Premier defends move, says people spending less; economist, opposition say cutting income tax now will give NBers more to spend

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By Mary Moszynski
Times & Transcript Staff

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FREDERICTON - Facing a growing opposition to his decision to stall tax reforms, Premier Shawn Graham says a drop in consumer spending means government can't afford to offer New Brunswickers any immediate tax relief.

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Graham

Because New Brunswickers are tightening their purse strings, government stands to lose much-needed money from the sales tax it collects from items sold in the province, Graham told reporters.

"It goes to reason, if people are not out spending, if they're not out investing, that means that people are not paying consumption tax so those revenue streams are decreasing," Graham said.

The premier didn't provide any figures to support his claims, except to repeat a story by former U.S. president Bill Clinton that Wal-Mart's largest jump in recent sales is attributed to people buying home safes.

"People's normal spending habits have changed considerably in the current economic crisis," said Graham.

However, Statistics Canada figures, released this week, show retail spending in September jumped by 7.9 per cent compared to the same time last year.

As well, Graham's outlook on consumer spending seems to contradict what's being seen by people who work in the local retail sector.

Earlier this week, a number of Metro Moncton merchants told the Times & Transcript that the Christmas shopping rush has begun and seems to be busier than last year.

But Graham said the economic difficulties have caused consumers to be cautious.

"People feel so insecure they're taking their money out of financial institutions today and putting it in their closet and not spending it," he said.

On Tuesday, Graham acknowledged his government is delaying its plans to drastically change the tax system.

That was unwelcome news to business leaders and economists.

"Now is exactly the time for tax reform. He (Graham) couldn't demonstrate in a better way that he's got it backwards. Now is the best time to provide economic stimulus through tax reform," said Kevin Gaudet, federal director of the Canadian Taxpayers' Federation.

Graham clearly doesn't understand macroeconomics, Gaudet said, since cutting the income tax would give New Brunswickers more money to spend in the province and, as a result, boost HST revenues for government.

The federation gave Graham a lot of credit for the suggested reforms and the premier deserves equal criticism for delaying the changes, he added.

"All they need to do is look next door to Ontario to recognize when you've got a tax regime that's uncompetitive and doesn't foster growth, you start running deficits."

Earlier this year, government released a discussion paper outlining numerous options to overhaul the system. A legislative committee spent the summer consulting the public.

A copy of the committee's report, leaked to the media, recommended raising the Harmonized Sales Tax and introducing a flat income tax rate of 10 per cent.

Finance Minister Victor Boudreau said he hoped the changes would be ready for the spring budget.

Graham dashed those expectations this week, saying government needs to be cautious when moving ahead with any major reforms.

"As we see revenues decrease and expenditures increase, we need to maintain fiscal responsibility," he said. "We're seeing consumption patterns change across the globe: people are purchasing less in these global times."

Graham has said an increase in consumption taxes would help off-set cuts income tax.

Hiking the HST by two percentage points was estimated to give the province roughly $250 million. However, Graham said government needs to ensure that figure hasn't changed because of the economic situation.

Another obstacle standing in the way of Graham's tax plans is the federal government.

Ottawa needs to give permission to New Brunswick to raise the provincial portion of the HST.

Although the federal government has indicated it won't stand in the way of the province's reforms, Graham said he is still lobbying Ottawa to allow the changes to move forward.

Opposition leader David Alward urged Graham to give an immediate update on the province's fiscal situation during question period yesterday.

Graham refused to answer Alward's questions on whether the province is projecting a deficit.

Instead, the premier rattled off a long list of projects his government has announced over the past two years.

"Are we swimming in red ink?" asked Alward. "They chose to not answer those questions today and I think that probably sends a message that yes, we are."