Nova Scotians believe top tax rates are too high—but there’s no relief in sight

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Appeared in the Halifax Chronicle Herald, August 9, 2023
Nova Scotians believe top tax rates are too high—but there’s no relief in sight

According to new polling results, most Atlantic Canadians—including Nova Scotians—believe that top tax rates in the region are too high. But in Nova Scotia, thanks to high government spending and mounting debt, there’s no tax relief in sight.

Specifically, the poll (conducted by Leger and published by the Fraser Institute) found that 56 per cent of Atlantic Canadians said the top combined (provincial and federal) personal income tax rate shouldn’t exceed 50 per cent. And yet, the top combined rate in all four Atlantic provinces exceeds 50 per cent. Nova Scotia’s top tax rate is 54 per cent—second-highest in the country (trailing only Newfoundland and Labrador).

Moreover, according to the poll, only 27 per cent of Atlantic Canadians believe that high-income earners should pay more in taxes—that’s the lowest percentage in Canada, perhaps because the region’s taxes are already so high.

So why should Nova Scotians care?

Because high tax rates for top income earners have a significant negative effect on entrepreneurship (as measured by business creations). This is because high tax rates lower the return on investment, so many would-be entrepreneurs decide against taking the risk of starting a business. Since entrepreneurship is a source of innovation, economic growth and employment, high tax rates are likely stifling the Nova Scotian economy and limiting the availability of new well-paying jobs.

While the Houston government would do well to listen to Nova Scotians about high tax rates, barring a change in fiscal policy, tax cuts are likely not on the horizon in Nova Scotia. The government projects a string of budget deficits over the next four years, which will increase net government debt by more than $3.7 billion. As such, debt interest costs will increase by a projected 17.7 per cent, up to $902.6 million in 2026/27. Consequently, high spending and mounting debt costs will put pressure on the government to increase taxes, not lower them.

But it doesn’t have to be this way. The Houston government could pave the way for future tax reductions by emulating the fiscal policy of the Higgs government in New Brunswick. By exercising spending restraint, New Brunswick is projected to run budget surpluses for the next three years, which give the province fiscal space to cut taxes while maintaining a balanced budget. Indeed, this year the Higgs government plans to provide $70 million in tax cuts while projecting a $40 million surplus.

Atlantic Canadians believe current top tax rates are too high. But in Nova Scotia, which has the second-highest tax rates on personal income in Canada, it’s unlikely the government will provide tax relief anytime soon.

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