Groan

Premier Graham is setting up a task force to make recommendations on how the province can become self-sufficient.

Why I titled this post ‘groan’ is the last paragraph in the article:

While Graham said he’s open to new ideas, taxation will be one of the issues examined by the task force. “We know we are losing productivity in our economy compared to other jurisdictions,” he said. “That’s why the task force will be looking at the taxation issue to make sure we are at appropriate levels.” The previous Conservative government under Bernard Lord made a series of tax cuts. New Brunswick has the lowest small-business tax rate in the country.

I hope they don’t spend too much time on taxation. I say this for several reasons:

1) New Brunswick companies don’t pay much tax now. It’s like 3% of total revenues – far below Ontario and Quebec (I’m not talking ‘rates’ here, I am talking about real taxes paid. ‘Rates’ don’t matter – it’s ultimately what is paid that matter). Not to put to fine a point on it but a recent study in the US found that ‘tax rates’ was one of the least relevant issues when it came to ‘site selection’ (where companies decide to site a facility).

2) Lord cut small business taxes to the bone and what happened? The number of small businesses declined. New Brunswick had the worst SME performance (in terms of growth/decline in the number of SMEs) of all but one province in Canada! There is always a temptation to think cutting taxes will help stimulate economic growth but in my research that only works at a national level or when there is a massive cut. If this group looks at taxation, I hope they focus on tax credits for job creation and investment. Just cutting a tax will reduce tax revenues with no promise of more investment. Arizona will give you a 25 year corporate tax break if you invest $1 billion or more. Sounds good to me.

2) Lord has cut small biz taxes and demanded more and more Equalization (now at $700 million more per year). If Graham’s goal is ‘self-sufficiency’ (i.e. no more Equalization), he should be very stingy when it comes to taking away tax revenue. It must lead to far more new tax revenue that that which was lost. And the Lord example is a clear and recent one that just cutting taxes has no direct correlation with economic growth.

This task force must come up with strategies to grow new industries – and at very strong growth rates. Further, these new industries cannot be clustered only in 203 urban centres. They must be able to grow in central and northern NB as well.

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