In his latest column, AIMS VP Research John Williamson looks at New Brunswick’s economic position. He argues the answer to the province’s economic woes is not to hire more in-house government “experts”. Rather, good tax policy is what matters and evidence is available from successful economies in Canada and beyond. This article originally appeared in the Telegraph-Journal.
New Brunswick is in a tough economic position. Taxes are heavy, unemployment is high and people are leaving to find opportunity elsewhere. Our province has embraced policies that it says will fuel growth and job creation. That prescription is a mix of deficit spending, subsidies for hand-picked businesses as well as high taxes on families and businesses. But a growing amount of evidence shows that instead of creating the conditions for prosperity the opposite is happening. Our economic position is worsening, not improving.
Last week, the Conference Board of Canada sharply downgraded its assessment of New Brunswick by predicting a recession is likely this year. The Conference Board had, at one time, thought our economy would grow in 2016 by 1.6 per cent, which is decent but hardly robust growth. It now believes our economy will instead shrink by 0.4 per cent.
This darkening assessment of New Brunswick’s economic wellbeing is shared by forecasters at major banks as businesses invest elsewhere. The Royal Bank predicts our province will “shed” jobs in 2016 and 2017. The Conference Board says we will lose around 3,000 jobs this year. This is in addition to 3,400 job losses in New Brunswick over the past two years.
It is time to reassess New Brunswick’s policy direction. And so the Gallant government is preparing its new Jobs Plan. Details are thin but the new plan looks a lot like the old plan. According to a draft of the Jobs Plan obtained by the Telegraph-Journal, New Brunswick needs more “spending on privately owned and managed economic infrastructure.” Translation: fatter subsidies for businesses.
The government is also proposing to establish an in-house think tank and hire more “experts” to provide advice to its ministers. But aren’t economist David Campbell and Susan Holt, who pushed for higher taxes before joining the government, doing this already? The Premier’s Office touted them as private sector stars when hiring them as members of the Premier’s Jobs Board in early 2015. The February 2015 press release states, “These individuals will work to create the conditions for economic growth in New Brunswick.”
There is no need for taxpayers to fund a think tank. And hiring more government advisers won’t help reverse our declining economic fortunes. The province employs professional civil servants in the Department of Finance to offer advice to the premier and finance minister. As well, there are already numerous independent think tanks in Atlantic Canada with ready-made advice to help solve New Brunswick problems should cabinet want fresh opinions.
If the government isn’t pleased with the direction of the province, the way to help New Brunswick isn’t to dress up a failed corporate welfare policy as new and hire the Premier’s Jobs Board consultants as think-tank employees. Instead, it requires a policy change that will reverse job losses, restrain government spending, and boost the economy.
Successful economies elsewhere in Canada and around the world already offer us a direction forward. They keep taxes low or lower them if they are too high in order to attract businesses, investors and skilled workers. They control spending or lower it if government is too large, is spending excessively on the bureaucracy or is involved in areas it should not be, such as corporate welfare. They provide business with a level, predictable playing field or improve the business environment when excessive regulations and taxes make it difficult to successfully operate a business or grow a small business into a larger one. (There are other necessary ingredients to growth, including an educated workforce and trade liberalization, but we’ll focus on the tax and regulatory burden today.)
These policy ingredients appear to be of little concern to the provincial government, which is determined to prove Albert Einstein right when he said the definition of insanity is doing the same thing over and over again but expecting a different result.
But as most economists would predict: taxing jobs results in fewer jobs being created. And New Brunswick has one of Canada’s highest personal income tax rates, the highest business tax and, as of July 1, our HST will be 15 per cent, also the highest in Canada. It is no wonder our unemployment rate is stuck around 10 per cent and New Brunswick has the highest youth unemployment rate in Canada at 20 per cent.
Public policy decisions matter. It is why some parts of Canada create jobs and are more prosperous than others. It is also why some provinces – like Saskatchewan – go from economic laggards to leaders.
If New Brunswick isn’t willing to take (free) advice from any of the think tanks in the Maritimes, such as the Atlantic Institute for Market Studies, Atlantic Provinces Economic Council, Canadian Federation of Independent Business or even the Canadian Taxpayers Federation, the Gallant government ought to instead consider a successful real world answer. Specifically, how Jean Chrétien’s Liberals turned around Canada’s finances in the 1990s and put in place conditions for sustained economic growth. (Hint: take what New Brunswick has done and do the opposite.)
Prime Minister Chrétien’s government fixed the government’s balance sheet by controlling spending after reviewing what programs worked and cutting or eliminating those that did not. The Chrétien Liberals largely avoided tax increases – realizing that Ottawa had a spending problem, not a revenue problem. After the budget was balanced the federal government cut personal and business taxes for all taxpayers. These policies worked for Canada in the 1990s. They work in British Columbia as well as Saskatchewan and they work in many of the fastest growing U.S. states as well as nations in Europe that have adopted pro-growth policies.
The question we need to ask is why wouldn’t these policies work here? We certainly couldn’t be any worse trying them out.
John Williamson is Vice President of Research at the Atlantic Institute for Market Studies (AIMS): www.aims.ca