Brian Lee Crowley and Charles Cirtwill, of the Atlantic Institute for Market Studies, make a good point when they state that eliminating New Brunswick’s corporation tax would stimulate provincial economic development (“Nix Corporate Income Tax” Aug. 2).
By lowering corporate taxes, our provincial government would raise monetary returns on capital and stimulate investment. Zero corporation taxes would send a positive signal to prospective businesses about locating here.
However, the two economists overstate their case, by suggesting all New Brunswick corporations face zero taxation. Most academics realize it’s only export industries which drive economic development.
Our government need only give such a large tax break to exporters.
Consider the many fast food outlets run by corporations – an industry which sells its product to domestic consumers. If New Brunswick still maintains its 13 per cent tax rate on large-corporation income for the fast-food industry, the sector would not suffer appreciably, since it does not “compete” with out-of-province businesses.
Consider now two New Brunswick exporters: New Brunswick’s forest industry and Ganong’s chocolates.
If the provincial government reduced its corporation income tax rate from 13 to zero per cent, for these two sectors, both could reinvest some of the tax savings and be in a stronger position to compete with out-of-province exporters. And, as said, prospective exporters would consider moving operations to New Brunswick.
In 2007-08, New Brunswick collected $267-million in corporate taxes. If our province still taxed companies catering to in-province “consumption” (like fast food restaurants), the province would still receive about $135-million.
Department of Economics, UNB