Stimulus You Can Believe In

Charles Cirtwill, Commentary, Role of Government, Uncategorized

Everyone is promising stimulus. Stimulus that will reshape economies, redesign communities, replace aging bridges, roads and buildings and most importantly, save jobs (or, if the speaker is more cautious than most, they say “create new jobs to replace the ones being lost”).

The problem is no one is talking about how to sustain all this new infrastructure once it is built. How to heat the schools, light the hospitals, resurface the roads, and maintain the bridges.

No one is overly concerned about how to pay for the debt that will be incurred or how to meet the expectations for further and comparable future investments that will be created (your fair share, anyone?).

No one is talking about who will use all this brand-spanking-new infrastructure once it is ready and in place three to five years from now. Three to five years from now after our population has declined even further and the jobs we worked so hard to create go begging because even at double, triple, quadruple the minimum wage there simply is no one to do the work.

No one has been talking about any of this. No one that is, until now.

Now comes the New Brunswick Select Committee on Tax Review with concrete, groundbreaking proposals to counter poverty, support families, grow the economy and attract people and businesses to New Brunswick. The select committee has heard and is taking to heart the advice of former Irish prime minister John Bruton (one of the architects of the Celtic Tiger) who said:

“Achieving economic success is not simply a question of cutting taxes.”

It is a question of cutting the right taxes. Companies and people at work generate growth. That is why the priority should be on reducing taxes on working people and on profits, rather than on reducing taxes on other activities. Ireland still has a pretty high rate of taxation on goods purchased in shops, but this has not inhibited economic growth.

The select committee proposes to stimulate the New Brunswick economy, not through spending but by totally revamping the New Brunswick tax system, a redesign to the tune of roughly $500 million (out of a budget of some $7 billion).

The idea is to follow the model of other successful struggling economies and significantly reduce economically harmful taxes on both personal and business income. New Brunswick can do this, as could every other province, by taking up the tax room made available by the federal reduction in the GST. That gives them, according to one estimate, some $250 million more per year.

The province estimates that the remaining $250 million can be found by simply reducing the rate of growth in government spending. Not cutting, not even freezing, but simply slowing the rate at which spending grows.

Such a shift would allow New Brunswick to achieve a myriad of very remarkable and highly consumer friendly and globally competitive tax changes, including: setting a single personal tax rate of 10 per cent; matching 50 per cent of the federal universal child-care benefit; removing the gap between large and small business taxes; reducing provincial business taxes to five per cent; and dramatically increasing the basic personal exemption, to $12,000 immediately, and with further increases to come as early and often as provincial revenues allow.

If implemented, this package would reduce the total tax burden on every New Brunswicker and on every New Brunswick business. It would make New Brunswick not only a regional but a national, and indeed, an international leader in the use of tax policy to stimulate an economy. New Brunswick wants to be self-sufficient and it is this tax-based model that has actually delivered self-sufficiency in places as disparate as Ireland, Georgia, Michigan, Alberta and the Netherlands.

In fact, such a tax-based stimulus package follows the model used by our own federal government a little over a year ago. That surprisingly well-timed $60 billion federal stimulus package (only $5.5 billion of which was a cut in the GST by the way, $55 billion involved broad-based corporate and personal income tax cuts) was so successful that it cushioned Canada from the worst of the early stages of the global financial crisis and continues, through surprisingly strong consumer demand, to soften the blow for most Canadians of the continued U.S. economic downturn.

The second stage of that stimulus plan is set to take effect next year as our federal taxes fall yet again.

The select committee proposals would actually multiply that impact for New Brunswickers by leaving even more money in their pockets and trusting them to spend it where it will do themselves, and their neighbours, the most good.

We know that stimulus can generally come in two forms, direct government spending or tax reform. We also know that spending, especially well-thought-out and appropriate spending on infrastructure, takes time to plan and even more time to implement.

If we want an evidence-based stimulus package that will achieve reliable and predictable results in the short- and medium-term; if we want stimulus that will help today, tomorrow and the next day; if we want a stimulus package that creates long term growth and not long-term demands and consequently likely long-term deficits; then the select committee has chosen the right road.

Early indications are that the New Brunswick government is listening, let’s hope the federal party leaders and the other provincial premiers are paying attention, too.