Tax Options to Spur Economic Growth
APEC's Atlantic Report: Exploring opportunities for tax reform
For immediate release
HALIFAX (January 27) - Weakening commodity prices and soft economic conditions are making it increasingly likely federal and Atlantic governments will postpone their target dates to return to balanced budgets.
With relatively high tax rates in the Atlantic provinces limiting the possibility of further increases, a new report released by the Atlantic Provinces Economic Council (APEC) suggests governments should be tightening expenditures and considering tax reform.
"This past year was a grueling one for Atlantic Canada's economy. Falling commodity prices, static populations and about 5,000 net lost jobs contributed to generally weakening provincial fiscal situations," says APEC President and CEO Finn Poschmann.
"Sustainable spending management and growth-orientated tax changes are key for long-term prosperity. The changes we recommend are going to be difficult in the short term, but they are necessary given the subdued economic outlook."
APEC's Atlantic Report offers recommendations for tax reform in a number of areas, including corporate, personal taxes and sales taxes.
APEC's key recommendations
- Nova Scotia should focus on expenditure restraint in balancing its budget beginning in 2016/2017, laying the groundwork for growth-oriented tax reform.
- The province should begin annual indexation of its personal tax brackets beginning January 2017.
- The province should raise its small business tax rate, beginning January 2017, towards 7% and begin reducing its general corporate tax rate to 12% by 2021.
- New Brunswick should implement elements of its Strategic Program Review that focus on containing costs.
- The province should reverse its introduction of a 25.75% personal income tax rate on high incomes, in light of recent increases in federal tax rates on high incomes.
- The province should avoid counterproductively raising its corporate income tax rate, and instead increase its HST rate to 15%, setting a regional standard.
Prince Edward Island
- Prince Edward Island needs to keep spending increases below revenue growth to return to balance and make room for modest growth-oriented tax reforms.
- The government should move to annual indexation of its income tax thresholds while increasing the HST to 15% as other Atlantic provinces converge on this rate.
- The province should reduce its general corporate tax rate to 12%.
Newfoundland and Labrador
- Newfoundland and Labrador needs an immediate review of its fiscal framework. It should establish spending rules that are insulated from volatile resource revenue flows.
- The government should maintain its personal income tax rates while increasing the HST to 15%.
- The province should raise its small business tax rate, and its preferential manufacturing and processing rate, while aiming to reduce its general corporate tax rate to 12%.