British Columbia's NDP government will introduce tax measures designed to push down the price of housing by targeting vacant homes owned by out-of-province investors.
Finance Minister Carole James said she hopes this and other changes will cool real estate costs, but would not predict how much, or what will happen if they take a bigger bite out of housing values than intended.
"We are treading on new ground," she told reporters on Tuesday as she unveiled her first full budget.
"We will be doing the analysis as we implement them."
The $54-billion balanced budget also promises historic investments in child care to create new spaces and train more caregivers, while giving tens of thousands of families access to two new programs to subsidize daycare costs. It would create a new tax on people who own empty homes but pay no income taxes in B.C., expand the current foreign buyers' tax, and cut a loan program for first-time buyers. The NDP budget represents a strong shift toward wealth redistribution.
This firmly breaks away from the direction set during 16 years of BC Liberal government. The New Democrats have inherited a strong economy, but Ms. James said too many people have been left behind. Additional tax revenue will pump an extra $2-billion into government coffers for efforts to tackle B.C.'s affordability issues.
"Nurses, construction workers, teachers, engineers and city workers are building careers, growing families and contributing to our province," Ms. James told the legislature. "They should be able to afford to put down roots."
Ms. James' budget speech was applauded by the Green MLAs who are crucial to keeping her minority government in power. "It's really refreshing to see people being put first," Green leader Andrew Weaver said later in an interview. "This budget was about correcting a lot of stuff that had gone wrong in the last 16 years."
The Liberal opposition finance critic, Shirley Bond, called the spending plan a "stereotypical, big-government solution" that will burden the businesses that create jobs. "This is a government that is giving with one hand and taking with the other," she said.
The NDP's 30-point housing plan aims to "stabilize" the housing market and curb demand from people who pay no income tax in British Columbia and buy houses they do not live in or rent out. "This will penalize people parking their capital in our housing market simply to speculate, driving up prices and removing rental stock," Ms. James said.
The new levy, which the government calls a "speculation tax," is expected to apply to about 15,000 residential properties in Metro Vancouver, the Fraser Valley, the regions of Victoria and Nanaimo on Vancouver Island, and Kelowna in the province's interior. The tax rate, charged on a property's assessed value, will be 0.5 per cent in 2018, and then 2 per cent in the following years. As a result, an overseas owner, for example, of a $5-million home in West Vancouver would pay $100,000 each year.
It's unclear whether vacation property owners from other parts of Canada would be taxed. Under the plan, a $600,000 condo in Kelowna owned by an Albertan could face an annual $12,000 bill – but when asked about such a scenario, Ms. James said plans have not been finalized. Cameron Muir of the B.C. Real Estate Association said the measure is better described as a vacant-home tax, and he warned there could be unintended consequences if it captures owners of recreational property.
The current tax on the purchase of a home by a foreign buyer will rise to 20 per cent and will be expanded to communities outside Metro Vancouver, including the Fraser Valley, Nanaimo, the Central Okanagan and the Capital Regional District. "We think that foreign buyers should contribute more for the high quality of life they enjoy in our province," the Finance Minister said.
The budget also increases taxes on homes worth more than $3-million.
On the supply side of the housing equation, the province says its 10-year plan will eventually create 114,000 new units. This year, the budget provides $243-million for investments that will focus on rental units for students, the homeless and families fleeing domestic violence, as well as larger rental subsidies for low-income earners and seniors.
However, the New Democrats have axed the former BC Liberal government's program that provided interest-free loans to first-time homebuyers. The program offered a second mortgage to qualified buyers and did not require any interest payments or payments on the principal for the first five years. But critics warned that it could encourage buyers to take on dangerous amounts of debt.
Ms. James said she hopes the new measures allow more people to get into the housing market. But the property purchase tax is expected to bring in higher revenues this year, despite the measures designed to cool the market, because the province predicts sales will grow, and the rate has been increased for properties valued at more than $3-million.
The budget, which projects a surplus of $219-million, includes other higher taxes on high-end housing and luxury cars, and boosts spending by more than $1-billion to provide subsidies for families, new housing investments, and other social program spending. A new health payroll tax will help pay to phase out Medical Service Plan premiums.
While the investments in housing and child care were broadly welcomed by social policy advocates and business organizations, the new 1.95 per cent employer payroll tax sparked concern. A business with less than $500,000 a year in payroll will not pay the tax, while business with payrolls between $500,000 and $1.5-million will pay reduced rates.
Iain Black, president of the Greater Vancouver Board of Trade, applauded the measures to tackle housing affordability and child care, saying those issues have been a top concern for employers struggling to recruit and retain workers. But he said smaller businesses are being unfairly squeezed to pay for the new spending. "We're really concerned about this."
The government is injecting $263-million in the coming fiscal year for child care, which it describes as a first step toward a universal program that could take up to a decade to fully implement.
Fees will be reduced for parents with infants and toddlers in a licensed childcare facility.
An additional child care benefit will begin in September that will pay up to the full cost of care for families earning $45,000 per year or less. Families earning up to $111,000 will receive benefits based on a sliding scale.
Sharon Gregson, of the Coalition of Child Care Advocates of B.C., applauded the plan. "It meets or exceeds the commitment we were looking for," she said. "This is really good news for families."
Ms. James acknowledged that the changes do not add up to the $10-per-day universal daycare in the NDP's 2017 election platform, but pleaded for patience from voters. She said expectations for change from her government are high, but she has kept new spending targeted to priorities while still maintaining fiscal balance.
Eliminating the province's regressive Medical Services Plan premiums will not take effect until Jan. 1, 2020. The MSP rate has already been cut in half.