The british columbia government’s 2006 budget is being uncommonly cautious, particularly for an economy that is riding a global wave of high commodity prices and enjoying a building boom enhanced by its preparation to host the 2010 Winter Olympics.

The prudent bookkeeping meant there was little room for tax cuts, even though there is no shortage of cash.

In fact, the Feb. 21 budget unveiled in Victoria by Finance Minister Carole Taylor — who wore a new pair of $600 Gucci pumps for the occasion — called for a surplus of $1.5 billion in the fiscal year ending March 31, and additional annual surpluses totalling $1.15 billion over the next three fiscal years.

For additional safety, Taylor’s budget also included “forecast allowances” totalling $1.8 billion over the next three years to help protect its fiscal plan from revenue risk such as a sudden drop in natural gas or other commodity prices.

One possible predicament facing Premier Gordon Campbell’s government comes from its workforce, in which about 90% of public-sector labour contracts expire this spring. The 2006 budget has set aside $6 billion for wage settlements, but contract talks are just beginning.

On the tax front, Campbell’s Liberals failed to deliver on a one-percentage-point cut to the province’s 7% provincial sales tax, for which the province’s retailers had lobbied hard. Instead, it chose a number of minor targeted cuts, including a promise to introduce an enhanced dividend tax credit in conjunction with the proposed federal reduction in personal income taxes on certain dividends that was announced Nov. 23, 2005.

Following the federal lead to increase the dividend gross-up to 45% from its current 25%, B.C. will also introduce a new dividend tax credit for income subject to the 45% gross-up. “Once all the details of the federal measure are known, the province will finalize the design of its dividend tax credit,” the budget papers said.

The budget also eliminated the PST on labour charges for maintaining or modifying computer software, while expanding and clarifying PST exemptions for machinery and equipment. The exemptions now include any businesses that primarily provide services to manufacturers that are also eligible for the tax break.

Anyone who purchases or leases a high-end vehicle also received a tax break. The budget increased the purchase-price threshold for B.C.’s surtax on passenger vehicles to $55,000 from $49,000.

Small businesses

As well, the budget increased the small-business venture-capital tax credit program to $25 million from $20 million. Under the program, taxpayers can receive a credit of 30% of their investment in eligible small businesses, or in venture-capital corporations that in turn invest in eligible small businesses, up to an annual limit.

The tax changes, which included a 22% increase in B.C.’s homeowner grant program to $570 a year, will total $733 million in the next four years.

Business reaction to the budget was generally positive, with most support focused on a major initiative providing an additional $400 million for increased training and skills development in the next four years. In its post-budget analysis, the Chartered Accountants of B.C. said the skilled worker shortage is “the largest challenge currently facing businesses in the province.”

The Chartered General Accountants of B.C. , however, was disappointed that the new budget did not include a long-term debt reduction plan. The Canadian Taxpayers Federation said the budget “missed the mark completely” for not doing more to curb spending and reduce debt.

The Vancouver Board of Trade, however, which always issues a report card on government budgets, gave the Campbell government an overall “A” for what it termed “good management” of the province’s finances. IE