Is economic development revenue neutral?

The NDP is saying economic development that generates increased taxes for government is ‘revenue neutral’ in terms of the province’s fiscal situation because the feds just ratchet down Equalization as own source revenue goes up.

We have discussed this probably as much as any other theme on this blog.  New Brunswick gets more money from the Feds as a reward when the economy weakens and less money when the economy strengthens.

That is why the longer term goal of bringing New Brunswick into better balance between own source revenue and expenditures should be a shared objective between the feds and the province. 

In the mid to longer term, significant economic growth that fixed New Brunswick’s structural fiscal problem would be very beneficial to the feds.  It would reduce their costs. It would start to address the concerns of the ‘rich’ provinces and it would generate a lot of goodwill in New Brunswick towards the feds.

The joint levels of government could set five, 10 and 20 year targets (just like the EU with Ireland) and set up a serious model to work towards those targets.

Barring this, however; Greg Byrne is right.  We still need to focus on economic growth and the clawback is not one-to-one.

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2 Responses to Is economic development revenue neutral?

  1. Don Dennison says:

    Sorry to hear that an economist and NDP candidate is lending credence to that old chestnut – but then a lot of ‘smart’ people in Ontario and the West choose to believe that equalization is de-incentivizing.
    Aside from the fact that the ‘clawback’ is not one to one, there are three other factors to consider. First provincial governments are not solely concerned with the impact on their revenues. Hasn’t anyone noticed that the competition for voter support is strong – even fierce – and any government is anxious to boost economic activity and raise satisfaction levels among voters.
    Second, equalization, despite a Constitutional provision (inserted by a forward thinking Richard Hatfield in 1981 when he had the opportunity) is not assured and certainly not at any fixed level. It actually falls far short of true equalization, unlike in some other modern federations like Germany and Australia. You are much better off to grow your way out of equalization than to depend on it.
    Third, There’s the respect factor – welfare recipients understand this very well. Prosperity breeds its own success.
    All in all, the self-sufficiency concept is bang on and we need to pursue it vigorously and relentlessly, regardless of who forms the next government.

  2. mikel says:

    THAT is the comment that you pick to blog on? How about Alward’s claim that he was part of a government that successful balanced growth, or his assertion that ‘small businesses hire the most people’ so deserve a 50% tax cut.
    It was clear from the article that the NDP was NOT saying ‘lets ignore the economy because equalization just gets clawed back’. What they are saying is that Graham’s-and Alwards-plan for paying down the deficit through more jobs simply won’t work. Something a finance professor says, which is backed up by a financial think tank (oh, but their from ontario so just mentioning equalization I suppose means they are part of the plot to keep NB down)
    You and Byrne say its not ‘dollar for dollar’-can you prove that? What exactly is it? Why then was Nova Scotia and Newfoundland so adamant about it in the Atlantic Accord?
    You may be right that it needs a co-ordinated federal and provincial plan-where is the evidence such a thing exists? Has Graham ever mentioned it?
    These are two very different subjects-economic development and tax rates. It’s ironic that liberals keep talking about a ‘plan’ to develop 20,000 jobs, but I’ve never seen any details on this plan, any more than Alwards.
    The point here is that the NDP are right. The REAL questions should then be
    1. Ok, so whats YOUR plan for economic development (from the article we see getting rid of corporate welfare and BNB as the only two ‘negatives’, so what exactly would they do?)
    2. What is your long term goal for resolving this problem of equalization?

    But admit, they are quite right, and IF the liberals had been doing a fantastic job at job creation then there would be no debate. If there really WERE going to be 20,000 nice new high paying jobs to add to the tax base, then that would be a different debate. But anybody reading this that actually thinks that will happen, well, I’ve got a bridge to sell you in Salisbury.

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