British Columbia’s budget can most appropriately be called a status quo budget. It projected surpluses in each of the next three years, spending was increased in a number of high-profile areas, and little was offered in the way of tax relief.

Indeed, from the government’s perspective, everything is running smoothly -- economic growth is strong, as is employment growth, and unemployment remains low.

While B.C.’s economy has certainly staged a dramatic turnaround in the past few years, the government’s goal of making B.C. a global powerhouse of innovation, inspiration and wealth creation is not complete. Perhaps, then, the most disappointing aspect of the 2006 budget was the lack of a long-term strategy aimed at improving economic prosperity.

In her budget speech, Finance Minister Carole Taylor laid out what is needed: If we want our economy to remain strong, it’s important to keep attracting people and investment to British Columbia. She went on to state the importance of keeping taxes competitive.

Taylor is right, the key to increased prosperity and growing incomes is to improve the incentives for British Columbians to work, invest and undertake entrepreneurial activities. To that end, the budget should have addressed the disincentives created by B.C.’s personal income and business taxes, especially when compared with our closest competitor and neighbour, Alberta.

For starters, B.C.’s personal income tax system remains highly uncompetitive compared with Alberta’s single-rate tax. Specifically, our middle and upper personal income tax rates range from 11.7 to 14.7 per cent -- significantly higher than Alberta’s 10 per cent. The budget should have reduced these rates and moved towards a single rate.

B.C.’s effective tax rate on capital investment (38.8 per cent) is also significantly higher than that in Alberta (31.8 per cent). A portion of this difference results from sales taxes levied on business inputs. To further close this gap and improve the incentives for capital investment, the budget should have eliminated the sales tax on business inputs and reduced B.C.’s general corporate income tax rate, which remains higher than that in Alberta. In addition, the budget should have eliminated the corporate capital tax on financial institutions as Alberta did in 2001.

Unfortunately, much of the fiscal room needed to implement these important tax reductions was taken up by increases in government spending. Total provincial spending is up from $30.7 billion last year (2004-05) to $32.7 billion this year (2005-06), an increase of 6.5 per cent. In addition, the government failed to adhere to its original spending plan laid out in the September Update released just six months ago.

The September Update proposed to restrain spending increases to 1.0 per cent next year (2006-07) and 1.9 per cent the year after (2007-08). Tuesday’s budget increased those projections to 3.7 per cent for 2006-07 and 3.6 per cent for 2007-08.

While there was a host of spending announcements in this budget, such as the $421 million for increased services to children, an extra $301 million for health care and $400 million for skills and training, the majority of new spending went to increased wages and benefits for public sector workers.

Over the next four years, the government plans to increase public sector wages and benefits by $4.7 billion. Unfortunately for average British Columbians, this spending will do nothing to improve or expand government services such as the introduction of new diagnostic or surgical technologies in health care, or increased policing.

Aside from a lack of vision, the $5-billion increase in provincial government debt contained in the budget should be cause for great concern. While the government’s operating budget is balanced, the new debt is the result of increased capital spending which, in accordance with accounting principles, is not included in the government’s annual expenditures.

Consequently, a larger portion of provincial revenues will be devoted to interest payments in each of the next three years. In fact, seven cents of every dollar in government revenue will go to pay interest by 2008-09.

The increase in B.C.’s debt stands in stark contrast to the situation in Alberta, where the government has aggressively paid down the debt to the point where the province is now debt-free.

The 2006 B.C. budget should have laid the foundation for making B.C. the most competitive and prosperous jurisdiction in North America. To that end, significant personal and business tax relief should have been the priority.

For the future prosperity of all British Columbians, let’s hope the government rethinks its priorities and returns to implementing prosperity-enhancing policies.