I humbly bow in your esteemed presence, but you are wrong

I admit it stretches the limits of credibility. Me, with my dime store degree and “not much for book learnin'” going up against the most esteemed business expert in Canada but, I guess that’s what blogs are for. Here’s a segment from a story in the TJ. Read it and my comments below.

Jack Mintz, a professor of business economics with the J.L. Rotman School of Management at the University of Toronto and a fellow-in-residence with the C.D. Howe Institute, says New Brunswick needs bold and “smart” tax policies as it plans how to energize the provincial economy in order to achieve self-sufficiency.

A corporate income tax rate of 13 per cent certainly just puts New Brunswick in the middle of the pack. Why not tax everybody at the small business rate of five per cent? That would be pretty dramatic,” he said.

Mintz also had some blunt advice for New Brunswick’s myriad tax credit programs, many of which are designed as incentives for specific economic sectors or as aids to certain industries.
“Get rid of some of these little credits and things like that.

“That’s kind of what poor nations, less developed countries try to do, to target things. It really just creates a big fiscal cost where you could do things a lot better,” he said.

With all due respect, New Brunswick companies don’t pay much tax already. Less than 3% of the provincial budget comes from corporate taxes compared to, I believe, close to 10% or more in Ontario. When former Premier Lord cut the small biz tax rate to almost zero, the rate of small businesses growth actually got worse. Of course, that didn’t make old Volpe’s “report card”.

As for cutting large business tax rates, I have a theory that they don’t pay much tax here anyway. As I have pointed out elsewhere, BCE pays more corporate income tax (in total) than all New Brunswick companies combined (that’s Irving, McCain, Ganong, on and on and on all of them). Of course, they may be paying taxes elsewhere – who knows? but in New Brunswick corporations pay very little tax and I see no examples where cutting the overall corporate tax rate in a poor province does much good. In Ontario, which is dominated by medium and large business that do pay serious taxes (10% of the total provincial budget), maybe cutting those taxes might be stimulative but even there I would question it.

He also says to get rid of New Brunswick’s myriad tax credit programs. What myriad tax credit programs? There are a few but I wouldn’t call them a ‘myriad’.

Further I would go beyond and state that any tax cuts should be tied directly to job creation. If businesses want tax cuts, they should prove that money is at least in part being pushed back into local growth.

I mean think this through for a minute. We know that 98% or more of our RRSPs, RESPs and public pension investments are being put to use elsewhere – in places like India, China, the U.S., Latin America – and in large part in Ontario, Alberta, etc.

So, here is Mintz’s strategy. Cut taxes here so that entrepreneurs can make more money and put it into their savings which is driving economic development anywhere but here.

Not in my book. If they want tax cuts, tie them directly to more investment here.

Last, but most important point, here’s the quote:

“That’s kind of what poor nations, less developed countries try to do, to target things. It really just creates a big fiscal cost where you could do things a lot better,” he said.

Ontario ‘targets’ auto, aerospace, biotechnology, etc -with billions in incentives
Quebec ‘targets’ aerospace, biotech, animation, etc. – with billions in incentives
Alberta ‘targets’ oil & gas with billions in royalty incentives

I guess that’s what ‘poor nations’ do.

Last point. If you read up on the economic development history of Canada, C.D. Howe is at its core spending billions in defense funding to build up a huge military industry almost exclusively in Ontario and Quebec. Now the head of the institute bearing his name is telling New Brunswick not to ‘target’ things.

Maybe that’s the secret mandate of C.D. Howe. To screw Atlantic Canada in perpetuity.

My advice? New Brunswick needs to get a whole lot better at ‘targeting’ industry. At building a good environment for ‘targeted’ industry. The lack of effort over the decades has left us in the position we are in. Imagine if we had started to build a pharma industry when Quebec started in the 1970s. It might be us with the 50,000 high end pharma jobs. Imagine if New Brunswick had become the hub of the auto pact. Think about what might have happened if New Brunswick had tried to become the film capital of Canada (like B.C. did) or the lightening rod for Asian investment during the Hong Kong handover. These are all highly targeted efforts.

But Mintz sees what Mintz wants to see. No matter how many degrees or how scruffed up the pedigree, he is still peddling a narrow view of the world that defies what can be viewed in plain sight all around him.

This entry was posted in Uncategorized. Bookmark the permalink.

0 Responses to I humbly bow in your esteemed presence, but you are wrong

  1. mikel says:

    Good post, however, you may be missing one thing, namely that Mintz is probably talking about POTENTIAL investment. Namely, your raison d’etre. As companies survey the country or hemisphere, they don’t see ‘potential’ savings, or how much ‘in general’ corporations pay. They want to know their bottom line.

    So when they scan around and see that the corporate tax rate is 13% they aren’t that interested.

    But think about this, Graham and Lord are already in the business of practically giving away resources in exchange for jobs. They already are in the business of paying for Irvings expansion by giving tax deals.

    So take it one step further to something dramatic and what if they got rid of corporate tax altogether. That is dramatic, and ties into the ‘self sufficiency’ theme. In other words, what if they told the feds, ‘look, for five years you give us the 180 million that corporations used to, and that investment will be covered in five years by income taxes’.

    That’s a pretty bold move, and technically IF the feds were on board then it costs New Brunswickers nothing. Combine that with some other programs, say immigration sponsorships and/or a database of expatriate New Brunswickers willing to relocate back (just in case).

    That’s certainly a pretty big carrot to add to that “what are we selling?” article you had yesterday.

    However, I can see NBT gleefully reading that so I’d combine it with another policy, namely NOT giving ‘preferential’ tax treatment to RESOURCES. Most areas outside Canada tax RESOURCES because they know that users of them can’t go elsewhere. And ‘knowledge’ industries don’t care about resources, they care about ideas and people. That’s not necessary, but when you have a scenario that you mention where the largest companies in the world are quite simply robbing the province blind, you can outright admit that and try to align ED with that fact and get other types of industries, or you can do another sensible thing and NOT let them rob you blind.

  2. NB taxpayer says:

    You forgot to mention one thing, corporate welfare [TPC loans] to big corporations like Irving, Rogers, etc., not to mention, tax loopholes and favoritism (for some said companies) do more to set the table [business climate] in the favour of big corporations. And don’t forget, small businesses who don’t get help from ACOA (piddly partisan corporate welfare) shoulder the tax burden for everyone else. It’s the big dirty no politician wants to talk about because they all engage in it.

    But it is what makes our economy so uncompetitive.

  3. mikel says:

    Just an update, Citicorp is about to get the largest federal bailout in US history, up to 100 billion may be on the table.

    But yeah, its just OUR economy that does that.