Melanson was finance minister until early June. His budgets increased taxes on personal and corporate income. More recently, the government hiked the harmonized sales tax (HST) by two points to 15 percent. Total government spending, meanwhile, will hit $8.97 billion in 2016, a new record high.
The province’s policy of high taxes to pay for more spending isn’t working. New jobs aren’t being created and a policy of subsidizing companies that add workers isn’t sustainable. Subsidized jobs typically disappear when the grant ends. And the cost of those corporate subsidies is paid by higher overall taxes, dragging on business expansion and job formation. Economists say growth in New Brunswick is slowing and the Conference Board of Canada predicts the economy will actually shrink in 2016. The labour force is also shrinking as the population ages and workers go elsewhere for better opportunities.
Taxes are so high that families and businesses spend and invest less. The 2016 budget lowered the amount of tax revenue from two sources that the government said the province would collect in 2015. Taxes paid by corporations in 2015 will be $30 million less than anticipated. Similarly, HST revenue will be down $50 million, a 4.2 percent decline. These numbers indicate slower business activity and less consumer spending.
Complaints about budget policy are usually heard from outside the government. But not always. David Campbell – the senior adviser to Premier Brian Gallant’s Jobs Board – recently broadsided the government in a commentary entitled New Brunswick’s $250,000 Problem.
According to Campbell, the province doesn’t have enough high-income earners. He reported that New Brunswick has 59 percent fewer people earning $200,000 a year and 63 percent fewer earning $250,000 a year than the Canadian averages. He calls it a “shockingly low number” that hurts the economy. And it’s getting worse: “In the past five years, the national growth rate of those earning $250,000 was 50 percent faster than New Brunswick.”
Slow economic growth and more unemployment are triggered by heavy personal and business tax rates. New Brunswick’s personal income tax rates – up and down the economic ladder – are too high. The province is nearly tied with Nova Scotia with the second highest top tax rate in North America. (The highest tax jurisdiction is Quebec.) The province also has one of the highest corporate tax rates in Canada. This weakens incentives for large companies and the people that manage them to remain or locate here.
But Melanson doesn’t believe the government’s high tax agenda puts the province at a competitive disadvantage, despite mounting evidence of a worsening economy. “East of Ontario, everyone is at the same level or just about,” he said about taxes. “We are competitive in corporate taxes. The level of income tax for high-income earners also is competitive compared to the other Atlantic provinces.”
Campbell, however, says having fewer high-income taxpayers means less tax revenue for New Brunswick and less overall economic activity. And even worse for families, New Brunswick’s disappearing top earners, he explains, “pushes the tax burden down the income pyramid.” Having fewer high-income earners means middle, modest and even low-income taxpayers pay more tax.
Melanson dismisses the suggestion the government is taxing more to spend more. He told the CBC that the government is taking a “balanced approach” to deficit reduction with spending cuts equaling tax hikes.
He said 50 percent of the budget solution comes from finding government efficiencies that total $296 million over the next five years. The other piece, “about 50 percent of the solution,” comes from $293 million in new HST revenues.
In fact, the government will collect about $300 million each year from its two-point HST increase, or $1.5 billion over five years. And the projected expenditure savings of $296 million amount to just $60 million a year, on average.
For every $1 in spending reductions, New Brunswick taxpayers will pay $5 more in HST. This five-to-one ratio isn’t close to a balanced plan. And it would be even more lopsided if we included the revenues from higher income taxes, higher gas and cigarette taxes, and added fees for government services.
So long as New Brunswick taxes and spends in the same pattern, the government will not balance its budget. That’s a simple math. Melanson needs a new calculator.
John Williamson is a former Member of Parliament and past National Director of the Canadian Taxpayers Federation.