New Brunswick raised its Harmonized Sales Tax (HST) on Canada Day to 15 percent, joining slow-growth Nova Scotia and Newfoundland & Labrador with the highest HST rate in Canada. Taxpayers were told the two-point HST increase is needed to control the province’s deficit, which today stands at $347 million. But that isn’t happening. Instead, the HST hike is fuelling a growing provincial government.
The province last tabled a surplus budget in 2007. According to the figures from the provincial auditor, the last nine budgets accumulated a staggering $4 billion in added debt. Today, the province’s total debt stands at $13.5-billion. On a per capita basis, every man, woman and child owes New Brunswick’s creditors nearly $17,900. Interest payments to service that debt cost New Brunswick taxpayers $700-million each year – tax money that cannot be spent on health, infrastructure or used to boost the economy with tax cuts.
Voters who support paying higher taxes to eliminate the deficit have been sold a false bill of goods. According to the 2016 budget, the added HST revenue is being spent instead of erasing the red ink. It is anticipated that the higher HST will boost provincial revenues by $277 million this year. Meanwhile, program spending (that is everything but debt interest) will jump $289 million. The government is taxing more to spend more.
New Brunswick is now one of the highest taxed provinces in Canada – before the July 1 HST hike, business taxes increased along with income taxes paid by working families. New Brunswick is also taxed more heavily than its competitors in neighbouring New England.
High taxes mean individuals have less money to spend or save. Companies, meanwhile, are voting with their feet by investing elsewhere. The result is fewer jobs and less opportunity for New Brunswick’s working families.
The province’s high provincial taxes are slowing economic growth and hurting investment. The finance department expects income taxes paid by corporations will be $30-million lower than anticipated in the 2015 budget. That’s a 12 percent drop. Similarly, HST revenue is also projected to be down by over $50-million or 4.2 percent less in 2015. This is evidence of a deteriorating N.B. economy.
Since 2005, spending in New Brunswick has grown by a staggering 50 percent. Very few taxpayers will agree they are receiving better government services for the added costs and higher taxes. Instead, they are carrying a larger government – the provincial bureaucracy is costlier and larger than the Canadian average.
So what can be done to turn things around? At an absolute minimum, New Brunswick should control its annual spending so it grows at a much more modest, and lower, rate. This is what countless households and businesses do every year to make ends meet.
After the drum beat of tax increases we’ve experienced over the past few years it is apparent that New Brunswick can only eliminate its deficit, and return the province on a sound fiscal footing, by tackling government expenditures.
Had the province moderated its spending increase to two percent a year since 2005 – instead of the actual 3.8 percent average annual boost – the government would today be running a $1 billion surplus. That surplus would mean the recent HST increase along with many other tax increases would not have been necessary.
Premier Gallant should commit his government to a one percent increase to program spending. This would largely offset inflation and put downward pressure on the province’s spending arc. This limit should be set in law to ensure bipartisan support.
A year ago Cathy Rogers, New Brunswick’s new Finance Minister, said raising the HST was the “lazy way” to fix the province’s finances. The Gallant government went ahead and took the easy way out anyway. Now we’re discovering lazy tax hikes cannot solve a spending addiction. That will take hard work. To continue on the current path means high taxes, slow growth and less economic opportunity in New Brunswick.
John Williamson is a former Member of Parliament and past National Director of the Canadian Taxpayers Federation.