Cut the Cuts: Reversing New Brunswick’s Regressive Tax Reforms to Help Balance the Budget and Improve Public Services.

On March 15th, 2012, Dr. Anthony Myatt held a public lecture to discuss issues relating to New Brunswick’s provincial budget. The main thrust of the presentation was that the provincial government had dug itself into a significant deficit by continuously reducing taxes—especially taxes paid by large corporations and very wealthy citizens. During discussion afterwards, the general consensus was that we should “cut the cuts”; that is, restore taxes to what they were before Shawn Graham’s Liberal government cut them so deeply. It is worth noting that not only has David Alward’s Conservative government shown no intention of restoring previous tax rates, but they have recently reduced taxes on large corporations even further by giving them a significant property tax cut.

I found Anthony’s analysis of the issues to be solid and his points compelling, but there were a few parts of the tax code that I thought should also form part of the budgetary discussion. I sent him the letter below to raise these issues.

Hi Tony,1

Thank you for your talk about issues surrounding the New Brunswick budget yesterday. You raised some very important issues that need to be discussed on a large scale if we are to have a fiscally sound province with effective public services. If I may, there are a few pieces of the tax code to which I would like to draw your attention that may help us provide even more suggestions for improvement in the upcoming budget.

Large Corporations Capital Tax (LCCT).

You might recall that I mentioned this tax that used to be levied on large corporations in New Brunswick, but which started to be phased out in 2005 and was dispensed with entirely in 2009. Here is a link with more information.

Now for the fun part—how much this tax cut has cost the province! According to the province’s Public Accounts statements, the Large Corporations Capital Tax brought in $47.3 million in revenue in 2004 and $39.5 million in 2005, the last fiscal year before the tax was reduced. Refer to page 48 of this document for more information.

I did some research into the history of the LCCT. It turns out that it was introduced in 1998 for the reasons cited in the following passage:

Revenues from other taxes were $25.7 million higher than in 1996-97. This was mainly because of the introduction of the Large Corporation Capital Tax. This tax applies to businesses with assets greater than $5.0 million, and applies a rate of 0.3%. The Province introduced the large corporation capital tax in order to recoup a portion of the tax credits businesses receive under the Harmonized Sales Tax.”
1998 New Brunswick Public Accounts Financial Statements, page 4

What do you think—should we propose to re-introduce this progressive and lucrative tax?

Gasoline and Motive Fuels Tax.

You probably also noticed that the Conservatives plan to increase gasoline tax from the current rate of 10.7 cents/litre to 13.6 cents per litre. I think this is a good idea, but note that gasoline tax was 14.5 cents/litre before the Liberals cut it in 2006, so perhaps, if our goal is to “cut the cuts,” it might make more sense to restore that tax rate along with income tax rates and such.

With the numbers available, it is difficult to calculate exactly how much of a difference such a change will make, because there are five sources of revenue for the Gasoline and Motive Fuels Tax—gasoline, diesel, propane, aviation fuel, and locomotive fuel—and the Public Accounts records do not break down how much revenue is derived from each individual source. However, given that gasoline is by far the most significant cash cow of the fossil fuels, and that the province collected $210.8 million in revenue for the Gasoline and Motive Fuels Tax in 2011 (see page 69 of this document), a rough estimate might be about $70 million.

My math: 210.8 x (14.5/10.7) – 210.8, minus a “guesstimate” of $5 million due to not raising tax on propane, aviation fuel, or locomotive fuel. It is worth noting that tax on diesel fuel is slated to increase by 2.3 cents/litre.

Similarly, if we want to calculate how much more revenue would be gained by increasing the tax on gasoline to 14.5 cents/litre rather than to 13.6 cents/litre, we find that the difference equates to somewhere in the vicinity of $14 million per annum: 210.8 x (14.5/13.6) – 210.8.

Any thoughts on the Gasoline and Motive Fuels Tax?

Dividend Tax Credit.

This tax credit strikes me as particularly regressive—that is to say, beneficial for the rich who rake in the vast majority of dividend income. It provides for a 12% tax credit on dividends received from large corporations, and 5.3% on dividends received from small businesses. See this page for more information.

I myself received a paltry $80 of dividend payments from my investments last fiscal year—certainly not enough to be significant—but the wealthiest people in the province no doubt received millions or tens of millions of dollars in dividend income.

Do you have any ideas as to what, if anything, should be done with this tax credit?

Thanks again for your valuable contributions to the discussion about the provincial budget. I look forward to being involved with this discussion as it expands, evolves, and makes a real difference for the province.

Cheers,
Julian

Dr. Myatt later wrote a paper on this issue entitled “New Brunswick’s Deficit and Debt Problem: Root Cause and Solution” and published it as part of the Occupy Papers. It is available here.

  1. ^ Anthony informally goes by “Tony,” which is why my letter is addressed to him as such.

About Julian Renaud

Julian graduated with his Juris Doctor from the University of New Brunswick in 2017. He now works as a student-at-law for David M. Lutz, Q.C., and is also serving his second term as a member of the UNB Board of Governors. At other times, he has been a writer, drummer, teacher, avid cyclist, boat captain, and radio DJ. He lives in Quispamsis, New Brunswick.

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