A call for major tax reform in Atlantic Canada by former Liberal premier Frank McKenna has the endorsement of economists. Now comes the hard part: securing public support.
While most economic gurus agree with the benefits of cutting personal and corporate taxes – by boosting consumption taxes – they admit the idea will prove a hard sell with voters.
As Mount Allison University economist Craig Brett put it: “At first glance it’s like Robin Hood in reverse. (It looks like) you’re taking from the poor and giving to the rich.”
In a speech in Halifax on Thursday, McKenna said the Atlantic provinces must move together in reforming their tax systems – to better compete on the global stage. McKenna, now deputy chair of the TD Bank Financial Group in Toronto, said consumption taxes should be raised – to help off-set cuts to personal, capital and capital taxes.
“That would give you a very competitive playing field – one that would create more jobs, more opportunity, more wealth and better services,” he said.
“While individually we can make some incremental progress, we could make so much more progress together.”
According to Brett, McKenna’s suggestion is embraced by most economists and is the “economically-sound thing to do.”
Compared to similar countries, Canada raises a low portion of its revenues from consumption taxes, he said. Less than 25 per cent of federal funds are collected through consumption taxes. Denmark, for example, brings in more than 30 per cent of its funds through consumption taxes.
“The global picture would suggest there is room to do more,” Brett said.
Yet the federal Conservative government has, in fact, trimmed two percentage points from the country’s general sales tax. Brett said the optics of savings at the cash register can trump larger economic benefits. “The visibility factor really does make sales taxes more politically charged here,” he said, noting corporate tax cuts rarely enthrall the public.
Charles Cirtwill, of the Atlantic Institute for Market Studies, a Halifax-based think-tank, has long supported a boost to sales taxes, in exchange for personal and corporate cuts.
He says the federal reductions could be made-up with a hike to the local HST. Like McKenna, Cirtwill said such reform is essential for the region to compete with European countries and booming Asian nations.
“It’s not enough to catch up to the national average, we have to be far more aggressive,” he said.
But Cirtwill agrees it’s a tough sell. The increase in sales tax must be linked to a reduction elsewhere, and be sold as a real benefit for the average person, he said. Cirtwill said New Brunswick has an opportunity to lead on the issue.
The Liberals have promised a major overhaul of the tax system, to begin this year with the launch of a discussion paper on taxation reform.
Finance Minister Victor Boudreau has endorsed the idea of lower corporate and personal income tax levels, despite boosting taxes across-the-board in 2007.
If New Brunswick proceeds with reductions, Cirtwill said, the other Atlantic provinces will be forced to follow.
But Boudreau has shown hesitation in the past. Late last year, he retreated from a proposal that would have negated the second federal cut to the HST.
He said the move would have kept $110 million in government coffers – money he promised to pump into other tax cuts. But in the end, the shift failed to arrive.