File under: cutting taxes while running up a deficit
Globe and Mail, March 17, 2009
OLIVER MOORE, Globe and Mail Update, March 17, 2009 at 1:51 PM EDT
New Brunswick is cutting taxes in the face of a contracting economy, shrinking employment and an admission that it will be at least four years before the province can balance its books. Finance Minister Victor Boudreau said in a budget tabled Tuesday the province is “not immune” to the challenges posed by the global economic crisis and is projected to run a deficit of about $265-million this year. Including pension expenses, the deficit is expected to balloon next year to nearly $750-million. In a bid to find savings, Members of the Legislative Assembly will continue to have their salaries frozen. More controversially, the public sector will lose 700 jobs and its employees will have their wages frozen.
Universities and municipalities are being encouraged to reduce wage costs, with the barely veiled threat that “grants … will be adjusted in future years to reflect this expectation.” And there will be a higher price for services, including $6-million in new fees for ambulance use and an 18.5-per-cent increase in costs for nursing home residents.
In spite of these moves to reduce costs, the budget also includes about $144-million in tax cuts this year. This in essence reverses tax increases from the government’s first budget and was touted as the first of a series of cuts over the next three years.
“Our lower tax plan will not only help stimulate the economy but it is vital to our long-term competitiveness and self-sufficiency,” Mr. Boudreau told the legislature, calling it “the largest one-time tax reduction package ever introduced in New Brunswick.”
The plan calls for the four provincial tax brackets to be cut to two, one at nine per cent and the other at 12. This will be done over several years and will account for about $118-million of the reduction in taxes in the first year, the minister said. There are also smaller measures aimed at seniors, skilled workers and the poor.
Corporate taxes will be cut as well over the course of several years. The first reduction, from 13 to 12 per cent, is scheduled to take effect this summer and will provide $6-million in relief, the minister said. The reductions are to continue over the next three years, ultimately dropping the corporate tax rate to 8 per cent.
“New Brunswick general corporate income tax rate of 8 per cent will … [be] the lowest rate in the country based on known provincial rates,” Mr. Boudreau said.
There are also measures aimed at helping the ailing forestry sector and incentives for the energy sector.
“The tax measures I have announced today will considerably improve New Brunswick’s competitiveness and will move us forward on our self-sufficiency plan,” Mr. Boudreau said.
“They will also help stimulate the economy and position us for even stronger economic growth as we recover from the current economic slowdown.”
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