Tax Proposal Op Ed

The Net Effect of New Brunswick’s Tax Proposals

Like many New Brunswickers, I am interested in the tax proposals released by Premier Graham’s government in the Tax Green Paper. I have now submitted my written comments to the government and can only hope that they take the time to consider them along with the many comments received from others. I would like to publicly raise one issue which has only received lip service to date.

A significant portion of the discussion paper outlines the predicted effects of a flat income tax. The authors repeatedly show that everyone who already pays income tax would pay less under either a flat tax or a two-part tax (see Tables 2 , 3, 6, and 7 in the discussion paper). While the discussion paper reads like a marketing pamphlet, making great fanfare of reduced income taxes, it is a very simple mathematical truth that if income is taxed at a lower rate then people pay less income tax.

With little supporting analysis, the discussion paper vaguely estimates that the combined income tax and corporate tax cuts will leave New Brunswick short close to a half-a-billion dollars on tax revenues. According to the discussion paper, this decline in tax revenues should be offset by an increase in tax revenues from other sources: $250 million from a 2% hike in the HST (as suggested by Frank McKenna), and $100 million from a carbon tax (as suggested by Jack Mintz) which will be placed on fuel, heating oil, and electricity.

The discussion paper suggests that the hike in HST is relatively small – “3¢ on a $1.50 coffee” – and implies it would be painless. This, I contend, is a political sleight of hand. It is like a used car salesman dropping the price of a car by $1,000 but then charging you $300 for each tire. The cost of the car increases by $200 overall … unless you can do without tires.

Statistics Canada has powerful software (SPSD/M) designed specifically to look at potential changes in taxes and transfers. While I have not had time to run the entire tax proposal through the software, I have had the chance to study the potential HST effects and the results are disturbing. For brevity I include only the income tax savings for a single tax filer – Table 2 (flat tax) and Table 6 (two-part tax) – as presented in the discussion paper. To these I add the predicted increase in HST payments and then identify the net tax bill.

Net Tax Payments for a Single Tax Filer

	Flat Income Tax			Two-Part Income Tax
Taxable Income	Income Tax Decrease (Table 2, p.15)	HST Increase	Net Tax Bill	Income Tax Decrease (Table 6, p.19)	HST Increase	Net Tax Bill
$15,000	-$20	+$210	+$190	-$21	+$210	+$189
$25,000	-$359	+$264	-$95	-$326	+$264	-$62
$40,000	-$522	+$405	-$117	-$452	+$405	-$47
$60,000	-$1,018	+$489	-$529	-$1,146	+$489	-$657
$100,000	-$3,160	+$644	-$2,516	-$2,938	+$644	-$2,294
$140,000	-$6,188	+$1,256	-$4,932	-$5,166	+$1,256	-$3,910

As a result of the HST increase, overall tax “savings” are smaller. Indeed, for single filers with incomes less than $60,000 the tax “savings” are downright modest and for the lowest income earners, the tax bill will likely increase. (For the sake of comparison, 50% of single income earners in New Brunswick earn less than $21,000 according to Statistics Canada.) On the other hand, if you are fortunate enough to earn more than $60,000 (as am I), then the tax savings are likely to be substantial.

Given travel and energy use has a relatively large fixed component that does not depend upon income the carbon tax proposed in the paper would likely continue to move us in the same direction.

These data raise two important questions. First, why haven’t the various tax proposals been subjected to complete analysis? Second, are the rather modest gains most New Brunswickers are likely to see worth the expenditure cuts that will necessarily follow from a $150 million loss in tax revenues?

At the very least, the government’s tax proposals should undergo complete analysis using state-of-the-art software like SPSD/M. Along with publishing the entire results of this analysis, Premier Graham’s government should also publicly present any proposed expenditure decreases, service delivery shifts (from public to private), and efficiency-enhancing activities that he might make as a consequence of the tax revenue loss.

Only with this information in hand can New Brunswickers make informed choices when considering the bold tax and transfer changes suggested in “A Discussion Paper on New Brunswick’s Tax System.”

Rob Moir is an economist who teaches and conducts research at UNB in Saint John. His larger commentary on the tax proposals can be requested at robmoir2@gmail.com.