The New Brunswick government will slash corporate income tax rates to the single digits, giving the province the lowest corporate tax levels in Canada, Finance Minister Victor Boudreau said on Wednesday.

Boudreau offered a broad outline of a tax reform agenda that will be fully announced in March. The finance minister said the cuts will start in 2009 and be fully phased in by 2012.

'If the government moves toward a single rate tax, New Brunswick is going to have one of the best investment climates in the country.'— Niels Veldhuis, Fraser Institute's director of fiscal studies

"The key elements of our tax reduction package include gradual, yet significant reductions in personal income tax, as well as a target of a single-digit general corporate income tax rate in New Brunswick," Boudreau said.

"It will help us through the economic slowdown more quickly, and as importantly, position New Brunswick as one of the most attractive jurisdictions for economic investment in all of Canada."

Although the Liberal government is not giving precise numbers on how deeply it will cut taxes, it will apparently be below the 10 per cent target federal Finance Minister Jim Flaherty has asked provinces to hit within the next four years.

Alberta currently has the lowest provincial corporate tax rate, 10 per cent. New Brunswick's is 13 per cent.

The all-party Select Committee on Tax Reform released its final report on Dec. 12 and recommended a flat personal income tax rate of 10 per cent, corporate taxes of five per cent and child tax benefits similar to the federal plan.

To pay for the deep personal and corporate tax cuts, the select committee on tax reform is calling for the harmonized sales tax to be raised to 15 per cent from 13, following two reductions implemented by the federal Conservative government.

Niels Veldhuis, director of fiscal studies at the Fraser Institute, said the New Brunswick government is moving in the right direction with its tax reform agenda.

"Targeting a nine per cent on businesses and individuals would be the right way to go, certainly in terms of the investment climate, when you look at personal income taxes and business income taxes," Veldhuis said.

"If the government moves toward a single rate tax, New Brunswick is going to have one of the best investment climates in the country. Taxes are a critical component of investment climate."

Veldhuis said drastically cutting taxes is a better solution to helping the province out of the economic slowdown rather than trying to spend its way out of it. Boudreau released a record capital budget for 2009-2010 that includes $660 million worth of spending on infrastructure projects.

Government rules out carbon tax, weights HST increase

Boudreau said New Brunswick will not usher in a carbon tax. He did not rule out the idea of hiking the HST during his speech.

"While the options are limited, government is working tirelessly to find ways to deliver these lower taxes. Government can, as the select committee recommends, increase the harmonized sales tax," he said.

"Government can carefully manage expenditures and government can use the revenue generated by the economic growth associated with tax reform. All these options will be weighed and considered in detail before our tax reduction package is presented in March 2009."

Progressive Conservative MLA Jeannot Volpe told the legislature that the tax reform plan does not reflect his party's views. Volpe said he was particularly upset with the idea of potentially raising the HST.

"We do not believe in increasing taxes. We believe that government has not done yet any fiscal effort [to cut spending]," Volpe said.

"We are against [the tax plan]."

Premier Shawn Graham said in question period on Wednesday that increasing the HST was "not the preferred option." He said the government will look at internal savings first before raising the sales tax.

Veldhuis said he would rather the province not touch the HST as it retools the tax code.

"But if it is between doing nothing and reforming the tax system, then I would be for reforming the tax system," Veldhuis said.