In a response to the legislature’s committee on tax reform, Finance Minister Victor Boudreau announced that his spring budget would include broad and gradual reductions in personal and corporate income taxes between 2009 and 2012.
He said the idea of a carbon tax is off the table, but the possibility of an HST increase, of two per cent or more, is not.
The introduction a flat income tax rate, set at 10 per cent or another target, is also undecided.
But Greater Moncton Chamber of Commerce chairman Terry Malley said it is all too little, too late, to protect the province’s economy from the ravages of the global economic crisis.
“Three or four years is not when we need some action. We need it now. In three or four years, this recession will be over, things will be moving again. We need action now to weather the storm,” said Malley, noting concern over the HST.
“I think they need to make some decisions and live with them. They seem to be volleying things around and seeing what reactions they get.”
Kevin Gaudet of the Canadian Taxpayers Federation said government is moving “gingerly” in the positive direction of simpler, flatter, and lower taxes, but he said the reforms should happen now.
“It is difficult for anyone to understand why governments only see downturns as a time to spend like drunken sailors, instead of a time to provide meaningful tax reforms and tax relief.”
Boudreau said government would be moving to simplify the tax system by either reducing the number of brackets from four to two, or a flat tax, or another combination.
He said the province would reduce corporate income tax from 13 per cent to less than the 10 per cent mark that the federal government has asked provinces to meet.
Boudreau said the reforms will provide significant tax savings once they are finalized in the spring budget.
“I am going to avoid an HST increase as much as I can, but we had to leave it as an option on the table because we heard loud and clear that New Brunswickers want tax relief,” said Boudreau.
“So we are going to provide them with tax relief, but tax relief comes at a cost to government; it means we are going to have to make up that revenue. Readjusting the HST is one way.”
Boudreau said the overall aim of the tax cuts will be to leave more money in New Brunswickers’ pockets, but he was less clear when asked whether the tax reforms would bring taxes lower than 2006 rates — before the Liberal tax hike.
Conservative Finance critic Bruce Fitch said Boudreau’s vague message will do nothing to help the embattled economy.
“I would think the economy is aching for some clear direction from this government,” said Fitch.
“That’s why I called it a cappuccino report with too much froth. I thought there would be something strong, but we took a sip and all we had was bubbles and hot air.”
Malley said he was concerned that the Liberal government’s tax reductions won’t even compensate for the tax increases that it introduced in its first budget.
But Charles Cirtwill, of the Atlantic Institute for Market Studies, said Boudreau’s tax plan could return more money into taxpayers wallets than before the tax increase, and position New Brunswick as one of the most competitive provinces in the country.
“I think the Liberal government when it first came in and raised those small business tax rates did the province and itself some pretty significant damage,” said Cirtwill.
“It is clear that this returns that and much, much more.”
Cirtwill said the tax plan is the best stimulus package he has heard of since the $60 billion tax cuts announced by the Harper government last year.
“I think this is the strategy that has worked time and time again where it has been tried,” said Cirtwill, listing examples as varied as Ireland, Georgia and Michigan.
“It is a heck of a lot better than running around the countryside throwing money at things that you are then going to have to pay to maintain,” said Cirtwill.
Cirtwill said every extra dollar that is pumped into the economy through tax cuts helps the economy rebound in tough economic times.
“All we have to do is take a look around at the surprisingly robust spending consumer numbers we have in November and December to see what tax cuts can do to stimulate an economy even in the face of a global crisis,” said Cirtwill.
Cirtwill said the Made-in-New Brunswick plan will complement the federal tax reforms well and place New Brunswick ahead of the rest of Atlantic Canada.
Andreea Bourgeois of the Canadian Federation of Independent Business said the plan is still too vague to decide whether the “glass is half empty of half full.”
“We heard some good news that the government seems to be firm in continuing with significant reduction on the personal side and corporate side,” she said.
“There is a little bit more vague feeling around the HST.”
Bourgeois said the final outcome has to be a lowered tax burden, but she said she will need more details before her membership can determine whether the tax reforms can stimulate the economy.
Université de Moncton economist Pierre-Marcel Desjardins says that government will eventually need to raise the HST if they want to significantly cut taxes and avoid chronic deficits once the economy rebounds.
“In the short term, with the economic recession under way, they may accept to have a deficit, then it would make sense to reduce income tax and not necessarily compensate with a consumption tax increase,” said Desjardins. “But in the medium- to long-term, if they want to make a significant impact with respect to reducing income tax, there is only one way they will be able to balance the books without increasing the HST.”
Desjardins said a HST increase could only be implemented if it was complemented by programs to protect low-income earners who wouldn’t be benefitting from the income tax cuts in any event.