N.B. legislature committee calls for income tax cuts, hike in HST

In Brief: Much of AIMS’ submission to an all-party committee of the New Brunswick legislature is reflected in the committee’s final report on tax reform for the province. CBC Radio turned to AIMS President Brian Lee Crowley to explain how cutting taxes helps, particularly in this time of economic uncertainty.

An all-party New Brunswick legislative committee is recommending the province introduce a flat personal income tax rate of 10 per cent, slash corporate taxes to five per cent and bring in child tax benefits similar to the federal plan.

To pay for the deep personal and corporate tax cuts, the select committee on tax reform is calling for the harmonized sales tax to be raised to 15 per cent from 13 per cent, following two reductions implemented by the federal Conservative government.

“These initiatives should significantly benefit New Brunswickers and accomplish many of the goals for restructuring the tax system of the province,” the committee report says.

‘There is stimulative value in cutting taxes’— Brian Lee Crowley, president, Atlantic Institute for Market Studies

Brian Lee Crowley, president of the Atlantic Institute for Market Studies, said the Liberal government would put New Brunswick in the forefront of tax reform in Canada if it followed through on these recommendations.

Crowley said these changes would set New Brunswick apart in the eyes of people and businesses looking for a place to live or do business. At a time of such economic uncertainty, the think tank president said sticking to the plan would also assure people of the direction taxes will take over the long term.

“There is stimulative value in cutting taxes,” Crowley said. “I realize [the government] can’t bring the whole thing in right away. But often what people want to know is what is the trend, what direction are they heading in.”

Premier Shawn Graham has already warned that the dour economic forecasts may cause his government to slow down on acting on the tax code reforms.

• 10 per cent personal income tax rate.
• Five per cent corporate income tax.
• Increase the basic personal exemption to $12,000 for incomes below $35,000.
• A non-refundable child tax credit up to $400 per child.
• A universal child-care benefit of $600 annually per child under six years old.
• No carbon tax.
• Study on fiscal initiatives to support the provincial climate change action plan.

A 10 per cent single rate would tie the province with Alberta for the country’s lowest tax rate. Under the current system, New Brunswick’s lowest tax bracket is 10.12 per cent on the first $34,836 and the final rate is 17.95 per cent on income above $113,273.

Based on comparing 2008 tax figures to the 10 per cent flat tax concept, the committee changes would mean someone with $25,000 in taxable income would pay $359 or 23.8 per cent less. Meanwhile, someone with $60,000 in taxable income would pay $1,018 or 16.2 per cent less.

A one-earner family with two children with income of $25,000 would no longer pay taxes, saving $219, and the same family with a $60,000 income would save $2,296 or 41.2 per cent less.

Large businesses also stand to gain under the various proposals that could see their corporate taxes fall from 13 per cent to as low as five per cent, giving it the lowest rate in Canada.

Finance Minister Jim Flaherty has asked provinces to drop the corporate rate to10 per cent in the next four years, while pledging Ottawa would reduce its rate to 15 per cent in the same time.

The committee said if the province only hits the 10 per cent target set out by the finance minister, it will tie Alberta and eventually be caught by other jurisdictions heeding Flaherty’s call.

In the summer, the special committee took the Department of Finance’s tax reform document to the public seeking the opinion of New Brunswickers. The report said people were generally in favour of the proposals.

The committee’s most controversial discussions centred on how the provincial government would make up for lost income tax revenue. The politicians decided to call for a hike in the HST, but nixed the idea of a carbon tax.

“The carbon tax proposal was considered to be well-intentioned but poorly timed, requiring further analysis,” the report said.

“It was strongly opposed by the transportation sector and people living in rural areas who depend on vehicles and have longer commutes. Some environmentalists questioned the effectiveness of a carbon tax, but they supported incentives for clean energy technology and sanctions against polluters.”

When the Liberal government released its discussion paper in June, it estimated the tax cuts would translate into roughly $500 million in tax savings with roughly $415 million in personal income tax savings and another $80 million in corporate tax cuts. The province would then collect $250 million from increasing the HST by two percentage points.

The committee agreed with the controversial idea of upping the HST back to the 2006 level.

The report said consumption taxes are applied broadly to the population to allow people to consider spending plans. But the committee said the government needs to protect low-income earners and seniors because they spend a higher percentage of their income on taxable goods.

The proposed changes should be ushered in over a five-year period, the committee indicated.

The Opposition Conservatives have been on record as opposing the idea of increasing the HST, but there was not a dissenting report issued to the legislature on Friday.

Crowley said people should not focus on one specific change that they do not like, but rather look at the broader package of reforms.

“It is a mistake to focus on the sales tax or the income tax in isolation because really the proposal is to change the structure of the whole tax system,” Crowley said.

“The important thing to remember is … this is an overall reduction on the tax burden of New Brunswickers. To focus on one tax going up, while losing sight that others are going down more, is to miss the point.”