It looks like there is going to be some form of blanket tax cut – corporate and personal coming in New Brunswick. The reality is that it will be very small – percentage wise – and only save people a nominal amount of money but it will take away needed government revenue at a time of deficits.
Just to put it into perspective, if you slashed the personal income tax collected for the provincial budget by 25%, that would result in a savings per household of $15/week or $800/year. You could eliminate all provincial corporate income taxes entirely in New Brunswick and it would only be worth about $5,800 in benefit to the average business in New Brunswick. That’s not much.
The reality is that politicians like tax cuts because they poll well. Everyone likes to ‘save’ money. Bernard Lord was hailed nationally as a hero by the Canadian Chamber, AIMS, CIFB and just about everyone else when he cut the small business tax rate to the lowest in Canada. Nobody bothered to check the results. After that tax cut, New Brunswick actually saw a drop in the number of small businesses (-3.9% compared to a growth rate of 13% in Ontario).
These days I am firmly in the camp of targeted tax cuts. Unlike blanket tax cuts, the political benefit might actually be negative in the short term as businesses that don’t get the tax cut whine about those that do. But in the end, I believe the tax system incentivizes behaviour. If you want businesses to make investments, create high paying jobs or conduct R&D, then give them a tax incentive to do so but don’t just cut a tax, hold your breath, take kudos from the CFIB and hope for the best.
I am also increasingly of the view that targeted tax cuts might work on the personal side of the house as well. If you want to grow the animation industry, give a $4,000 tax credit each year for three years for each person who moves to the province to work in animation or who starts a career in animation here. That would incentivize the workforce in this sector and help offset some of the costs of relocating here for migrants. I am not 100% sold on this notion (it is used in Quebec to stimulate the financial services industry) – but it is worth a close look.
In the end, broad-based tax cuts should be a dividend for successful economic development and not some untested, politically motivated attempt to curry favour with constituencies.