Two leading B.C. economists say a B.C. United plan to cut provincial income taxes is financially risky, but disagree about whether it could be a good thing for British Columbians. 

B.C. United Leader Kevin Falcon announced Tuesday (Aug. 13) that his party would eliminate the provincial income tax for 60 per cent of taxpayers if elected this fall. The price tag for the move would be $5.4 billion, paid for through contingencies, cuts to bureaucracy, better project management and increased economic activity. 

Ken Peacock, chief economist for the Business Council of British Columbia, called the plan "big" and "jaw-dropping" but also immediately pointed to its risks. 

"It's a big fiscal hit and we can't ignore that, especially considering we are already at a record deficit of (almost) $8 billion," Peacock said. 

Iglika Ivanova, senior economist with the Centre for Policy Alternatives, also expressed surprise and warned about the potential impact on the provincial budget.

But this is also the point where the agreement between the two economists ends.

"Something needs to be done," Peacock said. "Yes, there is some risk. I'm not sure if it is the timing or necessarily the tax cut that I would implement out of the gate as my centrepiece, but at least someone is doing something." 

Pointing to statistics such as higher per-capita GDP in neighbouring jurisdictions, almost zero job-growth in the private sector relative to the public sector and the "bell-weather" figure of people leaving B.C., Peacock finds the provincial economy in a structural deficit.

"Prosperity is slipping," he said, adding that few large economic projects appear to be on the horizon. "Canada is falling to the bottom (among G7 countries) and we are falling to the bottom of the heap within Canada."

A tax cut of this size would put money back into the pockets of British Columbians, who are currently struggling with affordability, Peacock added. It would also "signal" business that B.C. is concerned about competitiveness.

"Yes, there is a risk that the deficit balloons a little bit in the near term, but if you can lay the foundation for attracting investment for stronger job growth, then it pays off a couple of years later."

Ivanova questions this argument.

"That (tax cut) is a really expensive signal to send," she said, adding that it is misdirected with low-income British Columbians already paying few taxes relative to their incomes. 

"I think what they (B.C. United) are doing, and it is cynical of me to say, they are taking advantage of the fact that most people don't understand how the tax system works," Ivanova said. 

Looming behind these disagreements are broader disagreements about the effect of previous tax cuts and the role of government in shaping the economy. The cuts of the early 2000s helped the provincial economy recover, Peacock said.

"I'm not saying it's entirely due to the tax cuts, but B.C. went on tear from 2003 to 2008 and the biggest lift in prosperity in the province's history," he said. 

Ivanova offers a different interpretation.

"Not only will this do little for middle-income families, it will actually drain or starve services over the long run. They will need to be funded through a combination of both service cuts and increases to things like tolls or something like (Medical Service Premiums) because that is what we saw in 2001."

Falcon paired his proposal with a promise to protect funding for education and health care (as well contingencies for events like wildfires). He also pledged to balance the budget within four years by cutting entire layers of bureaucracy. Peacock would welcome such a move.

"There is no doubt that the civil has been expanded and bloated," he said. "The hiring has been enormous, so there is the potential to at least level that off and may be look at some redundancies. I have never seen anything like it but...it's not just nurses and doctors that are being hired. They are only a small piece of it." 

Ivanova points to gaps in the social infrastructure such as the lack of affordable childcare and housing, a top concern among employers looking to hire new staff. She also pointed to the positive effects of large public spending programs in the United States. The construction of public hospitals and schools also benefits the private sector through healthy and well-educated citizens and consumers, she said. 

Peacock said the B.C. United proposal is ultimately a form of political messaging, but he's not sure how it might impact the election.

"It's definitely attention-getting, but I suspect that was the point: to get some attention," Peacock said.

"I think time isn't on their side in term of momentum, but it's definitely intended...to change what has been happening over the past few months."