B1

Dave MacLean
Telegraph-Journal

Stumble Upon

del.icio.us

Digg

Facebook

Print

Email

1 Comment(s)

Lower corporate tax rates should give New Brunswick an advantage over neighbouring Nova Scotia when it comes to attracting new business investment to the province, but a prominent economist says the Graham government can't remain in deficit territory forever.

Enlarge Photo

Donald Savoie Noel Chenier/Telegraph-Journal

Donald Savoie says there are only two ways to eliminate a deficit: raise taxes or cut services.

Donald Savoie, one of the region's leading economic development experts, says lower taxes won't lead to a mass exodus of businesses to New Brunswick from Nova Scotia, but he said the decrease would help attract new investment, especially from businesses trying to decide between the two jurisdictions.

The government of Premier Shawn Graham announced earlier this year it would cut personal and corporate taxes beginning July 1.

The new corporate rate that came into effect earlier this week is 12 per cent, down from 13 per cent. The plan calls for further annual reductions every Canada Day until the rate reaches eight per cent in 2012.

Nova Scotia's rate stands at 16 per cent.

"Lower taxes do tend to attract new investment," Savoie said Thursday. "What you could see is that new investments may well decide on coming to New Brunswick rather than Nova Scotia, but existing firms tend to stay where they are."

But Savoie is concerned that the long-term cost of the reductions is too high.

"We can't lose sight of the level of deficit and debt in New Brunswick," he said. "A $750-million deficit, in my view, is not sustainable. You can blame it on the recession all you want, but you have to take measures to deal with that. If you don't deal with that kind of deficit, you're putting off a very serious problem down the road.

"It's all right to crow about lower taxes, but there's another factor at play here and that's the fiscal health of the province and I would hope that we don't continue overlooking it."

Savoie said there are only two ways to eliminate a deficit: raise taxes or cut services.

"There isn't a third option," he said. "By cutting taxes, you risk losing the gains you've made over the short term. And as we've seen over the past 12 months, the ability to cut spending is never as certain as it may appear."

The Canadian Federation of Independent Business applauds the reduction in New Brunswick tax rates and hopes the newly elected NDP government Darrell Dexter will follow suit in Nova Scotia.

Leanne Hachey, CFIB Atlantic vice-president who is based in Halifax, said her group will lobby the new government for changes.

"We see a window of opportunity because we have a new government here - to raise this as something that needs to change," she said. "The NDP was elected on a mandate of making life better for working families. There's no more of a quintessential working family than a small business owner."

Hachey has a more optimistic view of New Brunswick's deficit.

"The bright spot for New Brunswick is that the province is very stable financially," she said. "Most provinces are running a deficit and most haven't done the same kind of transformational tax changes that we're seeing in New Brunswick. And keep in mind that the pension shortfall makes up for about half of the overall deficit - that has nothing to do with tax relief and everything to do with an unsustainable pension system within the public sector."

Hachey pointed out that past tax cuts from Ottawa have helped spur economic activity.

"History has shown that when government does do smart, timed, phased-in tax cuts, the economy responds," she said. "There was criticism of some of the major tax cuts at the federal level in the early 2000s and that was billions of dollars of personal income tax relief. People were saying we couldn't afford it. But people responded by spending more, businesses responded by creating jobs and the economy actually grew."