FREDERICTON – New Brunswick has generated national attention with a proposal to drop its corporate income tax rate to five per cent, but an executive with an Atlantic Canadian think tank says the province could go even further and scrap corporate income taxes altogether.

Scrapping the corporate income tax or at least cutting it significantly will have a range of benefits for New Brunswick, says Charles Cirtwill, executive vice-president of the Halifax-based Atlantic Institute for Market Studies.

“You become a place for investment. You become a place where higher wages are possible, which of course you need to attract the demographic we are losing and you become a place where you can get a broader selection of lower cost goods.”

Brian Lee Crowley, president of the Atlantic Institute for Market Studies, told an all-party provincial committee that toured New Brunswick to gauge public reaction to proposed tax reforms that not only should the government adopt the recommendation in a tax discussion paper to slash corporate income taxes to five per cent from 13 per cent, it should scrap the tax altogether.

Cirtwill pointed out that cutting corporate income taxes doesn’t mean businesses won’t pay taxes as they will still be on the hook for property taxes, consumption taxes as well as mandatory labour taxes.

He noted that studies have shown that corporation’s don’t pay corporate income taxes – that is the cost of those taxes are passed on to consumers in the form of higher prices or to shareholders in the form of lower dividends or even to workers, who end up with lower wages.

Cutting corporate tax rates encourages businesses to invest in growth, said Cirtwill.

“It keeps more money in the business therefore you can grow the business, you can hire more people, you can increase wages,” he said.

While corporate income tax cuts helps existing businesses invest and grow, lower rates can also act as a magnet to attract new investment, said Cirtwill.

“Businesses looking to locate in New Brunswick, they’re looking at the level of infrastructure, where do the planes fly, what are the ports like, what are the hospitals, the education system like, but taxes are a piece of that puzzle,” he said.

“A very aggressive cut in your tax rate not only makes the (business) environment better, it’s also a wonderful marketing tool …’Come to the place where we are serious about business’.”

While a five per cent cut could place New Brunswick within the average marginal effective tax rate within the nations of the Organization for Economic Co-operation and Development. Scrapping the provincial corporate income tax would make New Brunswick a leader, he said.

An analysis done several years ago by the Canadian Bankers Association said a 10 per cent cut to the average Canadian corporate tax rate would result in the value of a business growing by roughly seven per cent over three years, said Cirtwill. “In other words, what you’ve done is reduced your tax rate by a fraction and you’ve exponentially increased the value of the businesses operating in your environment,” he said.

In New Brunswick, a ten per cent cut to corporate income taxes would mean a cut of roughly 1.3 percentage points, to 11.7 per cent from 13 per cent. If the province cut corporate income taxes by eight percentage points, the value of a business in the province could rise by as much as 42 per cent over three years. An elimination of the corporate income tax could result in an up to 91 per cent increase in the value of a business over three years, using the same formula.

“What business value translates into is number of sales, number of exports, number of imports, average wages they’re paying, average return their giving to investors,” he said. “Contrary to popular belief, investors don’t tend to be fat cats on Wall Street smoking cigars, they tend to be the public pension boards, (individuals’ RRSP funds). If businesses are growing in New Brunswick, average New Brunswickers are going to benefit from that.”