Sunday, October 28, 2007

Opinion Piece

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This appeared in the Telegraph Journal on 26 October. 2007 (page A7). You can sign-up now at to get a free account which offers you electronic access and searching capabilities fo the Telegraph Journal, Daily Gleaner, and Times & Transcript.

Of taxes and tax cuts

Rob Moir Commentary
Published Friday October 26th, 2007
Appeared on page A7

It's interesting that Premier Graham's self-sufficiency vision requires so much "from-away" expert help to implement. The Post-Secondary Education report is one example (dare I say, fiasco). Now we hear that the Minister of Finance has turned to economists from outside the province to give advice on tax cutting. While we should welcome their expertise, sometimes you have to live here to "get it."

Our outside experts suggest we reduce the provincial corporate tax rate, currently set at 13 per cent, on our largest corporations. The experts argue that cutting the rate will attract corporations and contribute to economic growth.

What's missing in this picture? It is not just the tax rate that matters to our story; we must also consider our tax rate relative to other provinces.

At 13 per cent, New Brunswick is firmly in the middle of the pack across Canada. While we have a higher corporate tax rate than B.C., Alberta, Quebec, and a few of the territories, our rate is the lowest in the Maritimes and lower than Manitoba and Ontario.

Obviously low corporate tax rates are not the only determining factor in real economic growth. If it were, we should have a stronger economy than Nova Scotia, Ontario, and Manitoba. Moreover, suppose we cut our tax rate to attract business. Other provinces can do the same, and in the race to the bottom we lose tax revenues and important services best delivered by a government.

In order to win in this economy, we must effect real changes in the New Brunswick business climate.

First, we must invest in all levels of education throughout the province. To attract businesses, we need to have a literate population with skills that businesses want, a group of burgeoning entrepreneurs eager to look for new opportunities, and a cultural environment that respects tradition while laying the groundwork for us to explore the future.

Second, we must find ways to enhance competition throughout the province. There is no escaping the fact that our energy, forestry, transportation, manufacturing, and media industries are dominated by a few key players. Setting questions of the tax rate aside, a new business wants to know that it can expand if it sees opportunity.

Third, we should actively seek (perhaps even using short-term tax incentives) value-added businesses. Value-added businesses require labour. As a rule, workers either bring their families or start families if they feel their job is secure. As the population grows, we attract new business to service the growing population. This is the essence of the multiplier effect.

Finally, in my discussions with a number of small to medium businesses, one point has been made crystal clear. This province suffers from an excess of bureaucratic involvement.
I'm not saying all regulations are bad, but some regulations may need to be re-examined and perhaps eliminated. Strike a commission to identify the red tape, cut through it, and you directly reduce the cost of doing business in New Brunswick.

At the same time, the government must focus on closing corporate tax loopholes and the practise of giving large tax breaks to established corporations. This ensures that all corporations are paying their fair share. Moreover, it increases government revenues, permitting the government to invest in services which directly improve the quality of life in New Brunswick and attracts people and businesses to our province.

If the Minister of Finance is eager to embrace tax cuts right now - and given the surplus we most recently enjoyed, now might be a good time for tax cuts - the strongest argument can be made for a cut to the income tax rate on the lowest income bracket. Such a broad-based income tax cut would give more money to all New Brunswickers to spend as they choose. The Minister might also consider undoing the increase on corporate tax rates for small- to medium-sized businesses that was part of last-year's budget.

Putting more money into everyone's pockets and investing in businesses that are a proving ground for our up-and-coming entrepreneurs is a viable strategic goal for our self-sufficiency agenda.

Rob Moir is an economics professor at UNBSJ. In 2005-06, he ran as an NDP candidate in the federal riding of Fundy Royal. He lives on the Kingston Peninsula with his wife, Megan, and their two children, Sam and Gwyneth.

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