Liberals say corporate tax hikes should be considered

Liberal MLA Roger Melanson says the Alward government should look at raising the corporate tax level as province continues to see its deficit level and unemployment rate rise.

MLA Roger Melanson says a job-creation strategy is also needed

The Opposition Liberals say it may be time to consider raising corporate income taxes as the province’s financial outlook continues to worsen.

Finance Minister Blaine Higgs confirmed last week in his second quarter fiscal update that the provincial government’s projected deficit had nearly doubled to $356 million.

The soaring budget deficit is being blamed primarily on the $110-million shortfall in revenue from personal and corporate income taxes and the Harmonized Sales Tax.

Liberal MLA Roger Melanson, right, said the provincial government should consider raising corporate taxes. (CBC)

Liberal MLA Roger Melanson, the opposition’s economic development critic, said the finance minister has to "look at the revenue streams" in response to the rising deficit.

"The tax rate is something they've got to look at," he said.

The second quarter fiscal update shows corporate income tax revenue is projected to be down to $215.2 million, a drop of $8.4 million.

By comparison, the finance department is projecting the government will collect $1.231 billion from personal income taxes, a drop of $86.4 million. HST revenues are expected to raise $1.12 billion, a drop of $15 million, according to the latest estimate.

While the funds raised from corporate taxes are a fraction of those from personal income taxes and the HST, they are often a source of political debate.

The former Liberal government unveiled an aggressive tax plan in 2009, which called for the corporate tax rate to be lowered to eight per cent in 2012 from 13 per cent in 2009.

At the time of the province's tax plan, federal Finance Minister Jim Flaherty had urged provinces to cut their corporate tax rates to 10 per cent.

The provincial government's tax plan became a source of controversy on the campaign trail. Premier David Alward promised in the 2010 election to halt the corporate tax cuts at 10 per cent.

Melanson, who was not a Liberal MLA when the former Shawn Graham government unveiled its tax plan, said the provincial government must examine its tax policy.

"You need to stay competitive in terms of tax rates for our private sector and different sectors in our economy, but he needs to look at it," Melanson said.

The corporate tax cut was designed to boost investment in the province and create more jobs.

But despite the tax cut, unemployment in New Brunswick is at 11.6 per cent, which is the highest level since May 2003. The unemployment rate has also held stubbornly above the 10-per-cent threshold since July.

Melanson said he thinks stimulating the economy is a more effective way to create more jobs than raising taxes. He said that put more people to work, which would allow the provincial government to collect more income tax and HST.

The province’s finance minister has indicated any increase to the HST or creation of highway tolls will not happen in the Progressive Conservative government’s first mandate.

Higgs said he isn't ruling out the possibility of hiking corporate taxes but he doesn't sound like he plans to change it.

"We do have to continue to look at all aspects of our taxation policy, but there isn't any plan to do anything differently there," he said.

Avoid raising taxes

A lobby group for small business says the provincial government should not be hiking corporate taxes.

Richard Dunn, a policy analyst for the Canadian Federation of Independent Business, said the finance minister’s problem is not on the revenue side of the ledger.

"We've seen revenue has gone up year over year. The spending is where we have fallen short," he said.

"It's gone up by a great deal more than the revenue. We can't continue to outspend what we take in. But we want to maintain our competitiveness as much as we possibly can, so that we're not driving business away."

Instead of raising corporate taxes, Dunn said the provincial government could spur on economic activity by getting out of the way of the entrepreneurial sector.

He said small businesses are waiting for the provincial government to follow through with a promise to reduce regulation by 20 per cent.

It costs small businesses in New Brunswick roughly $500 million a year to pay for meeting various government regulations, he said.

The policy analyst said there is a concern among some of his members that a number of employees work just enough to qualify for social programs and then ask to be laid off.

"In some cases, employers are competing with our social systems, like [Employment Insurance]. We have a great number of our members, have expressed concern that they've been asked by their employee to get laid off so they can get EI benefits," he said.

Along with creating a better investment climate in New Brunswick, Dunn said more steps must be taken to get people working.

The CFIB official said he would like to see an effort to bolster online tools to help match people looking for work with job openings.

"We have to find a better way of communicating the opportunities that presently exist so that we don't chase our population out west," he said.

"The more that we lose our young, talented people, the more difficult it becomes for the rest of us to sustain the population that we have."