The Discussion Paper on tax reform issued recently by New Brunswick’s Department of Finance indicates there are two objectives behind the paper: to ensure that New Brunswickers keep more of their earned income to use as they see fit and secondly to make the province more attractive to business investors and to individuals who might be considering relocation to New Brunswick.

The first is a noble objective but begs the question - if government takes less by way of income tax, will it be able to fund the programs that people want and need? The answer lies in part in the transfer of tax burden from income to consumption. The Discussion Paper proposes an increase in the GST of 2% and a carbon tax that the Times & Transcript describes as a “tax-grab”.

As I’ve said before, I agree with the notion of transferring the tax burden from income to consumption so long as those who pay little or no income tax are protected from the increase in consumption taxes.

On the matter of carbon taxes, those who argue against them cite the rapidly rising cost of oil, gas and electricity as reasons not to inflict a carbon tax on people and businesses. Those who argue in favour argue (a) that we need carbon taxes to change energy-consuming behavior and (b) that we need to dramatically reduce the consumption of carbon to save the planet from fossil-induced climate change.

I lean towards those who favour the carbon tax, even in times of rising fuel prices. I do so because I believe that price (and a carbon tax would clearly contribute to price) will ultimately be the only force (before catastrophic climate-change impacts) significant enough to drive the shift to clean, renewable energy (wind, solar, tidal, other) and drive the intensity of technology investments that will lead to the development of new heat forms and new transportation forms.

We already have hybrid cars (combo of electricity and gasoline). General Motors is finally moving away from gas-guzzlers to smaller more fuel-efficient cars and trucks. Fuel cell energy and electricity-driven cars are closer to reality. There is even a car being developed in Europe that is powered by compressed air.

If you accept my logic, a carbon tax should be 5% or even 10%, not the graduated 2% proposed in the Discussion Paper. Clearly this would pose problems.

• First the financial impact that would have to be mitigated for those on low and fixed incomes.
  
• Secondly, a behavior-changing carbon tax probably wouldn’t work unless it was nation-wide and ultimately continental and maybe even global in application.

On the question of making the province more attractive to business investors and to individuals who might be considering relocation to New Brunswick by lowering income taxes, this has been advocated by a number of people, including former Premiers Bernard Lord and Frank McKenna.

Some argue that productivity declines as income taxes rise and conversely, productivity increases as income taxes are lowered. Increased productivity adds value to produced goods and services and by so doing increases both sale price and volume which in turn increases the total volume of taxes collected.

Makes sense but is it enough?

The example of Ireland’s economic renaissance is often cited as reason to lower income taxes. There are two points of view in respect to Ireland. One view credits Ireland’s economic renaissance to education and training, strong links between education and business, the resulting transfer of knowledge and technology and finally open trade and export policies.

A second view credits low taxes for the renaissance. Sir Anthony O’Reilly, reportedly Ireland’s first billionaire is adamant that a low level of corporate tax is the main reason for Ireland’s economic “miracle”.

He points to the tax differential between Ireland and the UK where the corporate tax rate is 30% compared to (Southern) Ireland’s 12.5 % and cites the outflow of business from the UK to Ireland as evidence of the positive influence of a low tax regime.

He says that people “do not understand that global businesses are free to arrange their tax affairs on a global basis. Most individuals are still tied to the place in which they earn their living, though the genuinely rich can afford to live where tax is lowest. International companies, by definition, earn their profits internationally. They can, by and large, choose to place their headquarters in a low-tax jurisdiction”.

I am convinced that if New Brunswick could create a truly significant income tax advantage without bankrupting itself, without penalizing those who are least able to help themselves and without depriving residents of necessary services, such change could go a long way to making this province self-sufficient.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at mailto:bill.bellstrategic@nb.aibn.com