Tax considerations

Caveat emptor. Similar to environmental issues, I have an equally superficial level of knowledge about tax policy. However, I have made it a bit of an issue to try and understand the intersection of tax policy and economic stimulus. So, given that everyone is talking tax these days, here are a few bite sized considerations for you.

There is a huge difference between tax ‘rates’ and taxes ‘paid’. This is the same for both individuals and corporations. For example, doctors do not get a $200,000 ‘salary’ (at least most of them do not). They are corporations and pay far less tax than an individual making that income. When Bernie Lord cut small business tax rates a few years ago, doctors and other ‘small business’ professionals did a hoo hah. On the corporate side, New Brunswick generates among the least amount of corporate income tax of any province/state in the U.S. and Canada. I have shown the data on this in other older blogs. So, tinkering with the rates will not necessarily adjust the amounts paid (up or down).

Despite all the bloviating on the subject, the folks paying the most amount of tax in New Brunswick are those with a family income of $80k to maybe $120k. It seems all the tax ‘reform’ (consider Volpe’s) were targeted at the lower end and this was easy pickin’s because they could cut the tax rate and not really impact the taxes paid by much. I mentioned this before but the exquisite irony of it compels me to mention it again. The same week that Volpe was announcing that everyone earning less than $15k would pay no income tax in New Brunswick! his boss was announcing another round of call centre jobs at only slightly about $15k/year. Fascinating stuff. On the high end, as I have said, people set up corporations and take out dividends and other tax minimizing strategies. So, the real taxes paid are in that middle class and if the government, for example, cut the tax rate on those folks by 5 or 10 points, it would drop revenues possibly in the hundred million or maybe even 200 million or more – I haven’t taken the time to crunch the numbers. So, for those of you in that 80-120 range (family income) don’t expect major cuts unless your taxes go up elsewhere.

In the latest budget, the government is forecasting $1.27 billion in personal income tax (total collected) or about 19% of its total budget need. The Ontario provincial government has a lower personal income tax rate – but generates 35% more per capita personal income tax. Why? More people in that sweet spot – too rich to qualify for low rates and too poor to become professional corporations. New Brunswick generates more money from Equalization that personal and corporate income tax combined. The reality is that we need a whole lot more people (private sector) making family income in the $80-$120k range if we want to see personal income tax paid increased.

We also need to generate more corporate income tax. Generating 2.7% of NB’s total revenue off corporate income tax is way too low. I just don’t know the way to do this. It is obvious that the bulk of corporate income tax is being paid in other jurisdictions (as I have said before McCain Foods pays more in corporate income tax to somebody than every corporation in New Brunswick combined pays into the New Brunswick treasury). Who gets it? Who knows? My simplistic solution has been to say we need more economic development – more activity, more profits, more taxes paid but in reality it is far more complex than that.

Remember all that ‘growth’ that Bernie and now Shawn Graham crow about? Remember McKenna talking about the substantially different economy now versus when he was in office?


Equalization increase $549 million (1999/2000 budget until the 2008/2009 budget)
Personal income tax increase $411 million (1999/2000 budget until the 2008/2009 budget)
Corporate income tax increase $26 million (1999/2000 budget until the 2008/2009 budget)

Equalization as a percentage of the budget 1999/2000 = 23.8% 2008/2009 = 23.7%
Personal income tax as a percentage of the budget 1999/2000 = 19.6% 2008/2009 = 19%
Corporate income tax as a percentage of the budget 1999/2000 = 3.6% 2008/2009 = 2.7%

Corporate income tax paid is declining as a percentage of the budget.

Total increase in government spending = +53.2%

Population increase = 0%

Just throwing it out for conversation.

This entry was posted in Uncategorized. Bookmark the permalink.

0 Responses to Tax considerations

  1. nbt says:

    The reality is that we need a whole lot more people (private sector) making family income in the $80-$120k range if we want to see personal income tax paid increased.

    We also need to generate more corporate income tax.

    Very true, but that is a growth issue as much as it is a tax issue.

    And judging from the lack of frequency of corporate relocation (both small and large) to our province over the years, it is clear the high tax environment and excessive use of corporate welfare (to attract business) is as much to blame as anything.

    While an argument could be made for the use of regional development schemes in the late 19th century, such schemes and economically distorting approaches clearly have no place in the 21st century global integrated marketplace, or as McKenna calls it, “the natural economy.” Which is why I keep posting these words by McKenna on here:

    Atlantic Canada is at a fork in the road. We may continue down the traditional path of reliance on the Government of Canada which has created such a devastating legacy of dependency or, alternatively, we can embark on a new road towards self-sufficiency.

    To me it is now manifest that the old ways do not work. All Atlantic Canadians know how dependent we have become on the support of others. … We also know that grants and make-work programs have created distortions in the natural economy – distortions that require redress. … we need to stop simply giving grants or subsidies to businesses to come here or to businesses already in the region. We need to find a better tool. We need to find a tool that will be long-term and durable, that will be sustainable.

    Looking at experience from all over the world, I can tell you that those jurisdictions which establish low and predictable corporate tax regimes end up resulting in much better growth, and long-term growth, and a much better environment for business to prosper.

    Like Al Hogan’s (hummer) joke, hopefully these words above will stick amongst NBers looking for change. 😉

  2. Anonymous says:

    Another stat for discussion. 14 civil servants per 1000;second highest in the country(TJ article May 31).

  3. Anonymous says:

    Half knowledge is dangerous. I hope somebody at the Provincial Govt., does not do a “Kelly Lamrock” by running with you numbers and implementing a corporate tax increase. It is hard enough to sustain the existing corporations and small businesses. We don’t have enough. We don’t need a recipe to drive away whatever we have.

  4. David Campbell says:

    Get off your high horse, pardner. I never call for a tax increase. In my TJ column, I said a corporate tax increase would send the ‘wrong’ signal. I am trying to show where all of the tax buckets fit into the picture.

  5. Anonymous says:

    I suppose one could argue that provincial tax revenues are meaningless.

    What matters is how much Federal money a province can capture. Ontario has been on a Federal auto gravey train. Quebec has been on a Federal aerospace gravy train. Newfoundland has gone from have not to have with a lucrative Federal royalty deal.

    Until NB can be effective in garnering Federal resources, our provincial tax strategy is likely to have little impact. If the Feds had an auto or aerospace-like initiative for NB, that would solve a lot of issues including taxation, out migration and immigration.

    Once we benefitted from billions of Federal handouts, we could accuse other provinces of taking handouts and welfare payments. Perspectives change when you are on the gravy train.

  6. nbt says:

    I suppose one could argue that provincial tax revenues are meaningless.

    Not true. They are an indicator of domestic economic growth.

    When per capita own source revenues hit an all-time high during the Lord era, it was because of the modest reductions made in taxation for small business and an early restraint on spending. Unfortunately, because they caved to political pressure, they were not able to maintain (or build on) the progress made early in their mandate.

    But it goes to show you that when taxes are low and spending is contained, there is a larger OSR available for the government to invest then if they hiked taxes to try to achieve the same goal.

  7. richard says:

    “And judging …… to our province over the years, it is clear the high tax environment and excessive use of corporate welfare (to attract business) is as much to blame as anything. “

    There’s no good evidence that tax rates in NB are related to growth or prospects for growth. Nor is there evidence that “corporate welfare” is to blame. Perhaps we should try something more innovative than grasping at straws.

    The main difference between NB and the provinces that are growing rapidly is the energy business. They have it; we do not. We are not sitting on oil so we need to maximize our return from the natural resources we do possess.

    Now, how to go about that is the question. Several things are required, IMHO, but since this post is about tax revenue, perhaps moving away from income taxes and towards consumption taxes is one way to make NB more attractive to startups and relocating industries. Perhaps orporate tax rate cuts could be tied to investments in research. Not sure that is politically feasible, but perhaps if was shown to be tax neutral for most NBers, they would buy-in to higher consumption taxes. I’d like to see some real-world evidence that such a switch is likely to be followed by economic growth.

  8. mikel says:

    Interesting comments, it’s too bad canadians views are so meaningless to public policy (even when they are wrong:)

    As the blog points out, if corporations aren’t required to pay much tax, what difference does it make what the rates are? You think corporations don’t talk to governments and know their tax burden BEFORE setting up shop? That’s a unique perspective.

    Also rare is the analysis above. In economics nothing is sure, and NBT is engaging in bad logic-an economic conclusion can be ’caused’ by any number of factors. ‘Per capita own source revenue’ in the early lord years COULD have come from any number of sources, including federal cutbacks. That’s why economics is called the dismal science, there is no way of linking cause and effect. Of course if you already have a predetermined conclusion you can find any statistic to back it up.

    Richard said most of what I could add, I’d expand on the ‘political will’ that he mentions. It’s largely irrelevant in New Brunswick, particularly at a blog where people readily jump to the conclusion “we’re getting screwed by corporations, how do we let them screw us so much that we get more out of it”. In the real world, the one made up of the New Brunswickers often derided here as being unreliable, the conclusion is far different-‘stop getting screwed’.

    Let’s tie together some of the loose ends. It’s true that NB doesn’t have energy like Newfoundland and Nova Scotia, however, the vast majority of the wealth in NFLD doesn’t stay in NFLD, that’s why Danny is so popular, he’s going to the wall to get more investment IN newfoundland. Like NB, the numbers make NFLD look very nice, but NFLD is below NB in most of the economic indicators that count (for the population).

    But the numbers are clear. Why is New Brunswick’s contribution from Corporations the lowest in Canada-in most cases by far? It’s partly a maritime thing, all maritimes are lower than the national average-except PEI. PEI is poor as well, but corporations there contribute 10% of the provincial budget. Even Nova Scotia, which is at least relatively similar, gets almost 5% of its budget from corporate income tax.

    And of course none of the other atlantic provinces can boast having two multibillion dollar corporations there. By that reasoning, New Brunswick should be getting FAR more from corporations.

    That’s where political will comes into it. Of course most New Brunswickers don’t have any idea of these facts, so its hard to get the political will to act differently.

    But as for the blog title, its been well established that corporate income tax has virtually NO impact on economic development. Even corporations themselves admit that. It is brought up for the simple reason that because ‘the deficit war’ is largely over, there needs to be a new way to cut back on social programs. Corporate income tax is simply the new ‘deficit’ argument.

    As for David’s view, given that foreign investment is almost non existent, who cares about the ‘signals’ being sent? It’s not like the current signals are working.

  9. Anonymous says:

    Until government can demonstrate fiscal intelligence, taxes should be reduced.

    Two examples of the largest expenditures outside regular operating budgets:

    $60M to bail out a corrupt Caisse branch
    $80M in a failed effort to make Atholville a global force in yarn

    This on top of using tax money for politcal gains such as reducing the gas tax (and cancelling the heating rebates which would help the poor and seniors) and allocating $100 million for ‘regional development’.

    Not picking on Liberals, such waste is evident in all politics.

    BTW David, if my math is right: $100M RDC + $60M Caisse + $80M Yarn = $240 M for Fiat

    Why should employees or employers be interested in supporting such waste with more taxes? Before tax reform consultations start, how about presenting government spending reform and accountability plans?

  10. richard says:

    “$60M to bail out a corrupt Caisse branch
    $80M in a failed effort to make Atholville a global force in yarn”

    Those types of ‘investments’ might be regrettable, but in a democracy they are, to some extent, unavoidable. I think it is naive to ask that bailouts like these cease. But we can still nontheless ask for a rational development plan from our elected ‘leaders’. So far I haven’t seen that, which makes the bailouts all the more painful.

  11. mikel says:

    I quite agree with the idea of government reforms and accountabilities, but again, look at the result of NOT doing anything. Keep in mind that most of the money that goes into corporate grants ends up in the accounts of PEOPLE-namely workers.

    Plus, its not like that money is simply a write off, some of it is, but we don’t know how much (again, virtually everybody supports knowing more about that issue).

    Lets do some other math:

    Maine taxation rate on LNG terminal yearly: $8,000,000

    New Brunswick: $500,000

    Over the 25 year life span, the loss equals $187.5 million, the majority of which goes to Irving. That also doesn’t include the loss of income taxes, in Maine 60 jobs were guaranteed at 60 grand per year. In NB, there are NO guarantees, original reports said the terminal (one of those ‘state of the art’ terminals like the new refinery is supposed to be) can operate with as few as EIGHT employees.

    Some more math I recently came across:

    Refinery property taxes in NB: $4 million

    Refinery property taxes in California: $30 million

    Over the last thirty years, losses equal $780 million.

    And again, thats JUST PROPERTY tax.

    So when you talk about GOVERNMENT accountability, remember that it is derived from corporate accountability. We don’t have information on the Caissie deal because of the business investments and the people who ‘may’ have been involved in them. Any liberal would have LOVED to air out tory dirty laundry, since it wasn’t on their watch.

    And look at how Irving operates, they needed a massive loan or they would move, even though they made massive profits in the late nineties, virtually none of it went to technology enhancements-that didn’t happen until Lord and YOU bankrolled it. Which of course means laying off more people and replacing them with technology.

    So again, government runs your health care, your education, your roadworks, etc., FAR better than industry can. Even with the massive problems inherent in government, their business acumen makes corporate canada look like retards-remember, YOU only pitch in when corporations mess up-which is often.

    So by all means rail against government iniquities, just keep in mind they are NOTHING compared to the problems inherent in private enterprise. When a multibillion dollar behemoth like Irving says it wants more or its moving, then its obvious where the REAL incompetence is. What is always sadly ironic is that people talk as if the Irvings are actually GOOD at what they do!