I don't know how many times I have to say this...
...but high taxes, unreliable telecommunications infrastructure, an uneducated workforce and high costs are driving investment opportunities away from our shores, not to mention, they are making us a very unattractive outsourcing locale globally (i.e. we're losing opportunities to attract back offices, software development firms, etc.)
In fact, the recent appreciation of certain foreign currencies in relation to the U.S. dollar has begun to affect corporate decisions to outsource or set up their own operations in certain countries. U.S. companies have long outsourced work to Canada, where they've enjoyed a similar business environment along with a 20% reduction in labor costs because of the exchange rate. But the appreciation of the Canadian dollar has wiped out most of those savings and some U.S. companies are wondering why they should go to Canada if they can get the same thing locally without having to cross a border, says A.T. Kearney's Gott.I also found the quote below very interesting since the NB government still seems content with policies that prop up old failing manufacturing industries (i.e. Textile and the Pulp Mill industry), not to mention, pumping more dollars and placing increased focus on the declining tourism industry.
"Most countries were trying to attract tourism and build a manufacturing economy, but locations like India have shown them that you can have a vibrant services economy that is more vibrant than a manufacturing economy," says Atul Vashistha, chief executive of management consultancy NeoIT.com and co-author of the book The Offshore Nation.So true and just what we need here in New Brunswick. However, the unfortunate reality is that we have a few roadblocks in the way as our infrastructure, government policies and uneducated workforce have made it close to impossible for this province to develope such a vibrant service economy. There is no question that in order to achieve such a reality, all levels of government really do need to check their old way of thinking (I call it political baggage) at the door. Let's hope they do.
15 Comments:
How many times do we have to say, New Brunswick has the LOWEST taxes in the country. New Brunswick has the FRIENDLIEST business practices. As you've said, Ontario has much higher taxes, yet industry is booming (relatively). Taxes have almost nothing to do with it, as most businesses admit. I know it fits your ideology, but come on. And there is plenty of educated workforce, people are leaving in droves to work elsewhere-they aren't all (or even many) people on welfare.
Ahh, you've been reduced to "relatively". Glad to see that someone has noticed the price that the province of Ontario has paid for excessive corporate welfare under McGuinty & the federal government.
Oh, one more thing, NB still may have some of the lowest business taxes in the country (next to Alberta), even after the Liberal's rescinded the small business tax.
However, you can't ignore small details like the "fact that personal taxes [under the current Liberals] have increased by $60 million, forgivable [corporate welfare] loans continue to flow freely to government friendly firms, small business taxes have increased from 1.5 to a whopping 5 per cent, corporate tax rates have risen significantly, power rates have increased by more than $100 million this year (9.6 per cent increase), liquor prices have risen, not to mention, more burden has been placed on homeowners as their [property] taxes have gone right through the roof.
Cough...sputter. Mr. Archibald obviously doesn't live here. At a time when every government is cutting personal income taxes, New Brunswick raises them and reneges on a power rebate and engages in corporate welfare (Caisse bailout) and does nothing about property tax rates that continue to outpace inflation by a wide margin. Lowest taxes? Business yes, personal, no.
Its all moot.
What executive is going to relocate his head office or whatever to NB in order to get lower corporate tax rate - when the same move penalizes his own salary and that of his other execs and transfered workers?
With all of Canada, North America and the world to choose from, what makes NB stand out as a place to live and do business?
The level of personal taxes counts in these decisions just as much as the corporate tax rate, and if the two are not complimentary (which in NB they are not) then business and people will not come.
(and the movement and transfer of federal largess does not count!)
Good points you two. Btw, when you guys get the chance, download this ACOA study by the CD Howe Institute which covers "targeted tax cuts" and "broad-based tax cuts" vs. business subsidies (loans & grants). Though it was published in 2003, it's still a great read.
For the record, they rank targeted tax cuts below government intervention via grants. Something that Shawn Graham pledged to do instead of using unforgivable loans and grants while raising personal and small business taxes.
With reduced federal transfers, the Graham government had to do something to increase provicial revenues since health care funding takes up a significant portion of the equalization $$.
Sorry, but I'm in no mood to explain the breakdown to a guy who believes that New Brunswick has the "Lowest taxes in the country". I'll pass.
Whatever fits your mood. Again, look at the facts. For business taxes, New Brunswick isn't much different than Nova Scotia or Prince Edward Island. It's not as low as Ontario, but not as high as Saskatchewan. It's a little higher than Manitoba, but not as high as Newfoundland.
The small business tax was raised for the simple reason that as David Campbell has pointed out, New Brunswick had the lowest rate for years and it had a NEGATIVE effect on growht. It's well recognized that most small businesses stay put no matter what. If you own a couple of pizza chains, you can't very well pack them up and move elsewhere.
The small business tax is now comparible to every other province which realized this long ago, in fact still not as high as most.
And I gotta tell ya, come to ontario and take a look around at the 'suffering' that ontario is going through. If anything, it shows that corporate largesse pays off. Of course NB already knows that, the difference is that those on the government teat are resource sectors. The amount a caisse or knitting company gets is marginal compared to the huge tax breaks leaseholders and McCains gets.
But like I"ve mentioned elsewhere, the necessity of tax increases is always debateable. 300 million was added to debt for one 150 km of highway. But NB still has much lower debt than any other province so there is lots of money for investment.
Meanwhile, thats a perfectly valid complaint to ask why all those taxes increased, meanwhile, the only group (apart from extreme poverty) whose income tax DIDNT go up were those people earning over $110,000 a year.
We know, for example, that there are 70,000 people whose income exceeds $250,000 a year. A small increase seeing them pay $5000 more a year, a .02% increase, would have added 350 million, enough to cancel the debt increase or that highway mentioned above.
That doesn't even include lowering the capital gains tax, and doesn't include those making between 110 and 250. I don't even understand why you guys focus so much on the Caisse or some knitting company. Most people work for or are associated with SOME company that benefits from government handouts, the people who work there are or even live there aren't likely to complain. But here's a huge wealthy sector that walked away with NO tax increases. Yet you guys never even talk about it. You want to see a line resonate with most people who are putting in full time hours with taxes going up, then just tell them that fact about the budget and you'll find support in droves.
So average taxes STILL aren't marginally different, however, that tax policy COULD easily have been different. That money could still have added to debt and none of those other increases would have been necessary.
As for 'moving head offices', I don't think ANYBODY has even said that is a policy aim. It's virtually impossible to get a company to move its headquarters. I can't even think of a single instance where its been done, let alone being statistically significant. Alberta has no provincial sales tax, and the lowest taxes for obvious reasons, but I can't think of a single NB or any company that has packed up and moved to Alberta.
Many companies packed up and moved to Mexico, but usually not head offices, but thats a different circumstance. If people are saying NB shouldn't be competing with other provinces, but with Mexico, that's a different, and far bigger, issue.
The small business tax was raised for the simple reason that as David Campbell has pointed out, New Brunswick had the lowest rate for years and it had a NEGATIVE effect on growth. It's well recognized that most small businesses stay put no matter what. If you own a couple of pizza chains, you can't very well pack them up and move elsewhere.
Not true. Most of the firms and businesses in NB (small or large) make it not because taxes are too high but more because they have some sort of a political connection.
In other words, they are able to dodge the market somewhat by trolling for cash from their favorite politicians. Even the spokesperson above who you speak of works for a firm which has seeked out much government assistance. I believe they were started by it? And what is so unfortunate about this is that companies like this become less entrepeneurial and more grantepneurial. It's too bad because most small business owners are not briefed on dealing with the right bureaucrat or politician, nor should they be in order to be successful.
Furthermore, not only have programs such as ACOA?DREE?DIPP?and TPC had a limited impact on economic development in New Brunswick, those programs direct subsidies ---so-called corporate welfare --- have had a negative impact on the province's economy.
As the saying goes, "governments aren't necessarily good at picking winners, however, losers are good at picking government". I think that saying goes a long way to explain why New Brunswick has been so uncompetitive for decades. Which dually explains why most businesses don't react (in the proper manner) to much needed tax relief. There used to the direct transfer in the form of a non-repayable loan or grant. And in the case of politically connected PR firms, I guess you could call it "make work" programs.
Those are two separate issues. I was merely pointing out that you are wrong that New Brunswick's taxes are much higher than elsewhere, and that the small business tax is a big deal on startups and investments.
I'll repeat my point. The small business tax is only NOW the same as the rest of canada, still a bit less. Here the government can be given some credit. They lowered the rate to Alberta levels, thinking perhaps that startups would be enticed. They were wrong. Other provinces gained while NB continued to lose, showing that the government was losing money with a failed policy.
So that was changed, and even now NB is not structurally different than other jurisdictions. Taxes have gone up, but only because they were so much lower for so long with no effect on the economy (in fact a negative effect). And they are still on the low side. And again, the massively wealthy are getting out of the 'tough love' that hits regular New Brunswickers like bandits, yet we never hear a peep about that.
Now on to the 'opinion' portion of the show. That's been discussed at length by you and David so I won't reiterate. However, I tend to agree with David that in a world where virtually EVERY economy is run on political connections, its a hard sell to tell people, especially in NB, that it should be different.
I have my own opinions on how I think things should be run, but I try to be a realist. Politics and economics are so closely intertwined that not only am I not convinced they should be completely separate, but I don't even know HOW they would separate.
There's no doubt that what you are stating as the case is often true, but certainly not always. Typically though, the bigger the company, the more likely it is to get such supports. I knew a guy in the furnace business who regularly ponyied up to government for handouts. The sad thing was, while the money was meant for him to employ people, this guy was pretty stinking rich.
Now the question becomes, 'is that wrong'. The reality is that in such cases since the government funding was tied to the employee's, then thats another person out of work, and he still has his brand new Viper and boat. And no doubt that guy is a good party contributor. The government has a vested interest in having business owners wealthy-they contribute to the party.
As for the 'competitive' aspect, that's pretty complicated, but it can EASILY be argued that ACOA was never successful because they never TRIED to be. Go take a look at ACOA funding and its negligible. Much of the funding goes to rural areas for bridges, very little actually goes to industry or infrastructure.
As I mentioned elsewhere, the Perimeter Institute here in Waterloo, a private science think tank built mainly by the guys who made out like bandits at RIM (which also got lots of federal money), got more this year in funds from the feds than ALL research in New Brunswick put together. Sure, it would be nice to say 'they shouldn't get any money, nobody should get any money'.
That's not going to happen, thats as unlikely as calling for a socialist revolution. Harper stated his opinion on corporate welfare quite clearly, and now look, he's such a corporate welfare pimp that he makes Martin look like Scrooge.
I love this blog for the same reason as David's. The information is priceless and is stuff the media glosses over. I don't agree with the conclusions, but so what. Anytime these things are brought out in the open is good for (or at least better for) society.
Fair enough. But since I don't have a lot of time this afternoon, I will make a quick case through a few quick points on why I believe tax cuts are much more efficient than forgivable loans or grants (ACOA) when it comes to developing a healthy business environment. First of all:
~ 4.2 per cent (475) of all funding recipients (11, 297) accounted for $1.4 billion or 58 per cent of all funds allcated. That surely doesn't help smal or large business as broadly as a tac cut would.
~ 72 per cent of all funds disbursed --- appoximately $1.9 billion --- come in the form of a non-repayable loan. Remember, small businesses --- which do not have political ties --- end up shouldering the tax load since their earnings or bottom line end up being diverted to pay for corporate welfare loans (to companies that are sometimes less competitive). Very unnecessary.
~ Despite 18 years of corporate welfare loans through ACOA, bankruptcies in Atlantic Canada con't to rise. It's obvious that the system is flawed.
~ Big corporations (Irving, McCain, etc) and big labour (labour federations and teachers associations) received grants and/or contributions.
~ ACOA has approved more than 25 million in loans eben though the agency has no idea what the funds were for.
As you can see, not only is there corporate favoritism (go to a specific few) in subsidizing business, there is noo proof that these wasteful loans help the economy. Not to mention, they drive out small and large businesses who don't have the priviledge of being on the receiving end of this stuff.
IMHO, a tax cut would be a much better choice because it ends up effecting a broader group of indviduals fairly. (i.e. no political interference)
Excellent points, but again, that's a separate issue. Apart from the ACOA mention, that is all of Canada.
Keep in mind that this is not, as David says, being contrarian, its getting down to a specific policy. About a year ago we had a similar conversation making the point that since corporations contribute almost nothing to the provincial budget anyway, perhaps there is something to be said for simply wiping out corporate tax. However, before you do that you have to make sure that the same thing doesn't occur as with that small business tax, namely, you lose tons of money and nobody comes.
However, the point is not moot. Ireland gained considerably for giving huge tax breaks for those in specific industries, and it ended up working quite well. Unfortunately, time marches on and the EU has told them they need to phase that out and as a result most of the people, including U2, simply packed up and moved.
But 25 million is pretty small potatoes for ACOA. That funding for the Perimeter Institute in just this year is three times that.
But if you want to equate apples and oranges, first find WHICH companies got ACOA money, and look at both them and their competitors. Just because bankruptcies increase doesn't mean anything about ACOA, unless you can show that those going bankrupt did recieve money from them.
But its EASY to prove such things work. Pick that knitting company. Do you think they would get money if they didn't have employees? It works becasue that money goes to those employees. If a company is losing money, then those people have jobs. Tax breaks only work if you are making money.
Absolutely that opens up the question of 'picking winners'. There are cases where that's completely legitimate because otherwise the only people who would own anything would be IRvings and McCains (which is almost the case now).
So 'across the board' tax breaks for small businesses didn't work- we KNOW that. Small businesses continued to go out of business and few started up. When something doesn't work, you change it, and 5% is hardly massive.
But again, this is largely irrelevant, because BOTH our positions could easily be justified-all the government has to do is at least treat everyone equally. If those in the upper income level had the same tax increase then increasing small business tax wouldn't have been necessary. It still wouldn't have the desired effect, but at least people wouldn't have it to complain about.
That's essentially how government operates. Give favours to those at the top, then us peons can bicker and argue about the effects of 4% taxation on one income group. The PROBLEM is easily remedied-tax the people who have the money.
Again, you're speaking in terms of "targeted" tax credits. That's hardly any different than specific loans for corporations. A company who wants to qualify for a tax credit must fill out a bureaucratic application much like any company looking for money from a financial institution. However, as you very well know, unlike a bank (most of the time), politicians like to by-pass the process for friends, donours and partisans. Not to mention, they also become vote buying "credits" leading up to an election.
Let's just say, we wouldn't be having this conversation if our province could have done like Alberta and banned corporate welfare (in law) as well as implement a flat tax.
As for Ireland, you're right, low corporate taxes and a low-wage labour pool helped that country reach it's full economic potential. However, I think they could have done without the EU transfer payments as they were economically inefficient and may have possibly ben responsible for the eventual growth slowdown.
For Ireland, most of the research shows the reverse. The EU has a policy of helping to grow 'new recruits' to a level where they can compete equally with the rest of Europe (unlike Canada).
Tax credits aren't that much different than a loan-its all money. The loans are targeted to employees, so the company has an incentive to hire more workers. A tax credit MAY have a company hire more workers, but there is nothing to show that they will, and tons of research to show that they don't. Again, all you have to do is look at the small business tax rates that were the lowest in the country for years but didn't have small businesses hiring more people.
Take a look right now at forestry. Leaseholders are making out like bandits not because the government is handing them a cheque, but because they are paying for part of their capital investments, and making the tax system more equitable for them when they purchase.
When you buy a car you pay taxes on it, when these guys buy equipment they DON"T. So once again that also costs the government money. The less they pay, the more YOU pay.
Not only that, but they give them essentially a free ride with legislation. Economics is not simple. We don't know for sure, but we know that there is no law stating that private owners can't ship their wood elsewhere to be processed. There COULD be such a law, hell, we've got a hundred acres that the government pays more interest in than they do the thousands that belong to corporations.
And remember, I can guarantee that Irving has NEVER been audited by the New Brunswick government. Corporations get off easier than most others. We do our taxes and don't even have to send them the forms, we just keep them in case of audit. For corporations its even easier.
But the flat tax is an interesting one because it essentially unites both conservatives and progressives and even the NDP who argue for one thing- FAIR taxation. And thats what its all about. A flat tax is no more a necessity than anything else, and as usual, it depends how its applied, but it certainly can't be stated that entire problems go away if only X were done. However, THIS problem would have gone away for exactly the reasons that I've stated. Flat tax says that 20% of a $30,000 salary is the same as 20% of a $200,000 salary, which isn't the case at all. But again, if the tax increase that applied to those earning 23-54 thousand dollars applied to those making over 110 thousand, then all those budgetary problems go away.
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