Which Promises to Keep?

Published in the Telegraph-Journal 3rd January 2012

Election campaigns in many ways are all about promises. Promises to reduce taxes, improve service delivery of health care and education, repave roads and fund economic development strategies are the cornerstones of political speeches calculated to win voter support. More recently, campaign promises have also begun to focus on reducing debts and deficits. Not all of these promises can peacefully co-exist with one another in the same room.

In March, Finance Minister Blaine Higgs in his government’s first budget eliminated a number of small government agencies and authorized budget reductions to school districts, municipal grants and rural health care. Even so, the provincial deficit is now estimated to reach more than $545 million in 2011-12, $100 million more than Higgs had forecast in March and New Brunswick’s debt will rise to more than $10 billion by the end of this fiscal year. Higgs has placed the blame for the growing deficit on reduced revenues from personal income tax, lotteries and liquor sales. He has also been openly critical of some of his cabinet colleagues’ inability or unwillingness to subscribe to the cost-cutting agenda.

After two quarterly reports showing that the deficit was not yet under control, highway tolls have resurfaced as a potential means of generating revenue. This is a key concession for a political party that campaigned fiercely against tolls in 1999. The promises to put a full court press on the deficit and debt have placed into jeopardy some commitments that carry expensive price tags. A key pledge from government’s election platform to permanently freeze seniors’ property tax assessments for all homeowners over 65 has been shelved as too expensive.

The harsh realities of debt have pushed the government into a corner and have forced it to take extra measures to arrest the fiscal slide. Higgs is looking seriously at “every revenue” in every department and every line item.

One of the most obvious and hotly debated sources of revenue is increasing the HST by 2 per cent to bring it to 15 per cent. A widely accepted estimate for the amount of this revenue is approximately $250 million per year so the total revenue of the 2 per cent increase would be approximately $750 million for the balance of this government’s current mandate. For a government that recently announced it was pulling 21 snowplows from roads and reducing staff and salt use in an effort to save $4 million, the additional HST revenue source is a significant one. As a consumption tax, the HST is inherently progressive and various contingencies can be put in place to ensure protection for seniors and the financially disadvantaged.

There are increasing questions whether a key obstacle to increasing the HST is a technical one. The Taxpayer Protection Act, introduced by the Bernard Lord government in 1999, requires a referendum for any new tax, toll or increase in the HST. To save money, this referendum could piggyback on the infrastructure of the municipal elections slated for May 2012. If this is too soon to condition voters to arguments on either side of the referendum, a standalone referendum may be necessary.

No one wants to pay more taxes. And there is a near-consensus that we need to increase the effectiveness and efficiency of government. The election campaign promise to not increase the HST does matter. But right now, other things matter more. We do need to ensure that our debt is growing more slowly than our tax base. But most critically, we need a major increase in government revenue to get us out of our fiscal trap and the promise to hold the line on the HST is standing in the way.

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