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Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
Balanced Budget 2014  March 7 Mike de Jong
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Balanced Budget 2014 March 7 Mike de Jong

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  • These are the guiding principles upon which the LNG Tax was designed. Much of the natural gas that would be used for LNG is B.C. gas and British Columbians should receive a fair return for the resource. The tax was designed to help ensure that it is not an impediment to LNG investment in the province. By consulting with LNG proponents and introducing legislation in the fall of 2014, government is:Providing taxpayers with certainty about the tax regime that will apply to the LNG industry; andHelping to ensure the consistent treatment of LNG taxpayers.
  • The tax is an income tax that applies to income from the liquefaction of natural gas in BC.The tax is not a royalty because the Natural Gas used in LNG facilities may be extracted outside British Columbia.The tax is not an export tax - it will apply to both LNG sold for domestic use or for export.The tax will apply on a facility by facility basis. Income Tax: The tax needed to be an income tax: The tax could not be royalty because the Natural Gas used in LNG facilities may be extracted outside British Columbia.The tax is not an export tax - it will apply to both LNG sold for domestic use or for export.The tax was designed to generally follow the Federal/B.C. income tax concepts with some key differences: It applies to taxpayers who have income from the liquefaction of natural gas.The tax will apply on a facility by facility basis. Items included in the capital investment account are fully deductible whereas under income tax many of these items are deductible over time as depreciation. Tax on Net Income:Taxpayers are any legal entity that earns income from the liquefaction process. The 7 per cent tax rate is applied to Revenue less Expenses after deduction of the Capital Investment Account. Tax on Net Proceeds:While the taxpayer is deducting its Capital Investment Account, it pays a tax on net proceeds of 1.5 per cent, generating revenue during the time the taxpayer is deducting its capital investment account.Tax Paid Pool:The tax paid pool is the 1.5 per cent tax paid to date less any amounts previously deducted from the 7 per cent tax. The tax paid pool cannot reduce the tax below an amount that is equal to 1.5 per cent of net proceeds in the current year. The LNG Facilityincludes:Gas purification and liquefaction systems together with storage tanks and marine loading systems. Support functions for the liquefaction process such as control rooms, material and equipment warehousing, maintenance shops and infrastructure facilities.
  • The LNG Income Tax is a seven per cent tax that applies to income from the liquefaction process afterplant and other costs have been deducted. While taxpayers are deducting their investment costs, they will pay tax at a 1.5 per cent rate on net proceeds - the difference between current year revenue and current year expenses.Once the taxpayer has fully deductedits investment costs, a tax rate of seven per cent applies on net income. However, the taxes paid at the initial low rate of 1.5 per cent can be used as a credit against the taxes paid at seven per cent in subsequent years. This effectively phases in the seven per cent tax rate so that once the taxpayer has fully used its credit for taxes paid, the effect of the proposed tax structure would be a seven per cent tax on net income from the liquefaction of natural gas.This slide provides an illustration of how the tax works. The example assumes net proceeds of $3.5 billion (revenues of $7.5B and expenses of $4B) in each year over the ten year period. It also assumes that the capital investment account is $12.5 billion at the start of Year 1.During the first 3 years of operation, the owner of the facility pays about $50 million in tax each year. This is the 1.5 per cent tax that applies to net proceeds of $3.5 billion. Each year during this period the Capital Investment Account is being deducted by an amount that is equal to the value of net proceeds in that year. By Year 4, the full amount of the Capital Investment Account has been deducted and the seven per cent rate starts to apply. However, in Year 4 and Year 5, the taxpayer can use the $150 million that it paid in the first three years to offset the seven per cent.By Year 6 the credit for the tax paid in years 1, 2, and 3 is used and the full seven per cent tax applies to net income of $3.5 billion.
  • The BC government reviewed the tax and royalty regimes of key competitor jurisdictions, such as Australia and the US. It has also consulted with proponents and received their perspectives. The government retained independent consultants to examine and assess the competiveness of the B.C. framework, which includes the proposed B.C. LNG Income Tax, with comparable frameworks in those other jurisdictions.The comparison looked at the totalof federal, provincial and local taxes and royalties during a 20 year operating period for an 82 million tonne per annum (MTPA) scenario - equivalent to about five LNG plants.The low revenue scenario assumes lower LNG prices and higher capital construction costs (overruns); the high revenue scenario assumes higher LNG prices and lower construction costs. Independent consultants find that overall, B.C.’s proposed LNG fiscal framework (that includes the proposed LNG Income Tax) is competitive.This is not a revenue forecast for B.C. It is simply an analysis, based on assumptions, that allows the consultants to evaluate the competitiveness of B.C. relative to other jurisdictions
  • Transcript

    • 1. 153 136 165 (255) (88) 100 110 84 59 175 June Update 2013 Q1 Forecast Q2 Forecast Taxation revenue Other revenue changes Lower ministry spending Lower tax transfers Prior year liability adjustments Other expense changes Q3 Forecast $ millions Surplus increased by $10 million since Second Quarterly Report 2013/14 updated forecast 1
    • 2. Balanced Budgets in 2013/14 2
    • 3. 1.4 2.0 2.3 2.5 2.5 2.5 1.4 2.3 2.7 2.7 2.7 2.7 0.0 1.0 2.0 3.0 4.0 2013 2014 2015 2016 2017 2018 Ministry of Finance Economic Forecast Council BC real GDP per cent change BC’s economic outlook 3
    • 4. 2,180 2,220 2,260 2,300 2,340 BC employment (000s, sa) Source: Statistics Canada 201020092008 2011 2012 Jul 2008: 2,276 Mar 2009: 2,204 Jan 2014: 2,317 2013 BC Employment 2014 4
    • 5. Source: Statistics Canada BC retail sales ($ millions, sa) 2010 2011 Jun 2008 4,968 201220092008 Mar 2009: 4,406 Nov 2013: 5,373 2013 BC retail sales 5
    • 6. Source: Canada Mortgage and Housing Corporation *Historical average is from January 1990 to December 2013 Mar 2009: 11,600 Sep 2008: 40,000 BC housing starts (annualized units, sa) 2008 2009 2010 2011 2012 Dec 2013: 32,300 2013 BC housing starts Hist avg* = 28,900 6
    • 7. Source: BC Stats BC merchandise exports ($ millions, sa) Sep 2009: 1,923 2010 2011 201220092008 Oct 2008: 3,068 Dec 2013: 2,908 2013 BC exports 7
    • 8. US 46.8% Japan 12.1% China 19.6% Other Asia 9.1% Other 12.4% US 88.4% Asia 6.0% Other 5.6% US 78.4% Asia 5.3% Other 16.3% Source: BC Stats Average annual share of international goods exports by province, 2013 (per cent) BC Alberta Ontario BC’s trade diversity 8
    • 9. US 69.8% Japan 12.8% China 2.3% Other Asia 4.3% Other 10.8% 20132001 US 46.8% China 19.6% Japan 12.1% Other Asia 9.1% Other 12.4% Source: BC Stats Annual share of BC’s international goods exports Over 40% of BC’s exports now go to Asia 9
    • 10. • For the next two years, as was the case this year, a very thin margin for forecast error • Ongoing global economic uncertainty Risks to the fiscal plan 10
    • 11. 3 year fiscal plan Revenue ……………………………………………………………………………………..43,950 44,800 46,032 47,464 Expense …………….....…....………………..…………………………………………..(43,675) (44,116) (45,201) (46,113) Contingencies ….....…....……………..…………………………………………..- (300) (400) (575) Surplus (deficit) before forecast allowance ………………………………………………275 384 431 776 Forecast allowance …………………………………………………………..(100) (200) (225) (325) Surplus (deficit) ........................………………………………………………………………………….175 184 206 451 Plan 2015/16 Plan 2016/17($ millions) Budget Estimate 2014/15 Updated Forecast 2013/14 11
    • 12. AAA AA+ AA AA- A+ A A- BBB BB B- CCC BC  Canada  Germany  United States*  France*  Japan*  Italy*  Greece**  Credit rating comparisons *Credit rating downgrades between 2009 and 2013. ** Greece upgraded in December 2012 from Selective Default. Source: Standard and Poor’s 12
    • 13. Province AAA AA+ AA AA- A+ A British Columbia  Alberta  Saskatchewan  Manitoba  Ontario  Quebec  New Brunswick  Nova Scotia  Prince Edward Island  Newfoundland and Labrador  Canada  Credit rating comparisons Source: Standard and Poor’s 13
    • 14. Debt-to-GDP comparisons Source: 2013/14 forecast from most recent Budget document for each jurisdiction. 14
    • 15. • Comprehensive borrowing strategy – Diversification into global markets – First-mover into emerging Chinese market • Balance sheet management – Cash surpluses in government organizations – Investment management – Capital expenditure constraints Strategic debt management 15
    • 16. • Estimated $1.6 billion in excess cash on Government’s balance sheet • Encouraging excess cash held by government organizations to be deposited with Provincial Treasury until needed – Cash remains property of government organizations – Provincial Treasury uses it for debt management purposes • Core Review initiative to induce further voluntary participation in Provincial Treasury deposit program – $18 million in savings achieved for 2014/15 Cash management 16
    • 17. Taxpayer-supported debt to GDP ratio (per cent) Budget 2014 fiscal plan Return to balanced budgets Declining debt ratio 17
    • 18. $ billions Revenue – 2.6% average annual growth Expense – 2.2% average annual growth Fiscal plan period Maintaining a balanced budget 18
    • 19. BC public sector compensation base Health 168,924 44% Education K-12 82,348 21% Public Service 32,942 8% Universities 32,524 8% Crowns 21,473 6% Post Secondary 29,380 8% Community Social Services 18,390 5% Employees 385, 981 Data as per PSEC’s Quarterly Report published February 18, 2014 representing unionized and non-unionized employee totals in each of the seven sectors. 19
    • 20. Keeping taxes low for BC families $9,947 $9,987 $12,805 $12,849 $12,983 $15,392 $15,987 $16,339 $16,523 $18,048 BC AB SK ON NL NB MB PE NS QC Lowest Provincial Personal Income Taxes for Individuals Earning up to $121,000 - 2014 Tax Year 20
    • 21. • BC Training and Education Savings Grant – $1,200 per child born on or after January 1, 2007 • BC Early Childhood Tax Benefit – $55/month per child under six, starting April 2015 • Property Transfer Tax Relief Investment in families 21
    • 22. • $350 million increase in funding over 3 years for: – Income Assistance – Community Living BC – Children and youth with special needs – Legal Aid Support for the vulnerable 22
    • 23. Three-year health funding $385 2013/14 2014/15 2015/16 2016/17 3-year total increase: $2.5 billion $16,551 $16,936 $17,856 $17,402 Restated June Update 2013 base ($ millions) $851 $1,305 23
    • 24. • Capital investment in support of skills training continues – Camosun College Trades Renewal – Okanagan College Trades Expansion – NorKam Secondary Trades and Technology Centre of Excellence Skills infrastructure investment 24
    • 25. • Distant Location Tax Credit Extended to Capital Regional District • Scientific Research and Experimental Development Tax Credit Extended Three Years • Transitional Tax Relief for Credit Unions Targeted tax measures 25
    • 26. Tobacco Tax Increase 26 40 cents
    • 27. LNG taxation 27
    • 28. LNG taxation 28
    • 29. LNG taxation 29
    • 30. LNG tax competitiveness 30

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