Are we being taxed into poverty?

About the only way to get attention as a new political party is to make bold statements or do something else to get people to look your way.  This is the case with the People’s Alliance column this am where the leader suggests “What I am suggesting is that you are already paying more than your fair share for the government services you receive.”

This is an interesting philosophical, social and economic question.  Are we paying more that our fair share?

First, the average employed New Brunswicker pays about $3,200 in provincial income taxes (2009) – calculated as the amount of provincial income tax shown in the estimates over the # of employed persons in 2009.   Using that same methodology, the average New Brunswicker pays the lowest amount of average income tax of any province in Canada – PEI is a close second.

Second, according to the Ernst & Young online income tax calculator, a person earning $60,000/year will have a lower income tax bill (before deductions) than Quebec, Nova Scotia, PEI, Saskatchewan and Manitoba.

Of course a lot of this is due to the lower incomes in New Brunswick.  Alberta has a much lower income tax rate but its residents pay more income tax (per employed person) because they earn much higher income but the People’s Alliance was crystal clear about “fair share”.

On the business side, the KPMG total tax index (as assessment of the total tax environment faced by NB businesses) finds that the average business faces a lower tax environment here than any other location in Canada and the US. 

By the way my many of my friends in the business sector – particularly smal biz – disagree with me on this despite the hard data supporting my position.  I still hear folks talking about being ‘taxed to death’ in New Brunswick.

A key point is that most other provinces generate far more royalty and tax revenue off natural resources but the equalization program ends up making up the gap in NB so that the NB taxpayer doesn’t pay relatively more.

If you look at where the money comes to pay for public services, it’s fairly clear to me that New Brunswickers are not overtaxed.   Everything is relative.  Without that you could argue that even $1 in tax is overtaxation.  Compared to our peers, New Brunswickers are not overtaxed.

My position on tax is that governments need to collect far more than they do today but I don’t think they can get too much more out of the existing base.  I think they are going to have to raise taxes some to balance the books but the longer term focus needs to be on growing the pie and generating more taxes that way.

10 thoughts on “Are we being taxed into poverty?

  1. What would also be interesting would be a comparison with taxes in other developed nations. I listened to some wag on radio yesterday saying we are the most taxed people in the world. But I know that’s not true (not that you would ever know by reading our newspapers, who are completely silent on this).

  2. I applaud your courage in attempting to have an intelligent conversation about taxes on the internet. Obviously it’s critical to honestly and rationally discuss/plan taxes or you end up like California.

    What do you think about jacking the HST back up to 15%? Lowering HST by 2% tax did not produce economic nirvana in NB, do you think raising it back up will be as bad as some think?

  3. ” “What I am suggesting is that you are already paying more than your fair share for the government services you receive.””

    That is a popular statement to make in some circles, and as you say, it is a common but mistaken refrain. Not just common in NB but common across the country, regardless of the actual level of tax. Its the message that has been delivered by the stinktanks and the media for several decades and now is being reflected in populist movements. Very hard to overcome that mindset, so I expect we will see repeats of what happened in the 1990s, when spending was cut deeply, to the cheers of many.

    Note that the NB govt has made a number of promises re services being kept (as you stated in a previous post) and certain taxes being frozen. If they intend to keep taxation levels at more or less their current levels, and make across the board spending cuts then things will be in pretty sad shape here in a few years. Imagine the huge bills that will have to be paid afterwards.

  4. I prefer hiking the HST to raising income or properety taxes. I think there may be some opportunity to raise the gas tax. Remember both the gas tax and the HST are lower than they were just a few years ago. With the HST hike, there would need to be an amount rebated to those on the lower end of the income scale otherwise it would hurt those folks disproportionately. Don Drummond estimates that each point of HST increase would raise $125 million in new revenue for government. If $20M of that is channelled back to low income households that would leave $105 million in new tax revenue per point.

    I think the government has to look at this.

  5. My position on taxes is that they have to be competitive with other jurisdictions in other parts of the world, not just competitive here locally. However, when revenues are setback during an aggressive tax cut, in New Brunswick we will see $380 million in lost revenue annually by 2012, it’s suicide to continue to spend like drunken sailors, especially when we are already relying on a high percentage of our total revenue from federal transfers as opposed to own source.

    So David is right in saying that we need a tax increase to balance the books, eventually, as it’s not feasible to slash government jobs (like Paul Martin did nationally in ’95) in a province where many are employed in government related jobs.

    Anyway, it will be interesting to see how Alward deals with the fiscal situation through taxes as there seems to be a rip-roaring ideological divide developing amongst lawmakers across the country about taxes, that for the moment, seems to be favouring the line that “taxes increases are just not an option” (see: BC).

  6. “With the HST hike, there would need to be an amount rebated to those on the lower end of the income scale otherwise it would hurt those folks disproportionately. ”

    Could that be done by reducing income taxes on lower income groups? Or via an increase to HST credits? The former would be seen throughout the year while the latter is seen only at tax time.

  7. The administration loves the HST increase idea, as they will not have
    to do anything hard, ever time the machine runs short, just raise the HST.In 5 years the HST will be 20 percent, and the unfunded pension problems will be on the front burner. The sad part is an additional 2 billion will be added to the debt before any real cuts happen if any. The preferred method is to raise the upper tax brackets, tax back some income from the public service, on average these are by
    far the best paid people in the province.
    OR we could all beg for DANNY.

  8. @Stephen Downes said: “What would also be interesting would be a comparison with taxes in other developed nations. I listened to some wag on radio yesterday saying we are the most taxed people in the world. But I know that’s not true…”

    Better yet, since we’re talking about debt and taxes, wouldn’t it be better to look at other developed nations, their tax systems and their current government debt. Here’s a good link, I think, which would be a good place to start. It’s from the Economist. World Debt Comparison.

    What’s interesting is the tax systems and the debt accumulated up to this point. When I checked the rolling public DPP [debt. per person] in countries that employ a flat tax as opposed to a progressive tax system. Here’s what I found (take also into account the numbers posted below are almost a month old as I did a post on this in early Oct…actually the debt per person has shrunk in one case and remained stable or gone up very little in most other cases amongst flat tax countries since then – without a tax increase – figure that one out economist ;)). Anyway, here are the numbers from October: Hong Kong ($ 7,601), Jamaica ($ 6,275), Estonia ($ 1,068), Lithuania ($ 3,723), Latvia ($ 4,357), Russia ($ 890), Slovakia ($ 5,933), Ukraine ($ 685), Romania ($ 2,127), Trinidad ($ 5,735), Iceland ($ 43,2…67), Kazakstan ($ 1,188), Macedonia ($ 965), Albania ($ 2,066), Mauritius ($ 4,222), Czech Rep. ($6,663) and Bulgaria ($ 1,062). Other than Iceland, who just two years ago suffered the worst banking collapse of any country in economic history (all three majors collapsed), the numbers look extremely promising, debt wise, for flat tax nations.

    Especially when you consider the ballooning debt per person in countries like the US ($ 27,530), Canada ($ 36,894) and UK ($ 26,517) where progressive taxation is used, as opposed to flat taxes, federally. I see the debt is still rising considerbly in the U.S. as debt per person has increased by $2,478 in just over a month.

    Also, with regards to that wag on the radio you mentioned, they are probably right as the OECD did rank us and the United States pretty poorly in regards to the most competitive tax jurisdictions globally. just sayin’.

  9. ” flat tax nations”

    Not sure that, after reviewing that list of ‘happy’ countries, I would want to live in a ‘flat tax nation’. Is there also a positive correlation between ‘flat tax nation’ and poverty or ‘flat tax nation’ and historical gdp or job creation or median income? just sayin’.

    Surely one would not look at a snapshot of national debt and choose a tax system on that basis alone. Debt is not really NBs problem; NBs problem is several decades of anemic growth. That is the origin of the debt. And that anemic growth is also a characteristic of some of those ‘happy’ flat tax nations. No solutions there, I’m afraid.

    Where we should be looking for examples is towards those regions within countries, or countries, that lack valuable natural resources yet have been able to develop, consistently, large numbers of high-wage jobs.

    In the short term, we should keep the debt and deficits from growing too quickly thru moderate spending cuts and tax increases. In the long term, we need to follow successful strategies that result in creation of large numbers of high-wage jobs. Asking the magical flat tax fairy to sprinkle us with happy dust is unlikely to be a solution.

  10. Perhaps the universe of the digruntled should fixate less on what we pay in taxes and more on what results our expenditures, boosted by transfers, produce. An editorial in the T-J this week pointed out that health care expenditures in NB exceed the national average but the results in terms of the health of the population are disillusioning.

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