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Time to be bold and lower business taxes

October 03, 2019
Time to be bold and lower business taxes

Financially, New Brunswick seems stuck between a rock and a hard place. There’s increasing pressure on the province’s budget for health care and other services and it’s already spending hundreds of millions to pay for interest charges on the government’s debt. But New Brunswick also charges some of the highest tax rates in the country. 

The key to greater prosperity could lie in lowering taxes for job creators. It’s a strategy that’s produced success stories before. It’s a strategy that New Brunswick needs to put into action.

Higher taxes are the easy answer for any government with budget problems. But high taxes make it harder to attract desperately needed business investment into the province. And when investment tanks, government revenues will soon follow. This negatively impacts New Brunswickers who want well-paying jobs and quality services. 

Many New Brunswickers have already found a place that’s going a different direction. 

Alberta has emerged as a top destination for New Brunswick out-migrants, according to a 2017 University of New Brunswick report. It’s worth asking what Alberta is doing right. 

Albertans have fallen on tough economic times due to the oil price collapse and politicians roadblocking pipelines. To weather the storm, the province recently announced it is lowering business taxes by one percentage point every year, until the rate reaches eight per cent – the lowest in Canada. 

Economist Dr. Jack Mintz estimates that this tax reduction will create 55,000 new jobs in Alberta, and economist Dr. Bev Dahlby says it could add $13 billion to Alberta’s economy by 2024, and boost government revenue by $1.2 billion by 2023. 

Alberta has reduced its business taxes to stimulate growth before. In 2001, the government began reducing its business tax rate from 15.5 per cent to 10 per cent in 2006. 

Alberta’s average yearly real GDP growth rate between 2001 and 2014 was higher than all other provinces and behind only North Dakota among key U.S. energy states. For workers, job gains over this same period outpaced these other regions as well. 

The business tax reduction coupled with other factors saw government’s revenue from business taxes more than double from $2.2 billion in 2001 to $5.8 billion in 2014. 

In 2015, Alberta’s then-New Democrat government increased business taxes by two percentage points, and tax revenues dropped. In 2014, the 10 per cent business tax generated $5.8 billion. The 12 per cent business tax only generated $4.9 billion in 2018. This, combined with past success, prompted Alberta’s new government to bring the tax back down. 

At the federal level, Canadians have benefitted from business tax reductions as well. Between 2001 and 2012, Liberal and Conservative governments nearly halved the business tax rate from 28 per cent to 15 per cent. Despite an initial drop in 2001, business tax revenues stayed fairly consistent between 3 per cent and 4 per cent of the national economy.

Ottawa’s business tax cuts helped stimulate investment, which picked up after 2000 following a miserable performance in the 1990s, according to the Montreal Economic Institute. On top of that, between 2001 and 2012, workers’ wages grew faster than they had in the previous decade and faster than wage growth in other industrialized countries during the same time. 

New Brunswickers need well-paying jobs. The provincial budget is under pressure as interest payments on the debt are eating up close to $700 million every year. In 2016, the New Brunswick government hiked business taxes on job creators from 12 per cent to 14 per cent. The status quo isn’t working.

Attracting employers could be a game-changer for New Brunswick. Business taxes are being significantly reduced in competing regions such as Alberta. And New Brunswick should learn from these case studies and be bold by lowering business taxes.

Paige MacPherson is Atlantic Director and Franco Terrazzano is Alberta Director of the Canadian Taxpayers Federation.

This column was originally published in Telegraph Journal on October 3, 2019.

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