BLAST FROM THE PAST: Clark clings to despised capital tax – By Les Leyne

Times – Colonist, February 6, 1996

New Democrat leadership candidate Glen Clark is using the corporation capital tax as a pre-election warmup, but the B.C. Central Credit Union wants him to ditch it, not play with it.

Clark was reviled throughout the B.C. business world three years ago when as finance minister he took a special tax on the banks and broadened it to every company in B.C. worth more than $1 million.

But lately he’s been citing it before enthusiastic NDP audiences as a mark of accomplishment, in his bid to succeed Premier Harcourt who announced his resignation in November. Clark has also been slamming B.C. Liberal Leader Gordon Campbell’s plans to cancel the tax, portraying himself as the only one with the guts to tax the rich banks.

It goes over well with partisan audiences, but the history of the tax is a bit more complicated.

Richard Allen, economist with the B.C. Central Credit Union, said the tax is wrong. “There’s no objection to a tax on profits, but this is a tax on inanimate objects that are not necessarily producing profits.”

Anecdotal evidence suggests it is a serious concern for foreign investors, he said. “My colleagues talk to Hong Kong businessmen and their first question when Canada comes up is: ‘What about this tax?’ ‘

B.C. has had a version of the corporation capital tax for years, but it was applied only on the major banks until the New Democrat government took over in 1991.

Clark’s first budget in 1992 broadened the scope dramatically, imposing a 0.03 per cent tax on every firm with $1 million or more in paid-up capital. It was expected to generate $225 million, $40 million of which came from Crown corporations, which passed the cost on to taxpayers like everyone else.

Business complained vociferously that it was unfair, applied regardless of whether the corporation earned or lost money that year.

Harcourt was only lukewarm to the tax from the beginning and in Clark’s second and last budget, it was weakened.

The threshold was raised to $1.25 million, exempting 2,000 businesses.

Finance Minister Elizabeth Cull the next year raised the threshold again, to $1.5 million, and phased it in to further dilute the impact. Harcourt started promising business he would remove the tax after the budget was balanced.

But the $400 million a year in revenue it now raises is so essential that the Harcourt government ignored the promise to eliminate it.

The deficit was eliminated this year, but Cull has given no indication the tax is coming off.

Clark has taken pains to point out in leadership forums that $100 million of that comes from the banks, which all posted record profits again this year. And he points out that Campbell wants to repeal the tax, and let the banks off the hook.

Campbell told the legislature last March: “I can guarantee you it will be eliminated in our first budget if the B.C. Liberal Party is ever in office.”

But he said Monday all his remarks on eliminating the tax refer to Clark’s changes; the original tax on the banks will remain.

Suromitra Sanatani, head of the Canadian Federation of Independent Business, said no party has indicated the tax is coming off the banks. “This old saw about going after the banks is such electioneering grandstanding. I hope people are intelligent enough to see through this.”