British Columbia will haul in more tax revenue from the sale of homes this year than its combined revenues from the province's historical economic foundation of mining, energy, forestry, Crown land tenures and natural gas.
The first fiscal update on this year's budget, released on Thursday by Finance Minister Mike de Jong, forecasts the property transfer tax will bring $2.2-billion into the treasury, a massive increase from the $1.2-billion predicted in the budget introduced in the spring. Direct revenues from the province's top five resources are forecast to total $1.8-billion.
Skyrocketing real estate sales have slowed dramatically since a 15-per-cent tax was imposed in August on purchases by foreign buyers in the Vancouver region, and that is expected to reduce the province's take from the property transfer tax next year. In the current fiscal year, however, the housing frenzy has paved the way for a good-news budget on the eve of the next election.
"Suffice to say, it's been a pretty good year," Mr. de Jong said, his treasury awash in higher corporate and personal income taxes in addition to the spike in revenue from the property transfer tax. In all, provincial revenues are $2.5-billion ahead of projections in the first fiscal quarter.
Economist Jock Finlayson, executive vice-president of the Business Council of British Columbia, cautioned that the province's economic growth, which is leading the country, is heavily reliant on a housing boom that is susceptible to a downturn.
"We estimate the residential real estate complex is generating up to 35 to 40 per cent of all economic growth in the province," Mr. Finlayson said in an interview. That includes new home construction, the renovation industry, and the spin-off industries of intermediaries – lawyers, realtors, home inspectors and others – who profit from the turnover of real estate.
"For the B.C. government, it is producing something of a revenue bonanza. The question is, is it healthy in the long run to be dependent on it, and the answer is no, because you are vulnerable to a painful correction."
With the revenue, the province will pay down its debt and top up the "prosperity fund" that was supposed to collect the benefits of the as-yet-unrealized liquefied natural gas industry. In addition, the province will funnel $500-million into a fund to help tackle the shortage of affordable housing that has accompanied the real estate boom.
The province is banking on its new tax on foreign buyers to cool the market, and forecasts a drop in property transfer tax revenues next year. However, Mr. de Jong said it is too early to determine just how the tax will change the market. He will release data next week based on August sales, but said those numbers will record only the immediate chill the tax produced, rather than any trend.
Economists are already tracking a marked drop in the real estate market since the tax was introduced.
"Vancouver has quickly shifted from one of the strongest markets to the weakest in recent months," noted TD Economics, adding that the overheated market turned "ice-cold" in August. BMO Economics also reported a cooling effect: "Sales in Vancouver slid nearly 19 per cent from the prior month (seasonally adjusted) as the 15-per-cent transfer tax imposed on non-resident buyers deterred investors, and likely also caused domestic buyers to step back and observe the fallout."
NDP finance critic Carole James said the growing surplus, which also reflects growth in employment, consumer spending, and higher-than-expected returns on corporate and personal income tax, should lead to investments in education and social services. "It's a little bit ironic," she added, "that the money coming from the property transfer tax is an issue created because this government did nothing to address the affordability crisis for all those years, and now they are taking a portion of that and putting it into affordable housing. But they created the mess."