When I post that New Brunswick needs more higher income earners (or when I say more wealth) this tends to rankle some of my readers. I will get a number of comments, emails and even telephone calls – mostly polite – saying New Brunswick doesn’t need more fat cats.
I have crunched the numbers 10 ways to Sunday and I can’t find a scenario where New Brunswick gets on a sustainable path without more folks earning higher incomes*. Now, I guess we can debate ‘sustainable path’ but I define that as having an economy that is generating enough tax revenue to pay for public services and infrastructure without over reliance on federal transfers and without having the highest taxed regime in North America.
*If the province started to generate a massive royalty stream from natural resources – we would be less reliant on employment income to fuel the provincial budget – but those industries tend to offer higher wage jobs anyway.
The first table below breaks down the all those who earned any kind of income in 2011 by the level of income and compares New Brunswick to Canada as a whole. Above $50k per year, New Brunswick starts to fall off significantly for the relative share of its income earners. We have nearly 40 percent fewer folks earning between $100-150k and 61 percent fewer earning $250k or higher.
When you look at who pays the taxes, it tends to be the folks earning higher incomes. The table below shows the implicit income tax rate by income bracket before deductions. Statistics Canada also provides actual taxes paid (after deductions) by quintile and you get roughly the same thing. The top quintile of earners (top 20 percent) pay over 60 percent of all income taxes in New Brunswick.
The problem is that our government is heavily reliant on personal income and on progressive income taxes. The New Brunswick government generates a tiny fraction of its revenue from corporations – either income tax or property tax. The vast majority of its own-source revenue comes from taxes and fees on personal income.
Progressive income taxes are a good thing. Those who earn more should pay more. But if you have an economy with 50 percent fewer people earning over $100k either you get that money from somewhere else (i.e. the feds) or by taxing those in the middle that much higher – or by a combination of both.
As I have written before, the average household in New Brunswick with an income of $100,000 will end up paying between 35% and 40% of their total income to taxes – all forms (income, HST, property, gas, etc.). I am not sure this average household can afford to be taxed any more.
So, we need new streams of revenue (royalties would be nice) and higher income earners. Higher income earners (excluding the public sector) come from highly skilled jobs or have significant returns on their investments (dividends, etc.) – or both.
Does this mean I reject any efforts to attract investment and create jobs in lower wage sectors? No. There are tens of thousands of New Brunswickers who need a job right now with fairly basic skills. Those folks deserve a chance at a decent paying job just like the rest of us.
But we should be looking at some of the opportunities in higher wage sectors (oil and gas, ICT, bio, professional services) and figuring out if there is anything we can do collectively to foster investment and jobs.