QUEBEC CITY, Que. – Atlantic premiers may be watching as New Brunswick’s Liberal government attempts to jump out ahead of the pack on taxation, but they are not necessarily prepared to follow its act.
Newfoundland and Labrador Premier Danny Williams cut taxes significantly over the past two years, and committed to keeping personal income taxes in his province the lowest in Atlantic Canada during his last election campaign.
However, Williams said he may not be willing to compete with New Brunswick if it goes ahead with one of the two proposed options currently being studied, which would either deliver an across-the-board rate of 10 per cent or a two-rate system that would see income under $35,000 taxed at nine per cent, while anything above that amount would be taxed at 12 per cent.
“We won’t necessarily chase them if they come up with a good model and it works for them. We have had two major reductions of course in the last two years, so there are other areas where we can focus our attention,” said Williams.
“Actually, I had a chat with Premier Graham, they’re looking at a massive tax reform actually, but it’s still in the formative stages so we’ll have to wait and see where it goes,” he said.
By 2009, Newfoundland and Labrador’s tax rate will vary from 7.7 per cent for earners below $30,215, 12.8 per cent for earners between $30,216 and $60,429, and 15.5 per cent for earners over $60,429.
A new carbon tax, and a two per cent HST hike are part of the proposed tax formula that the New Brunswick discussion paper says would raise $350 million in new revenues to help offset the $500 million cuts to personal and corporate income tax proposed in the paper.
New Brunswick’s Liberal government broke an election promise and raised taxes across the board in its first budget.
Prince Edward Island Premier Robert Ghiz said his province is also waiting to see what comes out of New Brunswick’s tax review, which is currently in the consultation process.
“We’ll wait and see what happens in New Brunswick and see if it’s a more beneficial route to take, but at the end of the day we want to make sure we are offering the best possible tax regime for Islanders.”
Nova Scotia is also planning a tax review similar to what is happening currently in New Brunswick, although it is unlikely that Nova Scotia will follow New Brunswick’s lead by presenting a plan to citizens that includes a carbon tax.
N.S. Premier Rodney MacDonald has been extremely critical of the impact a carbon tax proposed by the federal Liberal party could have on the people of his province, who are heavily reliant on coal-fired power plants.
The Canadian Federation of Independent Business has encouraged the three Maritime provinces to review taxes in a concerted effort.
CFIB spokeswoman Andrea Bourgeois said New Brunswick has a leadership role to play as the entire region works to become more competitive with central and western Canada.
“Since the day New Brunswick announced this tax review, we knew every other province would look to us as a leader,” she said, noting how the TILMA trade agreement between British Columbia and Alberta has opened markets and cut down on red tape.
“The truth is we are a small region and in order for us to advance, we need to collaborate strongly.”
While P.E.I. is not looking at a formalized review of its tax system, Ghiz says more collaboration and a common front on taxes could help the region.
“It’s definitely worth exploring,” he said, noting that tax changes are not always easy to implement.
“Change is always difficult, everybody says “our tax structure has to change,” but as soon as you put out an idea for change, there is always going to be someone saying no that is not a good idea.”
Bourgeois said the message coming from businesses and individuals is that a tax shift is not enough, and that the province must move ahead with an actual reduction in the overall tax burden.
“This is the only way of having tax reform, if it is only tax shifting it is not going to move us forward, and it creates winners and losers,” she said.
Bourgeois added that business people are overwhelmingly opposed to the carbon tax that has been proposed by the Liberal government.
“The overwhelming majority said no to an additional fuel tax, because this is what it’s going to be. There is no commitment that the money collected from a carbon tax will go toward any kind of environmental initiative,” she said.
She noted that many business people are wary that the so-called tax shift will not cut income taxes as quickly as they raise consumption taxes, such as a two per cent hike of the HST and the introduction of a carbon tax.
Premier Shawn Graham says other provinces are taking notice of New Brunswick’s plans to overhaul its tax system as a means of stimulating economic growth.
“I have to say there was a great deal of interest amongst my colleagues on the position paper that New Brunswick has submitted to the people of our province on how we can use the tax system to grow a bigger pie,” he said.
“We looked at Alberta which has a flat tax system. We recognized today that four personal income tax rates is restrictive to growth, that’s why we suggested looking at progressive rate with two brackets, or looking at a flat tax. All options are on the table, the bottom line is personal income tax rates will be coming down.”
Charles Cirtwill, of the Atlantic Institute for Market Studies, says the Maritime provinces could have saved money upfront by participating in a common review.
Cirtwill said tax competition may be the best way to improve the tax climate in the entire region, and he says New Brunswick can lead the charge.
“From the perspective of best possible tax for individual taxpayers, I would say the best thing is for New Brunswick to move forward and Nova Scotia and P.E.I. to sit on their hands and whine about being special,” he said.
“The other two will have no choice but to follow along eventually and when they do they will have to go further.”