The business of government is not the government of business

Why high taxes drive out the creative class

In his budget message to Congress in January of 1963, President John F. Kennedy wrote, "Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased - not a reduced - flow of revenues to the federal government."

Interesting. Perhaps it's time to remind the New Brunswick Liberals and Finance Minister Victor Boudreau [once again] of Kennedy's exemplary fiscal insight and that the notion of lower taxes, both personal and business, is definitely sustainable over time. In other words, government intervention into business and high taxation as a means to "bring revenues and spending into line with one another" are not the answer to our province's future prosperity as Boudreau claimed back in March. Why? Because we now live in a more competitive global economy where other governments are attempting to make their own tax regimes sufficiently attractive to lure talented people to settle in their neck of the woods, not the other way around.

Moreover, not only is it bad public policy, very few people in New Brunswick these days seem to share in Boudreau's skepticism towards lower taxes. Take Moncton native Brian Rietzel who recently stated "taxes are way too high" or Hali Mullins who pointed out that "taxing NBer's to the point to which everyone is moving out of the province should be a clear indication that NBer's have had enough with our governments taxation antics" or Michael Boucher who said "was thinking of buying a home ....but why bother, won`t be able to afford one seeing I have to pay all these taxes they keep thowing at us taxpayers!" or Katherine Maurice also from Moncton who said "the government needs to quit gouging its citizens with high taxes. No wonder so many people are leaving for Alberta and other greener pastures. We love New Brunswick but enough is enough!!" and finally Bruce Lane of Riverview who asked "what happened to trying to make N.B. more attractive, so people who have moved away would move back? This seems like a pretty sure-fire way to drive more people out of the province."

These individuals are not alone in their plights. Nevertheless, as it stands right now since the last provincial budget, we now live in a province which taxes its citizens through the roof; and as long as this government mindset perseveres, we will continue to see, as Mr. Lane and Miss Maurice stated above, a mass exodus of individuals to more "attractive" regions in the rest of Canada and abroad. Furthermore, it didn't come as any surprise that so many New Brunswickers shared the same sentiments as those individuals documented above, however, what was quite surprising was the fact that these regressive [high taxes] were not even given a single mention when premier Graham began to quickly adopt many of the recommendations from the final report on self-suffiency issued by Gilles Lepage and Francis McGuire two week ago.

What was even more curious about all this --- as became blatantly obvious ten days ago during the press conference for the release of the final report --- was that the media were unprepared to make a case for taxpayers in New Brunswick and, in turn, found themselves more caught up in the allure of the report rather than its substance. In some cases the media, particularly the one that is funded by our tax dollars, were more interested in reporting how the opposition believed the report on provincial self-sufficiency favoured "J.D. Irving forestry company" instead of reporting how much this government's fiscal policies were out of step with New Brunswick taxpayers.

The truth is, the report on provincial self-sufficiency was quintessential of the type of novice [economic developement] thinking that unfortunately existed throughout most of the 1990s. An ethos that championed regional development programs as a means to attract more business from other parts of the country by offering non-repayable loans and subsidy grants. As easy and efficient as this policy may seem, there are significant drawbacks to this approach in a more globalized economy, especially since other successful regions favour human talent, rather than financial capital, as their primary economic base.(i.e. a knowledge based economy [KBE]).

For example, a firm might indeed be encouraged by subsidy or support grants to locate in an area it would not have otherwise chosen. It might have chosen a location favourable to its suppliers and markets, or somewhere pleasant enough to enable high quality staff to be attracted and retained. However, in an economy where human capital trumps older style economies, a firm enticed by government may find itself economically disadvantaged as a result. In other words, when government pulls its subsidies and supports out, the firm may find itself struggling in a less-than-ideal location which it would not otherwise have chosen. So in the end, in a global economy that is quickly putting more emphasis on human capital, it would be much more difficult for even a good company enticed by government subsidies to convince quality talent to move with them to a less-than-ideal location like New Brunswick.

Moreover, it is true that, in this new age of global capitalism, no one has a job that they could not leave tomorrow? Not because they hate their job or are doing useless work, but because the creative class tends to migrate to so-called global city regions [GCRs] where there are ample opportunities and positions in their field of work. Which is why you see so many other countries developing attractive policies which cater to the needs of these individuals through lower taxes, high-tech modern infrastructure and state of the art services. As Richard Florida explains in his book The Rise of the Creative Class, "access to talented and creative people is to modern business what access to coal and iron ore were to steelmaking, Cities that score well in terms of Florida's 3Ts --- technology, talent and tolerance (where the latter is measured by the amenities and opportunities available for every lifestyle) --- will become places where the creative class will cluster."

That is why the government of New Brunswick would be better off focusing on policy initiatives that attempt to attract and retain the creative class rather than reintroducing old [failed] policies that do more to drive them out. Not to mention, the creative talent generates wealth outside of itself. It constitutes a huge loss to society if it leaves. (as is evident in New Brunswick with increased outmigration and lack of immigration due to poor policies)

Let's face it, these high earning individuals buy property, goods, they patronize stores and restaurants, they buy personal and financial services. Plain and simple, their wealth circulates, generating strong economic spin-offs and job creation as a result. So it makes no sense to me why governments are willing to nickle and dime these individuals with high taxes whereby they eventually drive them out. Wouldn't it make more sense to attract a larger and more competitive and educated talent base through lower taxes rather than discourage them with regressive ones.

Graham may believe that liberalism is merely the same old liberalism of his father's generation brought up to speed. But it is much more than that, if the budget and final report on provincial self-sufficiency be considered the precursor. As a political document, it reveals the new order as pro-big business, anti-democratic and poor fiscal managers. Let's just say the Tories could not have asked for a better gift to regroup its wounded forces.