Scott has a post up about the Graham governments approach to self-sufficiency with heavy reliance on an opinion piece that ran in today's Globe & Mail by fromer Telegraph-Journal editor Neil Reynolds.
Scott has banned comments on his site, so I am forced to respond here on my own blog.
Scott is a strong proponent of supply-side economics, this article also seems to suggest that that is the way to go. SSE is the theory that if you cut taxes, you will both grow the economy and increase government revenue because people with more cash in their hands - due to lower taxes - will spend that money to buy goods and services (which creates jobs) and will put cash back into the public treasury (by the income tax paid by those whose jobs have been created due to the increased purchases and through consumption taxes).
Under the right circumstances, SSE makes some sense. However, the revenues lost from government in decreased taxes is never made up, in whole, by the indirect revenues that those monies create. If the government needs to spend money on infrastructure, then the government cannot afford to make tax cuts. I will concede however that lowering taxes, in the right way which is often not the most popular way nor the way governments lower taxes when they do, is a better job creator than government spending in an attempt to stimulate the economy.
In general, I agree that taxes should not be increased for a plethora of reasons. However, I think it is irresponsible to cut taxes when there is debt to be addressed - both real debt and "debts" such as lacking infrastructure.
From 1999 to 2007, New Brusnwicker's saw their tax rates decrease almost every year - by marginal amounts. However, though their tax rates went down, they probably didn't end up with more cash in their pockets most years. This is because the Tories, while cutting income tax rates dindn't actually cut income tax revenues in a number of years because they allowed bracket creep. In other years, they also dramatically (in some cases doubled) user fees through regulations without consulting the legislature.
I find it frustrating at times that my friend Spinks - as an example, he shares the view of many others - rails against the Liberals for shafting taxpayers, etc, etc because of the $50 million personal income tax increase when, in fact, it really isn't that much different than the increases we saw in many of the Lord budgets. The difference is that the Lord government would showcase a tax rate cut, and still take extra money out of your pockets while you were looking at that pretty gem. Graham's government has chosen to be honest with New Brunswickers and tell them flat out what they are doing; for their honesty they are painted as tax-and-spend Liberals, when in fact they are getting the same effect that Lord's crew did but are doing it through honest and direct means instead of cloak-and-dagger skullduggery.
In any event, I have gotten a little bit of track. The crux of the Scott MacKay/Neil Reynolds argument can be summarized in this quote:
Although it progressed too slowly, New Brunswick had moved in the right direction in the last decade. [in reference to the Lord tax cutting MO]However, the evidence doesn't back that up. Mr. Reynolds talks about how the Lord method is the right way to go and the Graham way is the wrong way to go. As evidence, he says that New Brunswick's population is slipping - more and more every year. Huh? NEWS FLASH: Shawn Graham has been in power for 7 months; if Lord's plan was so great and working so well, why after 7 years of his stewardship were things getting worse?
We need a made for New Brunswick solution if we are to boost our economy and acheive self-sufficiency. Under the right circumstances cutting taxes could work, but that is not the circumstances we have in our province today.
Reynolds criticizes Victor Boudreau for saying, "this is a transactional budget which lays the groundwork for future transformational change." He called that meaningless bureaucrateese. I don't see it that way. The biggest challenge to the growth of the New Brunswick economy is not its tax structure (neither before nor after his budget) but it is its lack of infrastructure. We need to better prepare ourselves for trade and connectivity with the world. We need roads, seaports and airports to move goods and we need the internet to move services.
The tax increase this year was $50 million. That works out to just under $70/person - if it was shared equally, it would actually be more for the rich and less for the lower and middle class - but let's use it to illustrate a point. What can a person do with $70? Buy two cases of beer OR maybe a blender and a toaster OR half of a cheap bike OR 2/3s of a DVD player, etc. What can the government do with $50 million? Build 50kms of top of the line divided highway OR hire 500 doctors OR build a school or two.
New Brunswickers cannot afford to have their government trim the fat and cut taxes just ot the point where the province breaks even. We need a government that has the means to invest in the infrastructure necessary to grow our economy. Schools grow our economy in the long term. Well equiped and well staffed hospitals grow our economy by attracting immigrations. Roads grow our economy by making it more feasible to trade with the relatively far away major population centres.
A minor tax increase that doesn't change New Brunswick's ranking among other provinces (there are still just as many with lower taxes and just as many with higher taxes) is well worth it if we can make the improvements in infrastructure needed to make long term economic growth.