New Brunswick

N.B. budget cuts hundreds of millions in taxes

The New Brunswick government is unleashing a series of personal and corporate tax cuts in its 2009-10 budget as it attempts to provide a jolt to the province's faltering economy.

The New Brunswick government is unleashing a series of personal and corporate tax cuts in its 2009-10 budget as it attempts to provide a jolt to the province's faltering economy.

Finance Minister Victor Boudreau announced Tuesday a four-year plan that will merge the province's four tax brackets into two with lower rates and cut corporate taxes to the lowest in the country. Under the plan, there would be tax cuts totalling $143.5 million in 2009-10; this would increase to tax cuts totalling $380.2 million in 2012-13.

 N.B. budget highlights
  • $7.8 billion in total government expenses.
  • $740.9-million deficit for 2009-10.
  • $8.27-billion debt for 2009-10.
  • Personal income tax cuts starting immediately.
  • Four tax brackets merged to two, at rates of nine per cent and 12 per cent, by 2012.
  • Corporate tax rate cut to 12 per cent in 2009-10 from 13 per cent.
  • Four-year plan to cut corporate taxes to eight per cent.
  • Small business tax threshold increases to $500,000 from $400,000.
  • $182 million in savings from spending cuts and wage freeze.
  • NB Power forecasting $61-million deficit in 2009-10.
  • N.B. economy to contract by 0.3 per cent in 2009.

"Combined with the government's two-year, $1.2-billion capital [project spending] plan, this will help provide the economic stimulus to recover from the current economic slowdown and accelerate our path to a more self-sufficient New Brunswick," Boudreau said.

As was leaked by the government in the days leading up to the budget, the province is forecasting a $740.9-million deficit for 2009-10. It will cut 700 civil service jobs and enforce a two-year wage freeze — by legislating job contracts if necessary.

"The government will face significant deficits and increase in net debt as it confronts the challenges of one of the most significant global economic and financial crises in decades," Boudreau told the legislative assembly.

Personal taxes cut, brackets changed

Under the four-year tax plan, New Brunswick will have two tax brackets by 2012. People earning less than $37,893 will be taxed at a rate of nine per cent and those earning more will be subject to an income tax rate of 12 per cent by the end of the four years.

Tax brackets will begin shifting in this fiscal year as the province transitions to the two-rate system. For instance, the second tax bracket will now cover incomes between $35,707 to $71,415 this year from the current $34,836 to $69,673 range. And the tax rate for that bracket will be reduced to 14.5 per cent from 15.48 per cent.

Under the plan, a person making $40,000 will pay $225 less in taxes in 2009 from last year, a seven per cent reduction.

"These tax reductions will improve the province's overall competitiveness and will help to attract higher paying jobs and highly skilled workers to the province," Boudreau said.

Premier Shawn Graham spoke to reporters on Tuesday before the budget, and he called the tax reform package the "single largest" in New Brunswick history.

The 2009 tax changes will be retroactive to the start of the year, so Graham said savings will start on July 1.

Conservative MLA Bruce Fitch, the opposition's finance critic, slammed the personal income taxes, saying they are just bringing the province back to the tax rates left by his party when they were defeated in 2006.

"It took them 15 minutes to put the tax rates up and now it is going to take us four years to get back to where we were before," Fitch said.

Businesses on pace for lowest tax rate in Canada

New Brunswick businesses are being offered a lifeline in the form of tax cuts by the provincial government as it looks to save companies that are struggling and lure new jobs in the future.

Corporate income tax rate (%)
 2009  12
 2010  11
 2011  10
 2012  8

The general corporate tax rate will be cut to 12 per cent from 13 per cent in 2009, and it will fall to eight per cent by 2012.

Federal Finance Minister Jim Flaherty has challenged provincial governments to cut corporate taxes to 10 per cent by 2012. Currently, businesses in Alberta and British Columbia already pay a rate of 10 per cent, the lowest corporate tax rate in the country.

Small businesses are getting a slight taxation reprieve in the budget. Although their tax rates are not changing, the province is increasing the threshold at which they begin paying taxes to $500,000 from $400,000.

Wage freezes, program cuts save $182M

The Liberal government is also planning a series of program cuts as it grapples with the massive deficit. Boudreau said the province is saving $182 million through its plans to cut programs and freeze wages.

The wage freeze, which was announced last week to the province's unions, will spread across all parts of the civil service, including non-unionized employees.

The finance minister said all Crown corporations will be directed to follow suit with this wage-restraint regime.

Boudreau said the ratcheting back on public service spending will save $55 million this year and $150 million by 2012-13.

Programs across a range of government departments are facing the finance minister's knife.

The Department of Transportation will be cutting river ferry services in Gagetown, Hampstead and Belleisle. As well, it will cut the number of maintenance shops around the province and convert some of them to only winter maintenance divisions.

The province will also stop winter plowing of church and community yards, limit the maintenance services on non-designated roads and reduce the frequency of sailings on the Deer Island Ferry in winter.

Boudreau's budget will also reduce funds for the rabies control program, commercial vehicle enforcement program, tourism marketing, the e-health initiative, the student laptop program, school busing, distance learning and support to school libraries and school intervention services.

The Department of Justice will be eliminating the court social worker program and closing down the small claims court division.

The provincial government is also ending free rides in ambulances.

In addition, to the $18 million in new fees that were announced in January, the Department of Health is bringing back the ambulance transportation fee that was cut several years ago.

The new $130.60 fee, which the province says is similar to the rate in Nova Scotia, will start on July 1 and will direct about $6 million in revenue back to the province.

Deficit plan comes with a catch

The government's four-year plan to drag the province out of deficit comes with a catch. The finance department is not counting $300 million annually in what it calls extraordinary pension expenses.

Even though Boudreau said the province's deficit this year is $740 million, that is not the figure being used to track the path back to surpluses. Instead, the province is subtracting the $300 million in pensions from that deficit figure.

Boudreau is predicting a $27-million surplus in 2012-13, but when the pension expense is included, the province would still be facing a $273-million deficit.

"The government is not prepared to let this extraordinary downturn in the market affect decisions that it makes on the levels of taxation and services to New Brunswickers," Boudreau said.

"As a result, we have excluded it for purposes of our four-year fiscal plan."

The 2008-09 deficit is now projected to come in at $265 million, slightly lower than the $285 million projected in December.

With all of the deficits piling up, the net debt is now $8.27 billion. That means each New Brunswick resident's share of the debt now stands at $11,048.

Now that Boudreau has presented his budget speech, a months-long process of debating individual departmental estimates will begin before a final vote on the budget. The Liberal government holds 33 MLAs in the 55-seat legislative assembly, so the budget's survival is not in doubt.