Taxpayers throughout Atlantic Canada should be ecstatic that New Brunswick has inaugurated this year’s budget season. While not perfect, New Brunswick’s budget includes a “Plan for Lower Taxes in New Brunswick” that will leave St. Patrick’s day revellers in every neighbouring province (and almost all the others too) green with envy.
Stated simply, by 2012, New Brunswick will have the lowest corporate tax rate in the country (unless the rest of us elect to keep pace). This year they will be tied with the largest small business tax limit (at $500,000), and again by 2012, only B.C. and Alberta will have a substantially more attractive personal tax system. Absent significant rethinking by most other provinces in Canada and especially by the rest of the Atlantic Provinces, New Brunswick will be the place in Canada to live, work, raise a family, start and invest in a business. Now that is economic stimulus.
New Brunswick appears to have recognized what few others have, that economic stimulus need not pass through government hands first. All economic stimulus is funded by the taxpayer. Stimulus in the form of infrastructure and corporate subsidies always see a little taken off the top as government makes payroll for the people collecting the money and issuing the cheques. Stimulus left in the hands of the taxpayer is both more immediate and more local. It will be spent at your corner store, your neighbour’s hardware store, the hair salon your brother owns and the garage his wife manages.
As I said, however, this plan is not perfect. The basic personal exemption is not set to rise nearly high enough or fast enough. People making less than $20,000 and families making less than $30,000 will still be paying N.B. taxes in 2012. A higher basic personal exemption is a better, more effective, more affordable anti-poverty tool than is a higher minimum wage. A higher minimum wage is paid by businesses and their consumers, it kills jobs and it increases the income taxes government collects. A higher basic personal exemption is supported by all of us, it encourages business to create jobs and allows people to take those jobs, because the money they earn, they keep.
Even with fewer and lower tax rates, the N.B. tax system will still be disproportionately dependent on job-killing personal income taxes. Consumption taxes will be underutilized. Most economists agree consumption taxes are “better” taxes.
But, ignoring the economists for a minute, had the provincial government gone ahead with an increase in the Harmonized Sales Tax by two points, they could have increased the basic personal exemption further and faster, they could have funded a provincial HST rebate, they could even have considered matching the federal Universal Child Care Benefit. All of these things would have helped the least advantaged among us in far more meaningful and far more immediate ways. But the savings on offer are real and significant nonetheless, and will do far more for the average New Brunswicker then investments in infrastructure or the distribution of government largesse to select industries.
As to the question of stimulus, while I do not agree with those who argue that savings are “lost” to the economy, knowing the HST was going up by two per cent in six months might have encouraged you to make that purchase today, especially if you know that tomorrow, you are going to get even more tax savings. This would have been an effective response to the argument that large portions of tax reductions are likely to be saved as opposed to spent.
All this just to show what further improvements New Brunswick could make, and what may well be on offer this time next year, or the year after. Overall this plan for lower taxes will do more for New Brunswick than any of the economic plans currently being talked about by the other provincial governments.
If you have a sister, uncle or cousin in southern Ontario (or northern Alberta, or….) don’t get out the good china quite yet.
Absent serious rethinking on the part of provincial governments, you may be visiting them in Moncton or Campbellton sometime soon.
Charles Cirtwill is the Executve Vice-President of the Atlantic Institute for Market Studies, an independent, non-partisan social and economic public policy think tanke based in Halifax, NS.