Opening Up BC to a Strong and Vibrant Economy

British Columbia is already one of the best places in the world to live, work and invest. British Columbians have the longest life expectancy of anywhere in Canada and studies often place our cities at or near the top in world rankings for quality of life.

The province is rich in resources. British Columbia’s forests remain a cornerstone of the economy. In the North East, oil and natural gas development plays an increasing role in the economy and the potential for growth is significant. The mining industry has shown renewed interest in British Columbia’s abundant mineral deposits. The province’s four season resorts are capturing the attention of the international travel market. Finally, the extraordinary beauty and isolation of British Columbia’s wilderness areas offer unlimited potential for eco and adventure tourism.

Despite these advantages, the province failed to realize its economic potential during the 1990s, stifled by high taxes, burdensome regulation and unsustainable fiscal policy. Last year’s Budget and Fiscal Plan included an ambitious strategy for opening up the provincial economy and restoring confidence in British Columbia’s economic future. The plan contained four key elements:

• Developing a stable and competitive policy framework;
• Ambitious, but achievable strategies for key sectors of the economy;
• Moving towards efficient, performance-based environmental policy; and
• A flexible, responsive and affordable education system for British Columbians of all ages.

The new B.C. Heartlands Economic Strategy builds on the government’s overall economic plan. It will focus on opening up opportunities in British Columbia’s regions through new partnerships with First Nations, new investments in transportation infrastructure, new sport and recreation opportunities and taking full advantage of the provincial resource base.

The government has already made progress in reenergizing the provincial economy. While it will take time for British Columbia to fully regain its historic position as an economic leader in Canada, some success is already evident in recent economic indicators. The economy created almost 78,000 new jobs during 2002, one of the best job creation performances in Canada.

The government remains committed to its economic strategy. Although much has been accomplished, much still remains to be done. The objective is clear:

• to build a strong and vibrant economy characterized by new investment, new job opportunities and a higher standard of living for British Columbians.

Stable and Competitive Policy Framework

Responsible Fiscal Policy and a Competitive Tax Structure

The government remains on track to balance the budget by 2004/05 and has moved to improve accountability and transparency. Legislation requires a balanced budget in 2004/05 and future years. In addition, 20 per cent of the Premier’s and Cabinet Ministers’ pay depends on meeting the government’s overall bottom line target and their specific targets each year.

British Columbia’s tax system is now competitive. After cutting personal income taxes by 25 per cent, the overall level of taxes for British Columbia families are the second lowest in the country. And the province has the lowest income tax rates in the country for the bottom two tax brackets.

A substantial investment has also been made in restoring B.C.’s business tax climate. The province’s ability to attract and retain investment has dramatically improved, due to

• A lower corporate income tax rate;
• The elimination of the corporate capital tax;
• A new sales tax exemption for production machinery and equipment; and
• Other sector specific tax reductions.

A recent KPMG study confirms that Vancouver is extremely cost competitive in relation to other major cities.

The government is also continuing to respond to competitive concerns in specific industries. Budget 2003 includes new initiatives totaling $29 million by 2004/05 to assist the film, book publishing and new media industries and to increase the supply of venture capital in the province. (These measures are described in more detail later in this topic box and in Part Two Revenue Measures.)

Deregulation

As part of the deregulation initiative almost 38,000 unnecessary regulatory requirements have been eliminated. The government has exceeded its commitment to eliminate two requirements for every new one introduced by eliminating three regulations for every new one introduced.

Companies will soon be able to use a single business number to complete several business processes at one time, including incorporations, re-organizations and data maintenance. The new Business Corporations Act will provide greater flexibility and make the province a more attractive location to do business. The new Act adopts the latest and best ideas from other jurisdictions, clarifies the rules and embraces technological advances such as electronic filing.

After a comprehensive review, changes have been introduced to the Workers Compensation Board (WCB), including a new, representative governance model, a more sustainable approach to pension and benefits and a more responsive and timely appeal system.

Provincial employment standards have been amended to recognize the realities of today’s economy. The changes create greater workplace flexibility and address unique working conditions in specific sectors such as high tech, while maintaining essential employee protections. Work continues on making the provincial employment standards responsive to the unique needs of specific industries. Discussions with stakeholders are ongoing, with changes planned for Spring and Fall 2003.

Eliminating Business Subsidies

Consistent with a New Era commitment, business subsidies that provide an economic advantage on a selective basis have been eliminated. This has improved the investment climate by offering assurance that unsuccessful firms will not be artificially propped up at the expense of their stronger competitors.

Infrastructure

An essential underpinning of a vibrant economy is a modern, efficient transportation system. The government has announced a multi-year plan to open up the province by building an integrated and competitive transportation system throughout British Columbia.

The initial three-year plan includes direct provincial investment of $650 million that will help leverage an additional $1.7 billion in investment by the federal government, the private sector and other partners.

A revitalized transportation system will:

• support B.C.’s regions by increasing access and improving efficiency for the province’s resource industries, tourism and other local businesses;
• improve access to trade gateways, such as ports, airports and border crossings; and
• ease the movement of goods and services in urban areas.

The focus of the plan will be on:

• upgrading and improving main highways, including the Golden to Yoho corridor to four lanes;
• rehabilitating and expanding the province’s rural road system through a three year investment of $225 million to improve the condition of 2,600 kilometres of side roads;
• enhancing public transit and encouraging alternative forms of transportation in urban areas;
• easing border congestion; and
• investing in ports and airports.

The provincial contribution to the plan will be financed through a dedicated increase of 3.5 cents per litre in gasoline and diesel fuel taxes that will generate $211 million in 2003/04 and a three-year total of $653 million by 2005/06.

In addition to a new transportation investment plan, the government has implemented a new capital asset management framework that encourages innovative and responsible uses of resources in the provision of public sector infrastructure. The framework provides for alternative service delivery options, including public private partnerships (P3s).

Partnerships B.C. is pursuing P3s that maximize private sector investment and improve customer services while minimizing costs and risks to taxpayers. P3s are already underway with a new ambulatory (outpatient) care center in Vancouver and the new Fraser Valley Health Centre in Abbotsford.

New P3s will be actively sought this year for the development of transportation, healthcare, and information technology infrastructure.

Strategies for Key Sectors

As part of the economic strategy laid out in the 2002/03 - 2004/05 Budget and Fiscal Plan the government committed to ambitious, but achievable strategies for key sectors of the economy. This section reports on progress in these strategies, and on the challenges and opportunities that lie ahead.

Forestry

Despite the uncertainty and hardship associated with the softwood lumber dispute, the forest industry remains a cornerstone of the provincial economy. Reaching a stable long-term resolution to this dispute continues to be a key objective of the government. Failure to accomplish this goal is a major risk to our economic future, particularly in forest-dependent communities.

In addition to pursuing a resolution to the softwood dispute, the government has taken several steps to improve the long-term viability of the industry and improve its competitiveness. The new Forest and Range Practices Act replaces the Forest Practices Code with a results-based regulatory regime. The new regime will come into effect April 1, 2003 and will substantially reduce industry costs while ensuring sustainability and protecting other values associated with British Columbia’s forests.

More timber will be available for innovative smaller local operators through the B.C. Timber Sales program.

The government is seeking public input on a proposal to designate 48 per cent of provincial Crown land as "working forest". The proposal is designed to increase certainty of access for the forest industry and to balance the economic, environmental and social values associated with British Columbia’s forests. The province now has 13 per cent of the land base set aside for parks and substantially more in protected areas.

The proposed "working forest" designation will not limit treaty negotiations with First Nations. Government will still be required to meet its legal obligations to consult with First Nations and seek to accommodate their interests.

The government has allocated $15 million in 2003/04, rising to $30 million in 2004/05 and to $50 million in 2005/06 for revenue sharing arrangements with First Nations. The distribution of revenue sharing will be negotiated with First Nations in exchange for legal certainty that allows all regions and British Columbians to prosper from their resource industries.

In addition, to these important initiatives the government remains committed to moving to a market-based stumpage system and introducing tenure policy reforms to improve industry flexibility and adaptability.

To assist in the transition, $275 million has been set aside in 2002/03. This one-time commitment will be used to help manage the changes needed to rebuild a leading edge and sustainable forest industry. Fair compensation will be available for existing tenure holders based on the benefits and costs of reform.

Energy Development

The province’s new energy plan is designed to capitalize on British Columbia’s competitive advantage in energy by increasing investment in the energy sector and maintaining low-cost electricity and public ownership of BC Hydro.

The plan has four cornerstones:

Low electricity rates and public ownership of BC Hydro. — B.C. residents will continue to enjoy among the lowest electricity rates in North America. These low rates will also help B.C. business and industry compete in an increasingly global economy.

Secure, reliable supply — Developing on-shore resources like coal, oil and natural gas, clean energy and other energy sources will help secure a reliable supply. Government is also working with the federal government, First Nations, communities and industry and academic experts to develop a knowledge base that will guide scientifically sound decisions related to offshore oil and gas development. By 2010, the government intends to have an environmentally sound offshore oil and gas industry in production.

More private sector opportunities — The private sector will be a key player in B.C. ’s energy future by developing resources. Independent power producers will be able to access the transmission system and sell directly to large consumers.  This will stimulate new investment in power generation and give producers the confidence they need to expand supply.

Environmental responsibility and no nuclear power sources — Enhanced conservation and new investment in clean energy sources will help ensure the environment is protected for future generations. Conservation measures will include new rate structures that encourage BC Hydro’s largest customers to minimize their power use. Distributors will also work towards acquiring 50 per cent of new electricity supply from clean sources.

The government has also taken concrete steps to accelerate the development of British Columbia’s oil and gas sector including:

• introducing a competitive royalty regime for coal-bed methane that has already generated $7 million in new land sales and 20 wells drilled;
• strengthening the role of the oil and gas commission as a single window regulatory agency for the industry; and
• developing a new funding mechanism to ensure that new opportunities to enhance investment and government revenue can be pursued quickly and effectively.

These changes will reinforce British Columbia’s developing reputation as the province of choice for new natural gas exploration and development in Canada.

Mining

Over the past year, changes in government policy, combined with improved prices, have considerably brightened the prospects for British Columbia’s mining industry. The industry has started to recover from a turbulent and uncertain decade in the 1990s. Mineral exploration expenditure has increased 25 per cent since 2001 and the first new mine in almost a decade is set to open.

The government has restored a competitive tax environment through elimination of the capital tax and lowered corporation income tax rates. In addition, although many challenges remain, certainty of access has been improved by introducing a two-zone system for mineral exploration. Land is now designated as a "Mineral Zone" where land is open to mineral and coal exploration, or a "Protected Zone" where Crown land is closed to mineral development.

The government will continue to improve the tax competitiveness, regulatory framework and certainty of access for the mineral sector. To this end, the mineral exploration tax credit will be extended for three more years until June 2006 and British Columbia’s flow-through share exploration incentive will also be extended, subject to the federal government extending its credit.

In addition, revisions to the mineral exploration code will be completed to streamline the regulatory process and move to a performance-based regulatory environment.

High Tech

Despite the current economic uncertainty facing many high-tech companies, the future prospects for British Columbia’s high tech sector remains bright. The government continues to work with the Premier’s Technology Council to unleash this potential.

Recently, the Premier’s Council has focused on the need for improved access to capital for start up and developing high tech companies. In response, the government is revamping the small business venture capital program to streamline and expand access to the program. In addition, to further improve competition in the venture capital market, the government will increase the tax credit budget for the labour sponsored venture capital program by $4 million annually. This will allow a third fund to enter the market with the ability to raise almost $27 million annually in additional equity capital over time.

Many of the tax cuts introduced last year are of direct benefit to the high tech sector including the reduction in the top marginal personal income tax rate to the second lowest in Canada, the elimination of the corporation capital tax on general corporations and the sales tax exemption for production machinery and equipment.

Other initiatives already underway include:

Doubling the number of university graduates in electrical engineering and computer science. The government and post secondary institutions have created 825 new spaces in 2002/03 and have committed to increasing this by 2,575 spaces by 2006/07.

Forging closer links between education and the economy. In April 2002 the government provided $2.25 million for the BC Leadership Chair for Spinal Cord Research. In total $45 million has been contributed to the Leading Edge Endowment Fund to create 20 B.C. Leadership Chairs, in partnership with the private sector. A further six B.C. Regional Innovation Chairs will be created at colleges. Also in 2002/03 through the government’s BC Knowledge Development Fund and funding leveraged from the Canada Foundation for Innovation and other contributors, close to $175 million was invested in research infrastructure in the province.

These initiatives build on British Columbia’s reputation for scientific innovation and will open up new opportunities to attract and retain high quality scientists to the province.

Film and Television

In July 2002, the premier announced the extension of the existing Film Incentive BC (FIBC) and Production Services Tax (PSTC) credits. These credits are designed to create a competitive tax environment for domestic and international film productions respectively.

After reviewing the competitive position of the animation and new media sectors, the government is introducing two new measures. First, a new bonus credit for digital animation and visual effects will be added to the existing FIBC and PSTC. Second $5 million dedicated to New Media will be added to the budget for tax credits under the small business venture capital program. This new funding will lever up to $17 million in new investments in this exciting growth industry.

In addition, the existing regional tax credit that is designed to attract location-based productions to areas outside Greater Vancouver will be enhanced by relaxing the eligibility criteria and introducing a new add-on credit to the PSTC.

To improve access for the film industry and remove barriers a draft, streamlined provincial permitting policy for film locations has been developed. The plan was developed in conjunction with industry and all relevant provincial agencies.

The film and television industry is suffering a cyclical downturn and production has slipped across North America. However, these changes will consolidate British Columbia’s position as a competitive location for film and TV production and will open up new opportunities for activity outside the lower mainland.

When combined with a skilled labour force and favourable exchange rate, the changes will ensure the long-term success and growth of British Columbia’s film and television industry.

Tourism

The government is committed to doubling tourism’s contribution to the provincial economy. Despite the current economic uncertainty, tourism indicators point to a continued recovery in the sector in 2002. A range of government initiatives will support this encouraging performance:

• Funding arrangements for the new Vancouver Convention and Exhibition Centre are now in place and construction is expected to start in 2003. The local tourism industry and the provincial and federal governments will finance the project jointly.
• After exhaustive efforts to create an attractive proposal, Vancouver’s Olympic bid has been submitted to the International Olympic Committee. The winning bidder will be announced on July 2, 2003. If Vancouver wins the bid, the additional construction activity and boost to the tourism industry are expected to generate substantial benefits to the provincial economy.
• To streamline decision-making and improve access to Crown land, Land and Water BC has established a target of a maximum 140 days for decisions on all Crown land tenure applications. The backlog of applications has been reduced by 96 per cent. Work remains to integrate the policies of all government agencies and create a "one-window" approach to tenure applications.
• Work is also underway to identify and market Crown land for tourism opportunities using Northern Vancouver Island as a pilot project.
• A B.C. Resort Task Force will be established. The task force will develop new programs to ensure the full potential of British Columbia’s world class resorts is realized.
• Finally, Tourism BC has undertaken a comprehensive review of its marketing strategy, to reflect the changes in travel patterns due to heightened security concerns after September 11.

Small Business

Small business remains a critical source of strength in the provincial economy. The changes to personal and business taxation in the last eighteen months have restored the competitiveness of British Columbia’s taxes on small business. British Columbia has one of the lowest small business corporate income tax rates in the country and the threshold for this rate was increased to $300,000 in the last budget. In addition, British Columbia now has the second lowest top marginal income tax rate in the country and has eliminated the corporation capital tax and the sales tax on machinery and equipment that undermined new investment and growth by small business.

The new Business Corporations Act, combined with more flexible employment standards, and improved WCB regulations are reducing the cost of doing business in B.C. The government has also introduced the OneStop online business registration system that has reduced application times to less than an hour from days or weeks. These changes have opened up new opportunities for small business by making it easier to raise capital, simplifying workplace rules and reducing tax compliance costs.

A Single Business Number will be implemented in fall 2003. The objective is to simplify the relationship between business and government by implementing a common identifier for business among partner agencies and expand upon the OneStop Business Registration services offered by the three levels of government.

Marketing the BC Economy

A cornerstone of opening up the economy is taking steps to ensure the world is aware of British Columbia’s new competitiveness and the province’s capacity for innovation in a broad range of industries.

British Columbia’s innovative industry capacity was promoted to key markets in the US, Japan, Taiwan, Chile, Mexico, the UK and China. In addition, joint government-industry marketing missions were planned and delivered to Taiwan and Japan, California, India and the World Economic Forum in Davos, Switzerland.

Investment opportunities in British Columbia’s key innovative industries were also showcased at investment forums in San Francisco, San Diego, Los Angeles, Seattle, Vancouver, Toronto, Hong Kong and Tokyo.

A new Investment Climate publication was released, highlighting to international investors, the competitive advantage for business in British Columbia.

In the coming year, a new integrated marketing strategy will be launched to aggressively develop new markets and increase market share for B.C. products worldwide. A national information campaign will market British Columbia’s competitive advantage to all Canadians.

Sustainable Environmental Policies

The government remains committed to the principle of revitalizing the economy while balancing environmental and community values. Science-based environmental stewardship; sustainable resource management and respect for the strong environment values of British Columbians are essential to the long run success of the economic strategy. Several key steps have been taken:

• Effective December 30, 2002, the new, streamlined Environmental Assessment Act and accompanying regulations came into force.
• A new AOX regulation has been enacted to appropriately limit discharges of absorbable organic halides.
• A response to the final report of the Advisory Panel on Contaminated Sites will be developed by Spring 2003.
• A review of the Waste Management Act is underway and is expected to result in significant amendments over the next three years. The changes will ensure more effective environmental protection.
• Working with partners, the government is reassessing the Streamside Protection Regulation to ensure protection of essential fish habitat while enabling urban development.
• The development of science-based standards for environmental protection will continue.

The government is also developing a made-in-B.C. plan for meeting its targets for reductions in greenhouse gas emissions. The full plan will be released later in 2003. In addition, the integrated transportation plan focuses on improved public transit, reduced congestion in major centers and encouraging the use of alternative transportation. All these initiatives will contribute to reducing greenhouse gas emissions and improving air quality.

Education Excellence

Successfully opening up the provincial economy demands that British Columbian’s are equipped with the skills and knowledge they need to take full advantage of the opportunities available in the new economy. This will require a flexible and responsive education system that is accountable and puts the emphasis on students.

In the last year significant strides have been made in:

• Rationalizing student financial aid to make it more coherent and understandable — An on-line loan application system has been developed. This system allows students to apply for student financial assistance on-line, which will be easier to use and increase processing efficiency. The new system will be fully operational by May 2003.
• Removing the tuition freeze and implement a new tuition fee policy which allows post-secondary institutions to set tuition rates. This will increase autonomy and allow institutions to meet the increased demand for high quality programs.
• Changing the funding formula for post-secondary institutions to increase accountability, and focus on results — Funding for public colleges, university colleges and institutes was changed from a program funding formula to funding through block grant in 2002/03.
• Provide institutions with tools to increase productivity in the post-secondary system — In early 2002, the legislature passed the Public Education Flexibility and Choice Act, which granted institutions greater flexibility in determining class size, expand on-line course delivery, hours of operation, and work assignments of staff.

Several other changes are also underway including:

• Expanding industry training in areas such as general trades training and new apprenticeships — Implementation of the new industry-training model will begin with pilot projects and will be fully operational by 2005/06.
• Creating more choice for students through enhanced on-line learning and expanded transferability of credits between institutions — An additional 130 online spaces will be added each fiscal year, to bring the total student spaces to 780 in fiscal 2005/06 from 260 in fiscal 2001/02.
• Establishing a new SFU Surrey campus to replace TechBC — the strategy includes doubling the number of student spaces to 800.

Finally, encouraging a strong private post-secondary education sector is an integral part of government’s commitment to access and choice in education. New initiatives, such as the passage of the Degree Authorization Act, were undertaken over the past year to ensure more opportunities and choice for students, and provide a more level playing field for private institutions.

Summary

In the last year and a half, the government has made great strides toward restoring British Columbia’s competitiveness and rebuilding the investment climate.

The economic plan, enhanced by the new B.C. Heartlands Economic Strategy, builds on the province’s strengths by:

• restoring sound fiscal management;
• creating a competitive tax environment;
• eliminating red tape and streamlining the regulatory system;
• introducing sector-specific initiatives to stimulate growth and investment and create new opportunities for all British Columbians; and
• ensuring that all British Columbians have access to a responsive and affordable education system.

The economy has turned the corner and there is renewed confidence about the province’s economic future. The government is committed to opening up the economy to a future rich in opportunity where British Columbia is once again an economic leader.