Something’s rotten in the Broten Report

Our Nova Scotia Liberal Government is tapped out and is looking for new ways to raise money. They claim that because of our aging, shrinking population, our economy won’t support our current standard of living and public services for much longer.

brotenreportWe know that the Federal Government has defaulted on its financial equalization obligations (we have a constitutionally guaranteed right to a comparable level of public services) and is withdrawing support for Medicare, but the Liberals claim that government spending in excess of revenues is the biggest driver of the provincial debt. They hired a party insider, Laurel Broten, to review the effect of taxes, fees, and regulations on the business climate and our competitive position, and the extent to which they hinder private sector employment and economic growth. She was also to recommend ways out of the economic mess. Here’s what she suggested:

Freeze government spending

The two biggest ticket items are their payroll (37%), and grants and contributions (33%). Freezing spending here will give the government an excuse to attack the unions and pass the buck to other levels of government. There will be lots of talk about zero-based budgeting and alternative service delivery, but expect the real cuts to occur behind closed doors.

Regulatory reform

No one will disagree that it should be faster, easier, simpler, and cheaper to deal with the Nova Scotia government. Perhaps a house cleaning is overdue and we could usefully get rid of some red tape, but don’t we pay our politicians to keep our laws and regulations up-to-date? Broten is taken up with cost of doing business in Nova Scotia but not the need for regulations to protect health, safety, consumers, and the environment. Paradoxically she wants more users to pay more, and recommends Nova Scotia implement full cost recovery and fees for government services wherever possible.

Are we ready, as Broten suggests, to let industry regulate itself or to let the marketplace and competition set the rules of the game?

Shift taxes from income to consumption

Broten wants to reduce provincial income tax while maintaining the 15% (HST) consumption tax, removing exemptions and broadening its base to cover more goods and services. For example, she would remove current exemptions for medical, drug, educational, personal care expenditures, and the like. She claims these changes would be revenue neutral. Your basic personal and dependant income tax exemptions would be increased. Lower income groups would receive an increased Affordable Living Tax (ALT) credit. What receives less play in her report is her fiddling with the higher tax brackets to create a flatter, less progressive tax system overall to reduce the taxes payable by high income earners.

You may be left wondering what the point of the whole exercise was, anyway. It is a classic case of misdirection. The bottom line is that the Liberals feel they can raise more money this way. When you pay your income taxes now you know the total bill you are paying and it is harder for them to pass the buck. In the future it won’t be so easy for taxpayers to figure out how much paying additional consumption taxes contributed to their increased cost of living.

Who is paying the bills now?

  • You provide almost half of provincial revenue, through income, sales, and fuel tax.
  • Federal transfers only amount to about a third of provincial revenues and these are going to decline.
  • Business pays in just over fifteen percent of provincial revenues now.

You are told the shift from income to consumption taxes will be revenue neutral to the province and any increases in sales and fuel tax will be offset by decreases in income tax. However, those earning over $40,000 will get almost two thirds of the benefits from this scheme. For example, the Province would raise $128 million by getting rid of HST rebates, the well-to-do would save $88 million from their fiddling with higher income tax brackets, while low income earners would only receive $29 million from an Affordable Living Tax Credit.

So who wins, who loses? Is it fair? The report raises more questions than it answers.

Hike the small business tax

Broten wants to redefine small business (raising the tax threshold to $500,000) and raise small business taxes from 3% to 8% over the next five years. She says, “Nova Scotia needs to remove the tax incentive for businesses to stay small, and get out the way, and allow large enterprises and employers to grow.”

Surely even the Premier, who once ran a small rural business out the back of his car, understands that in rural Nova Scotia a 5% tax hike would simply put a lot of people out of business.

Phase in a pollution tax

You pay a gas tax now. This new tax will eventually cover all fuel consumption. The stated goal is to get you to reduce your consumption of carbon-based fuels and to substitute other less carbon intensive fuels. All industries will be covered: fisheries, agriculture, manufacturing, utilities and government services.

The Liberals say they will use the revenue from a pollution tax to reduce corporate and personal income tax. But what will happen if you don’t have access to cheaper alternative fuels or can’t pass the increased cost onto your customers?

Have your say

It is amazing how immense changes like this fly under the radar until they come crashing down on you with little chance to think about them. There were lightly-advertised information sessions held here and there across the province, although Annapolis NDP folks who attended one were told the sessions were intended for Liberal Party insiders, not really for the general public.

However, you can submit your opinions online, both on the Broten Report and the upcoming provincial budget:

. For more information go to http://www.novascotia.ca/finance/en/home/taxation/default.aspx