By Chris Morris
The Canadian Press
FREDERICTON — New Brunswick’s recently elected Liberal government bucked a national trend Tuesday by introducing major tax increases in its 2007-08 budget, including the province’s first personal income tax hike in 13 years.
While many other provinces and the federal government are pursuing tax relief as a way to stimulate growth, Premier Shawn Graham stunned critics by turning his back on that approach while piling on more debt.
Graham was unavailable for comment after the release of his government’s first budget since winning the provincial election in September, but Opposition Leader Jeannot Volpe was quick to pounce, recalling that Graham pledged not to increase taxes during the campaign.
“This is just one more promise he has broken,” said Volpe, interim leader of the Progressive Conservative Party.
“This budget is an attack on the middle class of New Brunswick. It dismantles all of the good work that we did to build the economy.”
Despite new census figures indicating New Brunswick’s population is stagnant, the Liberals are hoping higher taxes will pay for the kind of services that will keep people home and attract newcomers.
“This budget brings revenues and spending into balance,” said New Brunswick Finance Minister Victor Boudreau.
“It lays the groundwork for future transformational change in the province.”
The $6.6-billion budget projects a small surplus of $37 million for 2007-08. But the debt continues to rise because of a one-time, $544-million charge to complete the twinning of the Trans-Canada Highway in the province.
The higher taxes on individuals, corporations and small businesses will raise at least $112 million for provincial coffers.
However, the net debt will grow by $356 million to just over $7 billion, meaning that every man, woman and child in the Maritime province owes about $9,700.
The tax increases dramatically reverse a long-standing trend towards lower taxes that previous governments had pursued in hopes of making New Brunswick more attractive for business and workers.
The most recent personal tax rate increase in the province took effect in 1994 when Frank McKenna was premier.
Following Boudreau’s budget speech, financial pundits made it clear they were shocked and disappointed by the Liberal spending plan.
“It raises the question: ‘Do they really want business in New Brunswick?’” said Dave Plante with the Canadian Manufacturers and Exporters Association.
Andreea Bourgeois of the Canadian Federation of Independent Business said some small business operators may close because of the tax hike.
“Who is going to want to come to this province or stay in this province given the fact that we’re paying more taxes on the personal front and businesses are taxed more so they are less competitive,” she said.
Boudreau said the previous Conservative government’s low-tax policy was not sustainable.
“We all enjoy lower taxes,” the finance minister said. “But when the level of taxation is insufficient to ensure the continued provision of essential public services, it needs to be addressed.”
Personal income taxes will increase marginally to generate an additional $50 million, while increases to the general corporate and small business income tax rates will bring in another $52 million a year.
Small businesses will bear the biggest single increase with their tax rate jumping from its current 1.5 per cent to five per cent.
Boudreau said that even with the hikes, personal and business tax rates in New Brunswick remain among the lowest in Atlantic Canada.
“For a single-earner family of two with taxable income of $40,000, this represents an increase of $42 in New Brunswick personal income taxes for 2007 compared to 2006,” Boudreau said.
Analysts warned the Liberal government against tax increases as New Brunswick struggles to stop the exodus of young workers leaving the province in search of higher paycheques and lower taxes.
Census figures released Tuesday indicate the province’s population continues to hover at just under 730,000 people.
“They have effectively lowered the real wages of New Brunswickers, which makes opportunities in other provinces more attractive,” said Ian Munro of the Atlantic Institute for Market Studies, a non-profit, economic think-tank based in Halifax.
“On the corporate tax side, they are making it a less attractive place to invest.”
A recent study by the institute reported that Alberta alone had drawn nearly 13,000 Atlantic Canadians away in the year ending July 1, 2006.
Graham has promised to reverse the exodus and has set a target of attracting 5,000 immigrants a year by 2015.