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Time to fix Atlantic Canada’s tax disadvantage

Author: Paige MacPherson 27/07/2020

This op-ed was published in the Halifax Chronicle Herald on July 28, 2020.

By: Paige MacPherson and Aaron Wudrick

Atlantic Canadian economies are reopening and improving quality of life here at home is more important than ever. Yet the region is at a significant tax disadvantage compared to our neighbours in the New England states – making it all the more likely that mobile capital that could create jobs and opportunity to flee across the border.

Compared to the six New England states – Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont – Atlantic Canadians face higher government-imposed costs and taxes by almost every measure, according to a new report by the Canadian Taxpayers Federation.

For individual Nova Scotians, this means life is more expensive than it needs to be.

For Nova Scotia businesses, it presents a competitiveness problem. Higher costs mean it’s harder for Nova Scotians to create good jobs at home and establish thriving businesses than it is in the New England states.

It’s also a problem for the province as a whole. Why would a business owner set up shop in Nova Scotia when she could plant roots next door and generate more revenue and hire more workers for the same investment?

Individual Atlantic Canadians – and Nova Scotians in particular – are paying more. For example, in 2019, the lowest provincial income tax bracket in the Atlantic provinces was 8.7 per cent (Newfoundland and Labrador), while the lowest in New England was zero (New Hampshire). Nova Scotia had the highest provincial income tax bracket of all the provinces and states studied, at 21 per cent. The highest New England state income tax rate was only 8.5 per cent, in Vermont.

On top of that, the things we buy in Nova Scotia and across Atlantic Canada cost more, thanks to the highest sales tax in the country – significantly higher than the New England states. The provincial portion of HST in every Atlantic province is 10 per cent (15 per cent total). New England’s state sales taxes range from zero in New Hampshire to seven per cent in Rhode Island.   

It’s plain to see that businesses are struggling, with many closing up shop. Atlantic Canada’s tax disadvantage doesn’t help.

While the small business tax rates in our region are lower than, or in one case on par with, the New England states – a positive thing to be sure – the main business income tax range in New England (6 per cent to 8.93 per cent) is about half the standard rate in Atlantic Canada, which ranges from 14 per cent in New Brunswick and Nova Scotia to 15 per cent in Newfoundland and Labrador and 16 per cent in Prince Edward Island.

The Nova Scotia government kicked off this otherwise dreadful year with a positive policy development: lowering the small business tax rate half a point to 2.5 per cent and the general business tax rate two points to 14 per cent.

“This is an investment in you and quite frankly, it’s an investment that I want you to turn around and reinvest in Nova Scotia to drive the economy,” McNeil said.

The premier’s statement was bang-on. Leaving more of their own money in the pockets of Nova Scotia job creators will allow for creativity, investment and organic job creation that government-assigned corporate welfare simply does not.

Nova Scotia’s business tax rate went from 16 per cent – the highest in Canada – to 14 per cent – which although lower, is still close to the highest in Canada, so there’s still much room for relief. 

The CTF report recommends Atlantic provincial governments lower business taxes to attract investment and increase government tax revenue, allow for further resource exploration and development to create jobs, and reduce government spending where possible to provide room for tax reduction.

A brighter future for Atlantic Canadians depends on our ability to be economically sustainable and successful. Taxpayers in Nova Scotia deserve better than to lose jobs and opportunity to the United States. It’s time to close the tax gap.

Paige MacPherson is Atlantic Director and Aaron Wudrick is Federal Director of the Canadian Taxpayers Federation.