Category Archives: HST

Emphasis also needed on The Revenue Side of the Equation

Published in the Telegraph-Journal 6th April 2012

The New Brunswick government has set a course for fiscal stability and stable equilibrium, at least on the expenditure side of the ledger. The emphasis on cost cutting – primarily reductions in the numbers of civil service employees, the sunsetting of a small number of government programs and the pruning of entitlements in a few areas – has taken a substantial enough bite out of the fiscal deficit that, until recently, had been ballooning out of control. The budget introduced these cost-cutting measures in a relatively gradual way and, although civil service unions will continue to voice their discontent at these measures, no serious dislocations have been introduced into the economy. But government will soon have reached the limits of its ability to reduce its size before jeopardizing its ability to deliver services.

There are two overarching challenges that will need to be met in order for this province to relax its grip on the fiscal tiller. First, while it may be too aggressive to say that the issues of health care, education, pension plans and the fiscal debt are the economic equivalent of the Four Horsemen of the Apocalypse, each issue has the potential to generate divisive battles along its fault lines. Each issue is replete with embedded public expectations that will not easily be dislodged. And a test for the government’s resolve to achieve and maintain balanced budgets will be meeting those expectations. Reductions in the provision of government services while increasing the cost of the remaining services will not be popular, even among some of those who currently trumpet the need for government to exercise even greater fiscal austerity.

Second, not all elements of the current fiscal challenge will respond to cost-reduction surgery. Current government revenues need to increase. The government is quite aware of this and stated as much in the recent budget. It made references to supporting the economic development of priority industries. It increased user fees and added new ones in a host of areas of provincial jurisdiction. It undertook other measures to increase revenue from Real Property Transfer Tax rate from 0.25 per cent to 0.5 per cent although the budget did not include any corporate or personal income tax rate changes.

New Brunswick can expect increases in economic growth as Invest NB gains traction in selling the province’s value propositions to potential investors, although it is too early to tell what the scope and scale of that investment will be or when it can be expected. New Brunswick has experienced difficulty attracting foreign direct investment and this situation may improve over time. Universities can improve their technology transfer capability, increase its commercialization capacity and take a more activist role in educating entrepreneurs. Greater infrastructure support, changes to the tax code (New Brunswick’s corporate income tax is among the lowest in Canada, but greater simplification is the real target), market development assistance, the reduction of interprovincial trade barriers and assisting firms who are experiencing a shortage of labour are commendable ways to increase the prospects of economic growth. Each of these measures will be productive over time and we should follow through on each of them.

But none of these measures will bear fruit quickly enough to address the fiscal challenges New Brunswickers are experiencing today. There are two additional measures that can be deployed to supercharge revenues in the near term. Increasing the HST is one of them. The sale of certain public assets that do not undertake activities directly related to the public good is the other. Politically, neither tax increases nor the sale of government assets are attractive propositions and a significant resistance to both would be inevitable. But to achieve fiscal stability may require transforming our ideas about what the purpose of government really is.

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Filed under economic development, HST, New Brunswick