A taxing affair

The Federation of New Brunswick Faculty Associations takes issue with the NB Business Council’s call for an increase in the HST as one tool to bring the provincial government budget to balance.

The FNBFA’s problem is one of decimal points.  It suggests that a one point increase in the HST would generate an additional  $11.6 million annually.  This is obviously a boo boo as the real figure is somewhere north of $100 million – the NB government currently generates $1.06 billion from HST (2013-2014) or about $133 million per point of HST.

The FNBFA goes on to say that “one additional percentage point of Income Tax would generate $14 million annually, whereas one additional percentage point of Corporate Tax
would bring in an additional $2.36 million annually”.  The FNBFA goes on to rant that high income earners and wealthy corporations don’t pay their fair share in New Brunswick.

I think we have to engage in good debate on these issues.  I welcome the FNBFA’s contribution but they should get their decimal points right.

Here is the challenge.  Corporations already face one of the highest income tax rate structures in Canada among the 10 provinces.  Look here if you don’t believe me.  The problem the FNBFA doesn’t realize is that corporations with a national or international footprint pay a distributed income tax based on a formula that is based on the end markets and on where they have their manufacturing and services activity.   So McCain Foods, for example, likely pays more corporate income tax globally than the entire corporate income tax take of the NB government but that is because McCain would pay a relatively limited share of its taxes here because NB is only a small part of its global empire.

You could jack up corporate income tax rates here but in order to get the same revenue as a two point increase in the HST you would almost have to double the total tax take.  That would hit the beloved small businesses – who don’t have a global footprint – very hard – you might end up with a CFIB-led revolt.

You could increase personal income tax rates but again NB is in the highest tier of Canadian provinces for persons with incomes over $75,000/year.  In order to raise the same revenue as a two point increase in the HST you would have to significantly raise tax rates – and not just on the ‘rich’.   And the tricky part is that the average salary for a full time university professor and lecturer in New Brunswick in 2010 (from the NHS) was over $93,000 per year or 91% more than that for the average full time worker across the province.

So, a huge increase in personal income tax rates for the highest two quintiles of income earners would take a big bit out of the FNBFA members.

Tax policy is complicated.  My position has been we need to set tax policy as much as is humanly possible in such a way that it doesn’t negatively impact business investment – which is the crucial foundation of a strong economy.  Also, I am sympathetic to the idea that we can’t tax our professional class too highly or we may not be able to attract computer programmers, engineers, etc. to live here.  But the money has got to come from somewhere.

At least with the Biz Council’s idea, people seem to be less sensitive to sales taxes.  Income and property taxes seem to be the most likely to get people up in arms.  If I had my way we wouldn’t raise any taxes but we do have this little problem of a $500 million – sustained – annual deficit.

It will likely take some combination of spending restraint, tax rises and economic growth to get the NB economy back to a position where it is generating enough tax revenue to cover the NB portion of the cost of public services and infrastructure.

Let the debate, with the proper decimal points, begin.

 

 

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