Don't Do It, New Brunswick!

N.S. bets N.B. will jack up taxes, too - reads the headline in The Chronicle Herald. Don't do it, NB! - says one of the commenters to my previous blog post. He has a point - don't do it, NB! Don't backtrack from your tax reform plan.

New Brunswick tried raising taxes already. Back in 2007, the government announced a 5% personal income tax hike to avoid a possible deficit, boosting middle-income tax rate to over 15% - the highest in Canada. The consequences were immediate; some people just voted with their feet, moving to other provinces where taxes were lower. Luckily, the provincial government was quick to realize that they had made a mistake - and in the following year they came up with the plan to lower personal and business income taxes to 12% and 8% respectively.

It's a great plan that will restore business-friendly climate in the province, making it attractive to entrepreneurs. It will contribute to job creation and eliminate punitive taxation on hard-working individuals and single-income families. I sincerely hope that in the general election (which is just 5 months away,) both major parties resist the temptation to backtrack from the plan in an attempt to make room for more costly campaign promises. I hope, both parties commit to continue the tax reform unabated.

But what about the deficit? There are other ways to balance the books beside raising taxes. The government should take advantage of the low interest rates and try to restructure at least some of the provincial debt - that could slash roughly $300M from the deficit. Then there's the zero based budgeting that would make it easier to spot and eliminate wasteful program expenses. And, of course, the government needs to set its priorities straight. Offering a $50M bailout for a failing business, (on top of the business tax cuts that have already been implemented,) when the province has a $624M deficit - that's not a good idea.

But raising taxes is a far worse idea. Right now, NB is expecting to balance its books by 2014/15 - in spite of all the tax cuts that are still planned for 2011 and 2012. NS is expecting to eliminate the deficit a year earlier - in 2013/14. As we can see, those tax hikes don't make that much of a difference. Moreover, it turns out that in spite of all the tax hikes, NS is actually going to have a bigger deficit in 2011-12 than they're going to have this year ($370M vs $222M). And if some of those 7000 Nova Scotians whose marginal tax rate is going to exceed 52% choose to move some 300-400km to the west and take their businesses with them - we may even see New Brunswick balancing its books sooner than Nova Scotia.