The New Brunswick government warned in its throne speech Tuesday that the faltering global economy is forcing the province to ratchet back expectations for the coming year, including its promise for bold tax reform.

Heading into the second half of the mandate for Premier Shawn Graham and his Liberals, the government was supposed to embark on an aggressive tax-reform agenda.

The pending tax changes earned only a brief mention in the speech, while Lt.-Gov. Herménégilde Chiasson delivered a blunt assessment of the economic outlook for 2009.

However, Graham told reporters at a news conference that reforms that were to be introduced in the March budget — dramatic cuts to corporate and personal income taxes, funded by an increase in consumption taxes and a reduction in government spending — might be delayed as a result of the economic downturn.

“Any reforms to the taxation [system] have to take into account the current global uncertainty that is existing,” Graham said.

Throne speech highlights

  • Three per cent maximum average electricity rate increases until 2010.
  • New pay-equity law to apply to all parts of the public service.
  • A poverty reduction plan.
  • A plan to bring high-speed internet to the entire province.
  • A series of measures to help the forest industry.
  • A confidential complaint process to help police reduce crime.
  • A new energy policy will be released by mid-2009.

One political analyst questioned the Liberal government’s rationale for delaying the bold tax reform that it began talking about in June 2008.

Rick Myers, a political science professor at St. Thomas University in Fredericton, said the potential corporate and personal income tax cuts could provide the necessary stimulus the government is looking for as it copes with the sombre economic outlook.

“It seems to me that the tax-reform agenda that they had described before was aimed at stimulating economic activity and investment. So one might wonder why the current economic outlook would lead the government to back away from that plan,” Myers said.

“I suspect one interpretation of that plan is the tax-reform proposals are likely to be politically unpopular so the downturn in the economy [is an excuse to delay the moves].”

Brian Lee Crowley, president of the Atlantic Institute for Market Studies, said the government’s tax-reform plan is “imaginative” but he understands that it may need to be pushed back because of the economic context. However, Crowley said the province should begin phasing in the tax cuts in the March budget even if it proceeds more slowly than originally planned.

“This is not a revenue-neutral [tax] reform; on the contrary. What is attractive is it lowers the overall tax burden on New Brunswickers by a significant amount,” Crowley said.

“So they have to be in a position to make up the shortfall. I can understand it might be the case in the current economic circumstance that they would be concerned about making up the shortfall.”

Specifically, the province is bracing for a slowdown thanks to the troubled U.S. economy, depressed global financial markets and the conclusion of several domestic investment projects. The throne speech acknowledged this.

“This combination of reduced revenue growth and increased spending clearly represents a serious challenge for your government,” Chiasson said as he read the speech. “This reality will require, more than ever, that your government remains focused on the most important priorities for all New Brunswickers.”

The speech indicated “difficult decisions” were in the offing.

For all the talk leading into the throne speech about dealing with difficult economic times, Opposition Leader David Alward said the government failed to provide clear ideas that will help alleviate the economic concerns of New Brunswickers.

Alward said the premier should abandon his idea of increasing the HST to help pay for his tax cuts in this economic climate.

“I do realize this is a difficult time and there is uncertainty. But certainly people having more money in their pockets through [fewer] consumption taxes or other tax reductions is one way to stimulate the economy,” Alward said.

Finance Minister Victor Boudreau, who has already opened the door to running a deficit, will give an economic update soon in this legislature session, according to the throne speech, which did not give a specific date.

The speech said the update would be accompanied by a capital budget that will include “numerous important infrastructure investments.”

Graham said at the news conference these infrastructure investments would represent an “important stimulus for our economy.”

Every government program to be reviewed

The province will review all government spending before the budget, Graham said.

“As revenues decreased and expenditures increase, New Brunswickers expect their government to be prudent and fiscally responsible. That is why we will be reviewing every single program offered by government,” he said.

Further, Graham said, in the next five years, a “massive” wave of retirements is expected in the public service, and the government will attempt to deliver the current slate of services with fewer people.

As the province attempts to usher in taxation reforms or help battered industries, Graham said he would be counting on partnership from the federal government.

The premier said he is already in talks to make sure Ottawa does not block any of its potential tax changes. Specifically, Ottawa would have to agree to have the province increase the Harmonized Sales Tax.

Additionally, the premier said, he will be watching how the federal government bails out the auto sector. Graham said he wants to make sure similar federal programs are available to the forestry sector.

The provincial government is counting on the energy sector to help the economy in the current downturn.

The throne speech discussed the energy developments occurring in southern New Brunswick, and confirmed the Liberals will release a new energy policy, which will include a long-awaited decision on whether NB Power will be restructured again.

The speech also repeated an earlier commitment that the “maximum average power rate increase” for each of the next three years at NB Power will be three per cent.