British Columbia is a less competitive place to do business under the Liberals than it was under the NDP — 25 per cent less competitive when compared to our competitors in the United States.
This is one conclusion drawn from The 2004 Competitive Alternatives Study: The CEO’s Guide to Business Costs conducted by KPMG, the international business services company.
The study reviews 27 cost components (such as labour costs, taxes, energy costs) applied to businesses in 12 sectors across 11 countries and 98 cities.
The good news from the study is that Canada again leads the western industrialized world in terms of the low cost of doing business. Overall, Canadian business have an almost 10 per cent cost advantage compared to businesses in the United States.
Every Canadian city had lower business costs than any of the 44 U.S. cities assessed by KPMG. Canada has lower labour costs and the least cost for benefits and statutory holidays.
However, in comparing the results for Vancouver, Kelowna and Chilliwack in the study, we discover two interesting facts. B.C. cities continue to be more competitive than competitors in Seattle, Portland, Boise or Spokane, but our advantage has declined significantly since Gordon Campbell became premier.
For example, Vancouver’s cost advantage over Seattle has fallen from 17.5 per cent in the 2002 study (using 2001 data) to 12 per cent today, an almost 30 per cent drop in two years. Kelowna and Chilliwack (both at 25 per cent) have seen similar declines in their competitive advantage. The decline is more significant in specific sectors such as software development and manufacturing.
Didn’t the Liberals tell us that cutting business taxes for large corporations would attract investment and make us more competitive? Why are we losing ground with these policies and not gaining it?
Looking at the breakdowns in the KPMG analysis tells the story. Lower health costs for Canadian and B.C. businesses are a major cost advantage over their American competitors. Public medicare is more efficient and good for business.
In fact, as provincial health coverage declines with cuts to PharmaCare, the delisting of services, MSP premium increases and privatization, our cost advantage over American competitors will decline as well.
It turns out that public power is also a big advantage. Again, the Liberals are drawing the wrong lesson with un-needed rate increases and a partial privatization of B.C. Hydro.
In fairness, the main reason for the relative increase in business costs in B.C. and Canada over the last two years has nothing to do with provincial policies. As Stuart Mackay, founder of the KPMG study notes, “the appreciation of the Canadian dollar relative to the U.S. dollar has lessened somewhat Canada’s cost advantage.”
What has caused this increase in value? While interest rates are low by historic standards, Canadian interest rates have been kept significantly higher than in the United States, fuelling the increase in the value of the dollar. This policy makes borrowing more expensive and hurting the competitiveness of our economy.
The KPMG study proves once again that taxation levels are not the most significant determinants of growth and investment. The Liberal government was making a political argument, not an economic one when it decided that the wealthy and big corporations should get a bigger piece of the pie and everyone else should get less.
However, it is not the most efficient policy for our economy, especially when it is paid for by cuts to universal health care, a practice that increases overall costs for the system, including potential investors.
Further, tax cuts for business and individuals in B.C. were not tied to investment or employment.
In cutting taxes without any link to investment and employment, the Liberals have themselves ignored reality. Businesses and high-income people, the main beneficiaries of the tax cut, are free to invest their money anywhere, wherever they can make the highest return for their capital.
The Liberal tax cuts were great for CEOs, not so good for the rest of us. No wonder Campbell goes to celebrate each budget pretty much exclusively with the Vancouver Board of Trade.
The KPMG study illustrates the need for a balanced antidote to Liberal ideology. The level of taxation is an aspect of competitiveness but so are quality health care, quality education, tying access to resources and credits to employment and investment, a clean environment and safe streets.
The Liberals’ narrow, ideological approach has failed the B.C. economy.
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