New Brunswick government can fulfill promise to lower taxes in upcoming budget
In recent years, the Higgs government has been prudent with its finances, restraining spending and consistently running budget surpluses. But the hard work is far from over. New Brunswick must continue demonstrating fiscal responsibility in its upcoming budget while delivering on promised tax relief for New Brunswickers.
First, a bit of background.
Premier Blaine Higgs is on track to run his fifth consecutive budget surplus (when the government spends less than what it collects in revenues) at the end of the current fiscal year. New Brunswick managed to run surpluses throughout the pandemic, a unique feat in Canada as all other provinces and the federal government chose to borrow money and plunge deeper into debt. Consequently, a recent study determined that Premier Higgs was the top-performing premier in Canada in recent years on fiscal issues.
The Higgs government achieved this feat, in part, by demonstrating the most spending restraint of any province and keeping the pace of growth in government spending (excluding debt interest costs) below the pace of provincial economic growth during his tenure (2018 to present).
And this spending restraint has paid off. Provincial net debt (total liabilities minus financial assets) has dropped by $2.2 billion since 2017/18. Put differently, per-person government debt in New Brunswick has declined from $18,166 to $14,409 in roughly half a decade. That’s a remarkable turnaround in a short period of time.
Despite this progress, however, the government should not rest on its laurels. The Higgs government must continue to be responsible with finances by limiting spending and balancing budgets in 2023 and beyond.
Why is this so important?
The government must pay interest on debt it has already accumulated and any new debt it takes on. With rising interest rates, debt will become more expensive to service in years ahead. The province expects to spend $609 million on debt interest this year—or approximately $750 per New Brunswicker. This is money unavailable for health care or education in the province.
If the Higgs government fails to adequately restrain spending, the province may return to deficits again, thus spiking interest costs paid by taxpayers.
The good news, though, is that the province’s responsible approach to finances has created some fiscal room to tackle other pressing challenges including New Brunswick’s high tax rates. The province’s business tax rate (14 per cent) is tied for the third-highest in Canada and is higher than rates in all provinces outside Atlantic Canada. Reducing this tax rate would help New Brunswick attract investment, create jobs and improve productivity in the economy.
Similarly, New Brunswick is also uncompetitive on personal income taxes. The province’s marginal tax rates (including federal taxes) are among the highest in North America for people across different income levels. For instance, recent research found that New Brunswick had the fifth-highest marginal tax rate among 61 provinces and U.S. states at both the $150,000 and $75,000 income levels. Moreover, the province has the third-highest tax rate in North America for individuals earning $50,000 in income.
Reducing personal income taxes for New Brunswickers should be a priority for the Higgs government since its throne speech identified it as a priority in October. In the upcoming provincial budget, New Brunswickers will see if the government will follow through on its commitment.
The Higgs government has an opportunity this spring to improve its financial situation and plan for balanced budgets in the years ahead, while delivering on promises to reduce taxes that will improve living standards for New Brunswickers.
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