A couple of interesting stories this morning. First, an NDP government in Nova Scotia brings in a fiscally conservative budget with a massive tax hike in order to clean up the books. Just to put things in perspective the 2 percentage point increase in the HST is projected to add $231 million to the revenue side (after rebates for low income earners). The $222 million deficit projected by NS is less than 1/3 New Brunswick’s budget deficit.
Translation? Get ready for the next NB budget to look a lot like Dexters. Expect an increase in the HST – it was recommended in New Brunswick as an offset to the tax cuts but never implemented. It will likely be now (no matter who is in power after the election).
It is important to point out that Nova Scotia’s overall debt situation is worse than New Brunswick so they have a more urgent need to get their deficit eliminated but I have said that New Brunswick should have upped the HST in its last budget.
As for the Laffer part of this blog – I see that Dexter is using tax incentives to stimulate investment rather than just straight tax cuts for business (although there is a token cut for small businesses). As I have said many times before, I think corporate tax rates should be competitive but after than any tax cuts should be tied to good behaviour (i.e. investment tax credits). If you expand in New Brunswick, get more productive, develop new foreign markets, you get tax incentives – otherwise – not. My viewpoint on this is not widely shared it would seem.
By the way, that is not directly related to the Laffer curve but you will allow me some flexibility here. Laffer postulated that as you raise tax rates you increase taxes collected but only to a point. At some point the more you raise tax rates, the amount of tax collected actually goes down. I don’t necessarily agree with Laffer (except on a theoretical basis) but my thesis – a kind of Lafferian idea – is that if you cut tax rates you don’t necessarily get new investment and economic growth (as is postulated by some). If your goal is new investment, you should tie tax cuts directly to new investment.
As for the laughter part of this blog, I refer you to my column today.