Saskatchewan NDP Cuts Tax Rates

Commentary, Manitoba, Peter Holle, Taxation, Uncategorized

Few seemed surprised when Manitoba scored last in a recent Globe and Mail survey of provincial economic steam. While the results were discouraging, there’s no need to panic. Comparing today’s level of activity to last year’s Pan Am Games-driven construction boom, says U of M economist Norm Cameron, skews the results.

Next week’s budget presents a test of the Doer administration’s level of economic sophistication. Will it recognize that Manitoba’s deeply rooted 1970s policy paradigm is a dead end in today’s wide-open world of increasing competition for brains and talent? More important, will it understand the overwhelming evidence from other places that lower tax rates almost invariably spur growth and higher total revenues?

It will be tough. Despite reams of rhetoric, Manitoba is still limping along with low-performance policy models, subsidized by high taxes and outside wealth transfers from Ottawa. We’ve paid the price, a steady draining away of the high-income-earning tax base — headquarters and professional jobs — to lower-tax provinces over the last two decades. Remember when Winnipeg was the third largest city in Canada? Ignoring realities like Alberta’s imminent 11% flat tax and the latest round of tax cuts from Ontario guarantees an even less lucrative tax base and, down the line, service cuts.

On March 30th, Saskatchewan got the message loud and clear and moved forcefully to defend its fiscal future. Its NDP-Liberal coalition tabled a budget promising deep income-tax cuts to stop the migration of companies, jobs and young people to Alberta, the Globe and Mail‘s momentum-survey winner.

Saskatchewan’s tax gap had widened to the point where people were buying houses in Calgary and paying for them with the tax savings realized over five years. Even though they still lived and worked in Saskatchewan, their enterprises were paying taxes at the Alberta rate. Something had to be done.

Over the next three years, the Saskatchewan government will bring in a three-rate income tax with sharply lower levies on high earners. Anyone under $35,000 will pay 11%, those between $35,000 and $100,000 will pay 13%, and people making over $100,000 will pay 15%. Before these changes the $100,000-income earner paid about 20%. The cuts, totalling $430 million, will be phased in over the three years.

"Finance Minister Eric Cline understands that the status quo is no longer good enough", said Saskatchewan columnist Randy Burton. "While it is not complete, the transformation of the NDP from the party of free-spending social democrats to a group of conservative tax-cutters has been nothing short of remarkable." Cline disappointed traditional party ideologues, who remain hung up on socking it to Saskatchewan’s dwindling rich. During a news conference he said, "This province needs more people with higher incomes that will bring their wealth here, that will invest their wealth here and will hire people here. Because I’ll tell you something. That is how you pay for social programs."

Roy Romanow deserves credit for his realism. He did the fledgling Doer government a favour by rejecting simplistic "tax-the-rich" thinking. This budget year’s $200 million in income-tax cuts has been paid for through a $150 million broadening of Saskatchewan’s provincial sales tax. The balance is mainly attributable to higher dividends from its sagging Crown corporations.

Despite its forceful leadership, time is running out for the Saskatchewan NDP. Now in a third term, it plans to amalgamate rural municipalities even though a similar move helped kill the CCF government in 1964.

Crown corporations, the most visible remnant of traditional bedrock NDP policy, face growing odds of ending up on the sales block when the government changes. The public is increasingly sympathetic to the opposition’s argument that the high prices they charge are another form of taxation. Competition in the long-distance phone market has led to plunging earnings for SaskTel. Profits are way down at SaskPower, SaskEnergy and the auto-insurance monopoly. Millions have been propping up the provincial bus company and a potato-processing enterprise. Opposition spokesmen brazenly muse about cutting debt with sales proceeds and slashing taxes with debt service savings. A public referendum on selling the Crowns features prominently in the Saskatchewan Party’s platform.

The Doer Government has a rare opportunity to make a bold shift in policy by matching the Romanow cuts. The timing would throw the opposition off guard and grab the sensible middle ground on tax policy. The Conservatives are in lame duck mode until November and remain hobbled by their lack of a confident, coherent set of ideas that is much different from the NDP’s.

The activist crowd in Manitoba is already muttering about Romanow’s "sell out" and demanding that Premier Doer keep taxes high. Will he listen to his colleagues in Saskatchewan or to them? His decision will determine how Manitoba fares in upcoming economic surveys and likely whether he enjoys a second term.