Budget worries?

Depends on who you ask:

The wise LPG – head of the Conseil economique: Leaders OK with deficit

The SJ Board of Trade: Business leaders worry about provincial deficit

I still think there is a 2 percentage point rise somewhere down the line in the HST.  I don’t know that you can deeply cut corporate and personal income taxes and try to make that back by economic growth or by fiscal restraint.  They didn’t put it in this budget because it would be another big red bullseye but I think it’s in somewhere down the line.  The province raises about $126M per 1 percentage point on the HST.  Adding two percentage points would raise almost $260M (ceteris paribus) – only one third of the way to eliminating a $750M deficit.  The total corporate income tax collected in NB in fiscal 2010-2011 is projected to be $187 million (see page 226).  In other words you could triple the corporate tax rate and still not eliminate the deficit (ceteris paribus). 

The entire personal income tax collected in 2010-2011 is expected to be $1.19B.  In other words if you could raise personal income taxes by 60% and you wouldn’t quite have enough money to pay down the deficit.

Just to put some perspective on it.

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13 Responses to Budget worries?

  1. mikel says:

    Good to see you still posting on other stuff. I don’t think there’s much point in talking about policy for long term-its VERY doubtful that the liberals are going to be in power that long, and I’m not just talking about the NBPower stuff.

    That’s the worst thing about the NBPower thing if it DOES go to the election, it will give the tories a pass on virtually every other policy. The liberals cut taxes in a big way, so it would be interesting to actually find out how Alward would deal with the downturn.

    The other bonehead move was to cut gas taxes. Most of the world has moved to ‘consumptive taxes’, while Canada keeps cutting income taxes yet still keeps fairly low taxes on consumption.

    I remember Lamrock saying that in a ‘good’ budget there was only ever about 100 million at most you could ‘play with’. That’s clearly gone, so it’ll be interesting to see how this 1 billion ‘initiative’ plays out. I don’t know of ANY other government that is trying anything like this, and unfortunately again, most of the money is tied to short term jobs in road and bridge construction, which won’t really help much by year two.

  2. Rob says:

    Regarding the CFIB’s statement in the first article, that their group supports deficit reduction in the mid-to-long term, isn’t that a very easy statement to make? I think everyone supports everything in the medium-to-long term. It’s when we shift the priorities to the short-term that people get upset. Eventually either taxes will be raised or services will be cut to make up the deficit. The gov’t projects a 14% increase in revenue by 2015, matched by only 2% growth in spending, to get back in black. Is this really feasible?

    Regarding the second article and construction activity, I think the Finance Minister’s statements yesterday re: Canaport are quite telling. We enjoyed the short-term economic benefits of building the plant in Saint John, but there is almost zero economic benefit of having the plant in the future. Property taxes for Canaport are quite low, and employment at the facility is minimal. We’ve become an LNG hub, but get nothing in our pocketbook to show for it.

  3. DC in FB says:

    I’d like to see sales tax increase before inc tax as well. Its time the drug dealers helped pay for the cops that chase them.

  4. Charles Theriault says:

    We are on an unsustainable path. The amount of debt added to the books of NB over the past three years is staggering. When a population of approx 750,000 people owe $10Billion dollars – people need to pause and take stock of the situation.

    For this year’s operating budget of approx $8B. $2.8B came from federal transfers and $760M came from borrowed dollars. If effect $3.6B of the $8B or 45% of the money that will be spent running NB this year did not come from NB tax payers. That is scary. Think about the sensitivities around any future decreases in transfer payments and what that might mean.

    Yes the efforts to provide a low tax regime are laudable. It does not appear to have driven any significant type of econ investment yet (not saying that it won’t).

    These types of initiatives have to somehow be offset with some other form of taxation or decrease in spending. As much as people hate taxes we have to look at some options for the next budget year. We have to climb out this deficit budget path and fast.

    The tax option that most people would agree will have the greatest impact is to revert back to the 15% HST. The 2% that was decreased federally can be taken provincially. Nova Scotia is heading down this path. It is a broad based tax and offers a significant revenue stream for the gov’t . At the same time it is fairly marginal on most people pocket books – an extra $2 on $100. When were paying it two years ago.

    The fact that overall gov’t spending has rose by 6% is staggering. A hard look at the role of gov’t and the spending it is doing has to completed. Quite simply – in a deficit environment no increases in general gov’s spending should be allowed.

    We all hate taxes and decreases in spending. The reality is that the structural deficit path that we are on will end up making NB broke or so debt riddled that half our tax dollars will just pay interest on the debt. We will pay close to $700 million in interest this year alone. That will grow to a billion soon.

    We as a society need to get our heads wrapped around a few simple concepts – either we want a lot from a gov’t and are willing to pay for it or we want less from a gov’t and get to put more in our pocket. We cannot have it both ways.

  5. I tend to agree with most of the points above. I think it will be an uphill battle for the Liberals to win the election in 2010 and we could be facing another Tory government. They would have to address the tax situation, the deficit and NB Power – not to mention the longer term structural economic challenges that we debate here. I think there will be real pain ahead if they are to balance the books by 2014. A 0.6% increase in spending is almost impossible given the negotiated wage increases to the tens of thousands of public sector employees. That alone will get you above 0.6%. There will need to be cuts (similar to the cuts in the early 1990s) and I don’t think the unions or the public have the stomach for it after 13 years of increases in spending well above GDP growth. So, unfortunately, regardless of who is in power you are looking at sustained deficits for even longer than 2014 and I would assume considerable tax increases too.

  6. Mark says:

    This sets up another interesting inter-provincial dynamic. If my recollection of the HSt enabling legislation is correct, the tax is levied in the three signatory provinces as one entity, and it requires consent of two out of three provinces to raise the provincial portion of the harmonized tax. Premier Dexter’s government has already mused aloud about raising it. If New Brunswick were to follow suit, would that mean that the HSt would rise to 15% across the board? And now that other provinces are in the process of harmonizing, will this be impetus to remove the requirement of smaller HST provinces to seek consent on such changes, given that BC and Ontario, presumably, have autonomy to change theirs?

  7. RKA says:

    Here’s an outline of what I feel its the type of strategy that’s going to pull the globe out of the recession. A lot of Governments are resisting the change to more environmentally responsible ways claiming it “costs” too much. “Disruption” is the force that’s really behind true change – otherwise if it ain’t broke don’t fix it right?

    I’m not an ED guy at all (far from it) but I find it really frustrating (as I’m sure we all do) that politics gets in the way of doing what’s “right”.

    Unfortunately, creative people don’t go into politics.

    STARTING POINT (NB Power)

    – Review studies done by Lord Government 1998/99
    (Look at models referenced then to see results 10 years later – Learn what worked and what didn’t)
    – Public consultation for more ideas – local initiatives, etc.
    – Reduce NB Power overhead through attrition and efficiencies
    – Long term leasing of Transmission lines or sell 49% to highest bidder
    – 5 year Tax Holiday for NB Power – to pay down debt
    – Sell Lepreau once it’s operational?

    ELECTRICITY STRATEGY

    – Develop cooperative energy strategy with Atlantic Canada/Maine
    – Adjust NB Enegy policy to reflect future needs
    – Look at European Models (Denmark – community generation)
    – Natural gas conversion for key thermal plants (Colson – Beldune)
    – NG pipeline to Beldune as anchor to north (through Miramichi)
    – Community-based small scale Wind/Solar/Micro-hydro Projects (Yves Gagnon – U de M)
    – Start Green Investment fund for new Power Projects (Mactaquac refurb)

    REDUCE GENERATION DEMAND
    (Since NB POWER is selling for less than production cost this could reduce expenses couldn’t it?)

    – Offer incentives for existing Industry to cogenerate (exit fee holiday within X time frame – reducing generation requirements)
    – Offer 5-year rate reduction for New businesses that use green sources
    – Decommission Thermal plants when green sources can replace them
    – Apply carbon credits to decommissioning costs
    – Promote Demand Side Reductions (efficiency NB, increase New housing Insulation standards)

    ECONOMIC DEVELOPMENT

    – Sell NB as Green place to do business (ie. Washington state)
    – Seek out “Green” Business – Google, Demanufacturing, UMOE anything forward and green thinking
    – Goes with NB lifestyle benefits (lots of space, affordable Real estate, etc.)
    – Tourism (eco and otherwise)
    – Bring back rail service (longer term)

    —————————————————
    I have no idea what effect tax incentives and breaks really have in attracting business but I saw a comment on the NFLD CBC site from a guy that worked at the AB pulp mill in Grand Falls. The mill had is own power source (essentially “free” he said) and when working on the roof he could see the guys cutting the trees for pulp (no transportation costs) and they still shut down……

  8. mikel says:

    One thing about the tories is that if you kowtow and play ball, the federal tories will be nice to you. Since going all blue last election the feds have rained money on the Kitchener Waterloo area. There aren’t too many blue Premier’s left, so who knows what that ‘might’ bring.

    I would be interested in seeing exactly what happened in NB. Here in ontario its pretty obvious-most of my friends are unemployed, even science jobs now are hard to come by, and its pretty clear that manufacturing in the auto sector is largely responsible.

    But EXACTLY what happened in NB is a little more open ended. Forestry has been bleeding jobs and investment for years, so what are the big cost differences from, say, even five years ago.

    I don’t agree on the tax cuts, its ALWAYS ‘assumed’ that simply cutting taxes magically makes revenue rise because people spend more. The evidence for that is pretty spotty, and considering that many of the corporate tax payers are guys whose main income comes from assets within the province, its doubtful they’d flee. As David points out, Lord lowered the small business tax to virtually zero, and the number of small businesses actually decreased.

  9. Samonymous says:

    I don’t know that you can deeply cut corporate and personal income taxes and try to make that back by economic growth or by fiscal restraint.

    That argument has been made many a time. It’s pretty clear that if there was absolutely no tax being levied on business and individuals that there would be no revenue being raised, however, the same goes for a 100 per cent tax rate, in that, it would also generate no revenue. Mainly because with such a rate of tax there is no longer any incentive for a rational taxpayer to earn any income whatsoever and thus the revenue raised will be 100% of nothing. Which is why I believe the lower the tax rate, the better the revenues.

    However, that only applies in a fairly stable economy where compensations aren’t needed.

  10. Rob says:

    @RKA

    Regarding the reductions in NB Power’s electrical demand, perhaps we should go the Efficiency Vermont route, and start counting “negawatts”. The marginal savings from conserving power are much greater than the marginal cost of new production. Efficiency NB’s budget was increased in this years budget, so we are at least starting down the right path.

    Our energy policy absolutely must be updated. Our policy was written in the late 90s using studies and data from the early and mid 90s. I think we’re making it up as we go along today, and the way the NB Power deal developed reflects this. I really like the idea of examining the assumptions of the late 90s studies, and seeing how these ideas and policies worked out through the past decade.

    The one positive of the NB Power deal is the fact that we’ll exceed our GHG reduction goals. I think that we gain some moral leverage in Confederation through our Kyoto compliance. I also think this is a massive selling point for our business and immigration promotion.

  11. richard says:

    “Unfortunately, creative people don’t go into politics”

    Well, I’ve heard some pretty creative lies from politicians. Perhaps a number of our politicians are frustrated artists.

    NB is in for a very difficult decade. I am dubious that changes to our energy policy will change that scenario very much (unless they significantly reduce rates relative to other jurisdictions), however, green energy might be an attractant to business.

    Federally, we may have the Cons in power for a few more years. While they might be sympathetic to a PC gov here in NB, that will not be a main focus for them. We are going to see major reductions in spending; that will hurt us big-time. We are going to see efforts to curtail transfer payments; that will hurt us a great deal. Tie that to a global economy that will grow only slowly for at least a few more years and it spells hard times for GNB and NBers. There will not a booming ON or a booming AB to run to for jobs.

    NBers have been lied to, but, mainly, we have lied to ourselves. We need to wake up and make some fundamental changes to the way we do things here. I am not sure how that is going to be achieved; I see few hopeful signs but its my view that we need to start with better information sources and more transparency. Then at least we would have the tools to start some rational discussions.

  12. Paul says:

    When the The Conseil Économique du Nouveau-Brunswick promotes extended deficit spending, it reinforces an assumption I have about how much business rely on government spending in this province. More than is healthy, methinks.

    I am also not quite sure how burdening future generations with debt payments, tax increases and decreasing services is going to make New Brunswick an attractive place for intelligent ambitious people to live in.

  13. Anonymous says:

    I am trying to understand just how increasing net debt by 50% works into the plans for self sufficiency. Yes, borrowing money can make sense when investing in resources that have pay off down the road but I don’t see that. In fact, the massive amount of highway construction underway will probably be due for resurfacing around the time we are supposed to be self sufficient in 2026.

    At some point in time we are going to need an effective economic development strategy. Trouble is, as we continue he status quo we are eliminating options in two ways; missing opportunities that other exploit and eliminating opportunities that have longer term pay offs.

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