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Three cheers for McNeil’s business tax relief

Author : Paige MacPherson 09/03/2020

This op-ed was published in the Halifax Chronicle Herald on March 9, 2020.

Tax relief is long overdue in Nova Scotia and Premier Stephen McNeil reducing the business income tax is a good start, but here’s the real story: this tax reduction isn’t just good for businesses. It can increase wages for workers, welcome more jobs for Nova Scotians and put more money in the government’s coffers.

Ahead of the provincial budget, Premier Stephen McNeil announced that he would be reducing the province’s business income tax rate from 16 per cent down to 14 per cent and lowering the small business tax by 0.5 per cent.

At 16 per cent, the business income tax was the highest in the country (tied with Prince Edward Island). At 14 per cent, it’s still among the highest in the country (and higher than nearby U.S. states), but it’s a step forward.

To maximize job creation for Nova Scotians and incentivize smaller Nova Scotia businesses to grow, McNeil needs to lower the business tax further.

Unlike corporate welfare – which the Nova Scotia government dishes out in droves – lowering the business tax doesn’t require the government to pick winners (like a fledgling ferry, a luxury golf course airport or professional football stadium) and losers (everyone else).

Like clockwork, union bosses oppose tax relief like this. Temporary reductions in government revenue may (and should) require the government to do what the rest of us have to do on a weekly basis: cut unnecessary spending – perhaps on bloated government employee salaries. After controlling for gender, age, marital status, education, occupation and other factors, research from the Fraser Institute shows that government employees in the Atlantic provinces make 11.9 per cent higher wages than non-government workers, in addition to more generous benefits, more personal days off work and earlier retirements.

This superfluous spending should be cut regardless of tax rates. But when bemoaning tax relief for those lower-paid, longer-working, older-retiring Nova Scotians, these union bosses fail to point out that Nova Scotia’s tax rate was Canada’s highest, and that lowering it could bring both more jobs and more revenue for important services.

A University of Calgary study in 2019 showed that Nova Scotia’s general business income tax rate was actually so high that it’s turning away investment in the province. Less investment means fewer jobs; meaning fewer businesses and workers paying all sorts of taxes.

The study showed that reducing Nova Scotia’s business income tax rate would actually increase total tax revenues.

High business taxes can also mean lower wages for workers. Further research showed that “a significant part of the burden of corporate taxes falls on workers in the form of wage reductions.”

Overall, these benefits are all the products of economic growth. If we look to other jurisdictions, we can see the possibility for Nova Scotia.

Take Saskatchewan – a “have” province today, but a struggling economy not long ago. In the 2006-07 budget, Saskatchewan’s NDP government announced the reduction of the business income tax from 17 to 12 per cent.

“These business tax cuts will help build a better future, by making our economy more competitive, and by encouraging business to invest more and create new jobs here at home,” former NDP finance minister Andrew Thomson said.

Saskatchewan’s GDP grew by about 60 per cent from 2006 to 2011 and the previously “have-not” province began to lead the country in economic growth.

The tax reductions also meant more money for government. Before the rate was reduced, Saskatchewan collected $382 million in business taxes in 2005-06. By 2008-09, Saskatchewan’s business tax rate had dropped to 12 per cent, and the government collected $593.5 million in business income taxes.

The next year, that revenue shot up to $880.2 million. The year after that, it was $1.15 billion. Saskatchewan officially became a “have” province in 2009.

Why shouldn’t Nova Scotians benefit from this same growth? Higher wages for workers, more jobs for Nova Scotians and more revenues for hospitals and schools are three good reasons for lowering the business tax. And for that, Premier McNeil deserves three cheers from taxpayers. 

Paige MacPherson is Atlantic Director of the Canadian Taxpayers Federation.