New Brunswick forged ahead on Tuesday with a “courageous” plan to slash taxes that will drive the province deeper into deficit as the economy continues to contract.

The $380-million scheme, to be phased in over the next four years, will push the province’s corporate income tax rate to the lowest in the country while shedding two brackets from the personal income tax system.

“Historic times call for historic measures,” Liberal Premier Shawn Graham said.

“We felt it was imperative that by transforming the taxation system, we’d create an environment that would allow our young New Brunswickers to remain in the province and create an environment where [those] who have left would return home.”

The program’s keystone is a simplification of the personal income tax structure, moving from a four-rate, four-bracket system to two rates of 9% and 12% by 2012.

Corporate income tax rates will fall to 8% from 13%, and other changes will be aimed specifically at small businesses, including a move to increase the eligibility limit to $500,000 from $400,000.

Changes to the personal income tax system will save individuals $124-million in the first year of the plan, while business will see about $20-million in relief. Those figures will rise to $336-million and $44-million by the fourth year.

Mr. Graham said the new structure “will position New Brunswick ahead of many other jurisdictions.

“When the recovery comes, we’re going to be able to rebound much faster,” he said.

Mary Webb, senior economist with Scotia Economics, deemed the plan “very courageous.”

The changes will lay a stronger foundation for provincial growth once the economic downturn begins to subside, she said, pointing to the benefits of targeting all industries with the general corporate tax rate reduction.

“Trying to pick winners and losers is very tough in the current environment, and so they’re essentially conveying this message that all industry is welcome,” Ms. Webb said.

Kevin Gaudet, federal director of the Canadian Taxpayers Federation, said his organization was pleased to see New Brunswick moving toward a flatter tax system similar to Alberta’s, and called the budget “one of the most fiscally prudent” the country has seen in some time.

“Other provinces should be paying attention,” Mr. Gaudet said.

His comments come as Quebec and Ontario both gear up to deliver their budgets in the coming days, though neither province has indicated there will be any tax relief on the agenda.

New Brunswick’s $7.8-billion budget package adds almost $1-billion to the province’s net debt, while the projected deficit for 2009-10, including $300-million tied to pension-plan losses, comes in at $740.9-million.

The provincial government outlined a plan to return to balanced budgets by 2012-13, a goal Mr. Graham says can be achieved by making “difficult choices” that include curtailing spending in the public service.

To that end, the government plans to cut 700 public service jobs and freeze wages for two years, a move expected to save close to $200-million.

Bruce Fitch, finance critic for the opposition Progressive Conservatives, accused the government of talking out of both sides of its mouth on the employment front.

“One minute they talk job creation, and the next minute they say we’re going to cut 700 positions from the civil service,” Mr. Fitch said. “There’s a bit of smoke and mirrors.”

But according to Charles Cirtwill, executive vice-president of the Halifax-based Atlantic Institute for Market Studies, the budget puts New Brunswick on the right track to achieve its goal of self-sufficiency by 2026.

“It’s unprecedented in Atlantic Canada and probably unprecedented in this current economic environment that instead of keeping taxes high and throwing a bunch of money at infrastructure or business subsidies, they’ve actually taken a step of reducing their income stream, reducing their public service and investing in people,” Mr. Cirtwill said.