In June of this year the New Brunswick Department of Finance released a rather bold discussion paper on the future of taxation in the province. The Discussion Paper proposes to promote economic growth by shifting the burden of taxation in the province away from income taxes and towards taxes on consumption and greenhouse gas emissions. The discussion paper proposes the following:
- Replacing the four existing personal income tax brackets (with an existing top rate of 17.95%) with either a system with two brackets (at 9% and 12%) or a 10% flat tax.
- Reducing the current corporate income tax rate from 13% to either 10%, 7% or down to the current small business rate of 5%
- Increasing the provincial component of the sales tax rate from 8% to 10%.
- Introducing a $30 per tonne tax on “carbon and carbon-equivalent emissions” (presumably the rate will be $30 per tonne of CO2)
A 10% flat income tax rate would match Alberta’s 10% flat-tax as the lowest provincial income tax rate in Canada. Alberta also currently has the lowest corporate income tax rate at 10%; provincial rates in Canada range between 10-16% for general corporate tax rates and between 3-8% for small-business rates (see this PDF for details). A reduction from 13% to 5% would give New Brunswick a rate half of the next lowest province at little cost to the provincial treasury as corporate income taxes account for merely 4.5% of NB government revenue and increased capital inflows would help offset the lower rate.
These taxes would primarily be financed by an increase in the Harmonized Sales Tax. The Federal Government has reduced their sales taxes by two percentage points over the last two years, so the combined sales tax rate would be increased back to the combined 17% rate of 2006. Other provinces have considered raising their sales tax rate to offset the Federal cut but none to date have done so. New Brunswick, however, would not be the first province to introduce a carbon tax – Quebec and British Columbia have done so in the last 12 months.
We will likely have to wait until the next New Brunswick budget in March 2009 before we know what path the province will take. A 5% corporate tax rate and an hourly wage rate well below the National average would give New Brunswick two of the same advantages in attracting New Brunswick as Ireland had in the 1990s (though Ireland had other advantages as well). With high energy prices and a Canadian dollar at par vis-à-vis the greenback, do not be surprised if other provinces look into tax reforms to improve their competitiveness.
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