Liberals to respond next week to tax-reform proposals, including flat tax, sales tax hike

A1

By Jesse Robichaud
Times & Transcript Staff

Stumble Upon

del.icio.us

Digg

Facebook

Print

Email

2 Comment(s)

FREDERICTON - The Liberal government's proposal to raise the HST and introduce a flat income tax could strike a double whammy against New Brunswick's economy, says Moncton businessman Terry Malley.

Firstly, the proposed changes released by the legislature's committee on tax reform yesterday would only stifle the economy by discouraging spending by crippling disposable incomes at a time when individuals and families are already gripping their money tightly, said the president of Malley Industries and chairman of the Greater Moncton Chamber of Commerce.

"Our members are very much against an increase of the HST, particularly in this time when what we need is people spending," said Malley.

"An increase in the HST is a disincentive to spend and to the poorest people in the province."

Secondly, he said the refunds, tax credits, and other mechanisms that would be required to protect low-income earners from the pain of a consumption tax hike and an essentially regressive income tax structure would create and swell bureaucracies and complicate the tax system.

Malley said the proliferation of new bureaucracies and complicated tax schemes contradicts the committee's recommendation to simplify the province's tax system by introducing a flat income tax rate set at 10 per cent.

The committee's report suggests that a user-friendly tax system would help attract more skilled workers to the province, but Malley said it would make sense to simplify the tax system in ways that don't also complicate it further.

Malley said he worries about the costs of added bureaucracies, and he wondered about the effectiveness of tax credits and rebate programs that are similar to the GST rebate offered by the federal government to low-income earners.

"It's great to say we will have some way of paying it back through a rebate program, but if they don't have the money to spend in the first place a rebate won't apply to them anyway."

Mount Alison University economist Craig Brett said the proposals will create more confusion than it will alleviate with a flat tax rate.

"On the personal side there are all these new benefits and exemptions and non-refundable credits," said Brett.

"I am not a big fan of this way of doing policy. It adds complication in the income tax code, often in ways that aren't predictable to start with."

Brett said the flat tax rate will be more fruitful for high-income earners.

"The richer folks are getting the higher tax breaks," said Brett.

Brett said there are better ways of putting more money into the hands of New Brunswickers.

For example, he said recommendations to increase the non-refundable basic personal amount to $12,000 for taxable incomes below $35,000 create a disincentive for a low-income earner to make more money by penalizing those who make more than $35,000.

According to the recommendations, Brett said an individual would need to earn more than $39,000 in order to take home more money after taxes.

"That really doesn't make it worth your while to earn that extra dollar," said Brett.

John Williamson, a New Brunswick native and former federal director of the Canadian Taxpayers Federation, has been watching the Liberal government's handling of the proposed reforms from the London School of Economics, where he is pursuing graduate studies.

He is encouraged by the committee's report.

"The committee has hit the right policies, specifically by recommending a significant reduction to business taxes and lower personal income taxes," said Williamson.

"Reducing these taxes will result in job and wealth creation, which is the province's policy objective."

Williamson said the committee wisely decided against recommending a carbon tax, and despite the fact that the committee recommends raising the HST by an undisclosed amount Williamson said the Liberal government will be constrained by public opinion.

He said the current economic uncertainty shouldn't discourage tax cuts.

"There is already concern over the province's rising spending ahead of the economic downturn and an inability to control expenditures," said Williamson.

"It would be regrettable if a status quo tax-and-spending agenda upended what looks like a promising new direction for New Brunswick."

Louis-Philippe Gauthier, president of the Conseil Economique du Nouveau-Brunswick, said small and medium-sized businesses were ignored by the committee's report.

"It seems like the committee is living in a bubble that is not part of New Brunswick," said Gauthier, noting that 95 per cent of businesses in the province are small and medium-sized businesses.

Andreea Bourgeois of the Canadian Federation of Independent Business said many small businesses are not incorporated and will therefore benefift from personal income tax reductions.

She said the Liberal government could lessen the pain of an HST increase by creating a lapse in time between the introduction of income tax cuts and an increase of the consumption tax.

"The point is you have to have some lapse otherwise the impact will be devastating for a lot of businesses," said Bourgeois, noting the tourism sector in particular.

She said the government is likely looking at the possibility of reducing income tax rates without increasing the HST.

"Obviously we may see something like that: less significant tax cuts so that the HST doesn't need to increase right away because right now people are very sensitive to any kind of tax increase."

A Conservative member of the tax reform committee, Jeannot Volpé, said he is considering issuing an independent report because he said the official recommendations don't reflect New Brunswickers' opposition to an HST increase.

The chairman of the committee, Liberal MLA Roly MacIntyre, said the government would need lots of "guts" to follow through with such an overhaul of the tax system.

But he maintained the report does reflect the views heard by the committee.

The tax committee made recommendations regarding non-residential property taxes, but didn't address residential property taxes due to an imminent report on local governance and taxation.

Malley said the chamber of commerce was in favour of a reduction of the corporate tax rate to 5 per cent to match small business, applauded a recommendation to forget about a carbon tax, and is generally supportive of proposed measures to help families.

"We support anything that assists with childcare that makes it easier for people to remain in the workforce and to keep jobs while their children are being looked after, that' s good for business."