The 900 lb gorilla

Pssst. Hey. Don’t you see that 900 lb gorilla standing right there? No, not there. Right There!

Apparently not.

The TJ is running a story on Jack Mintz – the venerable guru on economic and tax policy – at the Rotman School of Management in Toronto. This guy is the definition of rarified. And yet, his comments today in that article seem to ignore the most basic facts in favour of pushing a pet policy direction.

Here’s a few excerpts:

“New Brunswick has made some smart changes to the tax system over the past number of years,” said Jack Mintz, co-author of a new report that reveals New Brunswick’s tax regime is ahead of the pack. “They should be keeping their nose to the grindstone and not getting into these games of picking the industries that get support and those that don’t.”

….Mintz said previous cuts to corporate and capital taxes, welfare reforms and changes to workers compensation have created a tax regime that offers incentives to businesses operating in the province.

Looking ahead, Mintz said the Liberal government should consider reducing personal income and property taxes.

Now, this is not the first time I have heard about the ‘wonderful’ changes to the corporate tax code. The CFIB lauded former Premier Lord for cutting the small biz tax rate. The Chambers of Commerce were giddy. Heavyweights like Mintz intone about the wisdom cutting taxes.

It’s funny, though that Mintz is not made to justify his statements. He can say “great tax cuts” but the TJ or no one else says “why?” or “prove your statement”. Anyone can say, tax cuts are great but don’t you need to prove your thesis?

The truth is that despite the ‘wonderful’ tax cuts, small business has waned in New Brunswick. The start up rate of small biz is considerably slower than most provinces. Small business exports (as far as we can tell) performance is weakening. In fact, the public sector has been booming in New Brunswick (and this sector, Mr. Mintz, doesn’t pay taxes). And, of course, call centres which for the most part are paying their corporate taxes in Toronto, New Jersey, Philadelphia, etc. anyway.

In my opinion, and I shudder at the thought of disagreeing with Rotman’s Mintz, these small tax cuts have been a mistake. Essentially, the government turned off its brain. Instead of looking at those funds (all of the tax cuts only amount to $20 or $30 million per year) and saying how can we smartly invest the precious tax dollars to address the serious challenges that New Brunswick is facing with its population out-migration, declining industries, etc., the government said something to the effect that “business knows better than government how to grow the economy so we will put the money back in their hands” or some such rot.

Now, don’t get me wrong. I like tax cuts. In a place like Alberta where money is oozing out of their pores, it may make sense. But in a place like New Brunswick we can’t afford capricious behaviour. Every measure of government needs to be looked at through the lense of our economic challenges. There is absolutely no evidence that cutting corporate taxes in New Brunswick has translated into anything except kudos from guys like Mintz.

And praise from Mintz won’t pay to keep the lights on.

And as for Mintz’s assertion that we need to cut personal income tax, this too needs to be considered very carefully through the lense of our challenges (although I’d take it – I had being taxed up the wazoo). As I said yesterday, New Brunswickers on a per capita basis pay the least amount of personal tax (all levels) in all of Canada. Not because the ‘rates’ are the lowest but because our income is low and therefore we pay less taxes.

Economic growth – serious economic growth – drives up wages over time – which drives up taxes which allows governments to ponder a dividend to the public through tax cuts. Cutting taxes in the hope they will be stimulative – needs to be proven in a context like New Brunswick.