline assistance agreement and underspending in the Build BC special account.

Forests expenditure was $31 million below budget as higher-than-expected forest fire suppression spending was offset by savings in other parts of the ministry.

1996/97 Fiscal Plan

The budgetary transactions of the consolidated revenue fund are summarized in Table B1.

The consolidated revenue fund is projected to have a surplus of $87 million in 1996/97, an increase of $71 million from the 1995/96 revised forecast. This is the second consecutive budget surplus.

Revenue for 1996/97 is estimated at $20.7 billion, an increase of 2.6 per cent from the 1995/96 revised forecast.

Expenditure will total $20.6 billion in 1996/97, up 2.1 per cent from the 1995/96 budget estimate.

Program expenditure, which excludes spending on debt interest (management of public funds and debt, is estimated at $19.6 billion, an increase of 2.1 per cent from the 1995/96 budget estimate.

In 1996/97, the consolidated revenue fund surplus will be used to finance net disbursements from financing and working capital transactions and reduce government direct debt by $53 million. Financing and working capital transactions include payments for investments in the Columbia Basin Trust. Report C provides more information on the government's financing plan.

A topic box included in this report provides estimates of the combined financial results of the government and its Crown corporations and agencies. In 1996/97, the summary financial statements show a surplus of $13 million, compared to a surplus of $24 million in 1995/96.

1996/97 Revenue

Revenue of the consolidated revenue fund for 1996/97 is estimated at $20,659 million, an increase of 2.6 per cent from the revised forecast for 1995/96. In 1996/97, higher revenue due to continued economic growth will offset a 22 per cent decline in federal transfers (see Table B2). The forecast includes the effects of budget measures that will reduce revenue by $96 million in 1996/97. Report D provides information on budget revenue measures.

Most of the growth will occur in taxation revenue (see Table B2). Personal income tax revenue is expected to increase 4.3 per cent. This reflects growth in personal incomes and includes reductions to revenue due to the BC Family Bonus and a one-point reduction in the personal income tax base rate, effective July 1, 1996.

Corporation income tax revenue will increase 10.3 per cent, due to growth in corporate taxable income and a prior-year adjustment for 1995.

Fuel tax revenue will fall 3.6 per cent in 1996/97 due to the transfer of 1 cent per litre of clear fuel tax revenue to the BC Transportation Financing Authority, effective March 31, 1996.

Property transfer tax revenues will increase 13 per cent as low interest rates and lower house prices lead to higher sales. Despite this increase, the level of property transfer tax revenue will be below 1994/95 levels. Corporation capital tax revenue will rise 12.8 per cent because of growth in the tax base as a result of strong investment and corporate profits growth in recent years.

Forests revenue will increase 6.1 per cent due to higher revenue from timber sales and the small business forest enterprise program. Revenue does not include $435 million of stumpage revenue that will be received by Forest Renewal BC during 1996/97.

Revenue from petroleum and natural gas will increase by $39 million. Higher natural gas royalties due to a rise in natural gas prices will offset a decline in sales of Crown land drilling rights. Water rental revenue, which is based on the previous year's water use, will decrease 5.2 per cent due to a decline in electricity generated in 1995/96.

Other revenue is expected to rise 10.2 per cent due to higher demand for government services from a growing population, increased fines revenue following the introduction of the speed monitoring program, and increased sales of Crown land.

The 13.4 per cent increase in contributions from government enterprises is mainly due to higher dividends from British Columbia Hydro and Power Authority because of efficiencies introduced over the last 18 months. The forecast assumes no rate increases because of the three-year rate freeze.

Contributions from the federal government will decrease 22 per cent. In 1996/97, the Canada health and social transfer will replace the established programs financing and Canada assistance plan transfers. Other federal contributions will decline by $44 million mainly because of the wind-up of the National Training Act and forest resource development agreements.

1996/97 Expenditure

Expenditure of the consolidated revenue fund is estimated at $20,572 million in 1996/97, an increase of $428 million or 2.1 per cent from the 1995/96 budget estimate and $458 million from the 1995/96 revised forecast (see Table B3)

The budget of the Ministry of Health will increase to $6,936 million, up $292 million from last year's budget. Significant increases include $178 million for regional health programs and $15 million for physicians' services. The budget also includes $48 million for the protection and enhancement of medicare.

Ministry of Education, Skills and Training expenditure of $5,795 million shows an increase of $213 million. Operating contributions to public schools will increase $58 million or 1.7 per cent from last year's budget because of an expected increase in public school enrolment. Public school capital debt servicing contributions will increase $69 million. Operating contributions to universities, colleges and institutes will increase to $1,127 million. The new BC Benefits initiative provides more funding for skills development programs.

Ministry of Forests expenditure will decrease $56 million to $655 million mainly because of the termination of the federal-provincial forest resource development agreement.

Spending of the Ministry of Employment and investment will decline $48 million or 24 per cent from the 1995/96 budget estimate. Reductions include the Build BC special account, down $18 million, the Vancouver Island natural gas pipeline assistance program, down $17 million, and savings resulting from the government reorganization in 1995/96.

Ministry of Attorney General expenditure of $906 million is up $30 million from the 1995/96 budget estimate, due to new initiatives relating to traffic safety and crime.

Ministry of Social Services expenditure is estimated at $2,601 million, down $37 million or 1.4 per cent. The budget decrease reflects the full-year effect of regulatory reforms introduced in 1995/96, and the additional effect of moving people back to work under BC Benefits.

Ministry of Municipal Affairs and Housing expenditure will decrease $24 million or 5.2 per cent to $441 million due to reduced requirements in the third year of the five-year Canada-British Columbia infrastructure works program.

Ministry of Women's Equality spending will increase $25 million or 11.6 per cent to

$237 million, due to increased demand for day-care subsidies resulting from BC Benefits.

SPECIAL OPERATING AGENCIES

Throughout the world, citizens are demanding that governments manage their programs in a more business-like manner. They also expect governments to maintain or improve the level of public services, even in the face of constrained finances.

In repsonse to these pressures, many governments are examining the way they deliver services and are experimenting with different structures to improve the efficiency and effectiveness of their operations, particularly the delivery of service to the public.

One model being tried in a number of jurisdictions is the special operating agency (SOA). The SOA cuts red tape and requires government programs to focus on improving service and efficiency. In Canada, SOAs have been implemented by the federal, Manitoba and Yukon governments.

Special Operating Agencies in British Columbia

British Columbia is introducing SOAs as part of the recent joint initiative of the Auditor General and the Deputy Ministers' Council on Enhancing Accountability for Performance.

Candidates for SOA status normally provide front-line service to the public with the level of output based on client demand. British Columbia SOAs must prepare multi-year business plans that include specific targets for levels of service, client satisfaction, employee morale and cost efficiency. Managers are encouraged to involve clients and employees in developing performance targets.

Some typical performance targets include:


To assist SOAs in achieving these results, Treasury Board can provide them with some management flexibility including quicker approvals, exemptions from mid-year budget adjustments, use of alternatives to central goods and service suppliers and the carry forward of some year-end funds to help enhance performance. SOAs that charge fees may be allowed to use some of the revenue to improve efficiency and customer service.

Approved Special Operating Agencies

Treasury Board has approved three SOAs for 1996/97. These are:

Vital Statistics Agency (Ministry of Health)

The Vital Statistics Agency is responsible for the registration and certification of events such as births, deaths and marriages.

Over the next three years, the Vital Statistics SOA will shorten service turnaround times for certificate issuance by 30 per cent and for registration by 11 per cent. Unit costs will be reduced by 11 per cent.

Registries Agency (Ministry of Finance and Corporate Relations)

The Registries Agency includes the Corporate Registry which provides for public registration of businesses, not-for-profit organizations, cooperative associations and financial institutions. It also includes the Manufactured Home Registry and the Personal Property Registry.

Over the next five years, the Registries SOA will reduce service turnaround times for its various services by 20 to 40 per cent, reduce unit costs of service by 16 per cent and absorb the effects of cost inflation.

Tourism BC Agency (Ministry of Small Business, Tourism and Culture)

Tourism BC works with the tourism industry to provide for growth, diversification, value added and job creation capacity within the industry.

The Tourism BC SOA's performance targets are to increase accommodation reservations through its 1-800 line by 95 per cent, increase the number of Superhost training participants by 33 per cent and increase gross tourism revenue in B.C. by 18 per cent over the next three years. At the same time, operational expenditures will be reduced by 21 per cent.

Future Directions

The government expects to create additional SOAs during the next year. One of these, Trade BC, has alrady been announced.

While SOAs currently represent a small percentage of government expenditures, they play an important role in shaping a more results-oriented government. SOAs will be among the first to meet the government's standards for performance monitoring and reporting.

SOAs will provide a model for more effective program delivery, to the benefit of clients, taxpayers and employees.

1996/97 Budget Estimate
Special Operating AgencyRevenues Expenditures FTE's*
($ millions) (number)
Registries 35.288.30 122
Tourism BC -23.41 67
Vital Statistics 8.837.99 104
Total 44.1139.70 293

*Authorized employment measured in terms of full-time equivalent positions.

SUMMARY FINANCIAL STATEMENTS

Last year, the government presented, for the first time in the budget, a financial statement that contains the estimated annual surplus or deficit of government ministries, special offices and Crown entities. 'I'his statement is part of the Summary Financial Statements.

This statement provides an estimate of government's overall surplus or deficit for the upcoming year. The Summary Financial Statement of Revenue and Expenditure, like the Consolidated Revenue Fund Statement of Revenue and Expenditure, is prepared on a basis consistent with the government's accounting policies.

As noted last year, a key accounting policy issue is the treatment of capital assets. The Canadian Institute of Chartered Accountants (CICA) has been reviewing this issue.

On the one hand, it can be argued that governments should adopt a conservative policy of writing off capital assets as a budgetary expenditure in the year of acquisition since those assets are often difficult to sell.

On the other hand, it can be argued that a policy of writing off capital assets when acquired can lead to a bias in budgeting against spending on assets with long-term value.

Previously, the only government capital assets whose values were reflected in the Summary Financial Statements and written off over the life of those assets were those of Crown enterprises such as BC Hydro, BC Rail, BC Ferries and BC Transit. Capital assets held by government ministries and all other Crown entities, such as BC Buildings Corporation, were written off in the year those assets were acquired. Accordingly, all highways infrastructure, computer systems, vehicles, buildings and major equipment (other than those held by Crown enterprises) were written off in the year of acquisition and therefore reflected as having no value in the province's financial statements.

The provincial Auditor General has recommended that the government capitalize all of its capital assets. However, as the CICA has not yet completed its review of the treatment of capital assets, the government has decided to adopt what it believes is an appropriate capitalization policy. Commencing with the 1995/96 Public Accounts, government will capitalize land, buildings and other fixed assets held by all Crown entities, other than highway infrastructure expenditures of the BC Transportation Financing Authority.

The adoption of the policy to capitalize land, buildings and major equipment held by other Crown entities will have no impact on the government's total taxpayer-supported debt. Under the debt management plan, all borrowing is reported, regardless of whether that borrowing is applied to operations, capital or investments.

The following table provides the estimated surplus on the summary statement basis for the 1995/96 and 1996/97 fiscal years, in accordance with the government's accounting policies as laid out in the 1994/95 Public Accounts, adjusted to reflect the accounting policy change noted above.

1995/96 Forecast 1996/97 Budget Estimate
($ millions)
Consolidated Revenue Fund (CRF) Surplus (Deficit)1687
Government Organizations and Enterprises
Net Earnings 1,4451,445
Less Earnings Already Included as CFR Revenue(991)(1,111)
Accounting Policy and Other Adjustments(1)(446) (408)
Net Adjustment to CRF Surplus (Deficit)8(74)
Summary Financial Statements Surplus (Deficit)2413

  1. Reflects, primarily, the write-off of highway infrastructure expenditures of the BC Transportation Financing Authority.

THE BRITISH COLUMBIA CORPORATION CAPITAL TAX

The British Columbia corporation capital tax (CCT) has been in place for a number of years. Its merits have been widely debated, often without the benefit of information and data. This topic box attempts to fill the information gap by briefly outlining how the tax works, how long it has been in place, which firms pay the tax, how British Columbia's tax compares to capital taxes in other jurisdictions and its effect on competitiveness.

History of the Tax

The corporation capital tax was introduced in Canada by Quebec in 1947, although it may have existed in Quebec and Ontario in the 19th century.

"The concept behind a capital tax is that not only should the revenue earned in the province be taxed, but, by virtue of the facilities and resources used in the province, the corporations should also pay a tax based on their employment of capital therein."

British Columbia adopted the tax in 1973, introducing the higher rate for financial institutions in 1980. In the mid 1980s, the tax was phased out over three years for all but major financial institutions based outside British Columbia. In 1992, the tax was re-introduced for non-financial corporations and smaller financial institutions and the rate on large financial institutions was increased. A unique feature in Canada, a two-year tax holiday for new capital investment, was introduced. The threshold at which the tax applies was raised in both 1993 and 1994.

How the Corporation Capital Tax Works

The tax applies to corporations that have a permanent establishment in British Columbia with net paid-up capital in excess of $1.5 million. The tax is levied at tliree different rates:

Family farm corporations, cooperative corporations and certain other corporations are exempt from CCT. Certain types of capital expenditures are not included in a corporation's tax base for two years, reducing the amount of CCT it pays.

Capital Taxes in Other jurisdictions

Ontario, Quebec, Manitoba and Saskatchewan levy a capital tax on non-financial corporations at rates the same as or higher than in British Columbia. All provinces levy a capital tax on financial institutions, ranging from 1 to 3.25 per cent. British Columbia only charges the 3 perl cent rate on major financial institutions (chartered banks).

While most American states do not levy capital taxes, some states have taxes that are unrelated to profits. For example, Washington state levies a "Business and Occupation" tax on the gross receipts of all business activities conducted in the state. The tax generally ranges from 0.5 to 2.0 per cent and generates about $1.6 billion U.S. annually, considerably more relative to the size of the state's economy than British Columbia's CCT.

Views on the Corporation Capital Tax

The main criticism of the CCT is that it is payable regardless of whether a company is profitable, reducing the competetiveness of British Columbia in attracting new investment. Partly offsetting this perceived disadvantage is that CCI' is deductible for corporate income tax purposes. In addition, new investment is not subject to CCT for two years.

From the government's standpoint, the CCT provides a more stable, predictable source of revenue from the business sector than the highly volatile corporation income tax. In addition, CCT ensures that corporations pay their fair share of the cost of public services such as health and education.

How Significant Is the Tax?

In 1995/96, the corporation capital tax generated an estimated $390 million, representing 2 per cent of total provincial revenue. Financial institutions paid approximately $85 million of this total.

Aggregated taxation data provide a profile of the CCT universe. The data show that:

Corporation Capital Tax Impact

CCT and Competitiveness

The chart shows that CCT represented a relatively small proportion of the total operating expenses of the top five CCT-paying firms in each sector. CCT represented a larger share of pretax net profits.

While CCT may add to business costs, many more factors are involved in determining corporate competitiveness. For example, in Canada, corporations benefit from the publicly-funded health care system, while in the U.S., many companies spend large amounts of money to subsidize employees' health insurance.


Budget '96 (Province of B.C.)

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