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Nova Scotia’s proposed tax reforms take from the poor and give to the rich

by Garry Leech

Reduce taxes for wealthy corporations, now there's an idea. Christmas comes early for the rich, thanks to the Broten tax reform recommendations, says Cape Breton Independent editor Garry Leech.  Illustration Nishant Choksi
Reduce taxes for wealthy corporations, now there's an idea. Christmas comes early for the rich, thanks to the Broten tax reform recommendations, says Cape Breton Independent editor Garry Leech. Illustration Nishant Choksi

This column was originally published in the Cape Breton Independent

Christmas has arrived early for the wealthiest Nova Scotians and for corporations that operate in our province. The provincial government’s newly-released tax review includes a long list of recommendations that, if implemented, will ensure a significant redistribution of wealth within the province—from the poor to the rich.

The Nova Scotia tax and regulatory review, titled Charting a Path for Growth and authored by consultant Laurel C. Broten, constitutes an intensification of the corporate-friendly approach that has dominated policy-making at both the federal and provincial levels since the 1980s. It adheres to the so-called free-market ideology that seeks to shrink government social spending and establish a corporate-friendly investment climate in order to spur economic growth. And the recommendations in the Liberal government’s new review are that ideological approach on steroids.

Broten recommends that “Nova Scotia should freeze program spending at current levels” and, in words that would make Stephen Harper proud, suggests that all provincial “surpluses in subsequent years should be allocated primarily to personal and corporate tax reductions.” This is precisely what Harper and his Conservative and Liberal predecessors have been doing at the federal level for more than two decades: implementing tax cuts so there are not enough revenues left to sufficiently fund social programs such as health care and education, thereby justifying cutbacks in government spending.

Along the same lines, the review suggests that Nova Scotia reduce personal and corporate income taxes and place more emphasis on sales tax to generate revenues. Such an approach inevitably results in a shift from a progressive tax structure in which the wealthy are taxed at a higher rate than the poor to a regressive system where everyone—rich and poor—pay the same sales tax rate. This undermining of the progressive tax structure should be further facilitated, according to Broten, by eliminating the highest income bracket, which is 21 percent for those earning over $150,000 a year.

The ultimate objective of this approach is to implement a de-facto “flat tax,” a variation of which saw British Prime Minister Margaret Thatcher ousted from office more than 20 years ago. According to the review, “Nova Scotia’s personal income tax rates should be reduced over time. Efforts should be made to flatten the steep taxation curve and simplify the rate structure by collapsing the two upper brackets.”

In other words, a de-facto flat tax would be achieved by eliminating the highest tax bracket, ‘flattening’ the remaining brackets and shifting government revenue generation away from progressive income taxes to a regressive sales tax. The consequence is that poorer Nova Scotians would bear a greater tax burden while the wealthy would largely enjoy a tax holiday.

But ensuring that wealthy Nova Scotians pay less taxes isn’t sufficient evidently. Broten’s recommendations also seek to guarantee that corporations operating in the province can increase their profits through reduced taxes. According to the review, the New Small Business Tax Holiday, which eliminates income tax for the first three years, should be scrapped and the province “should over the next five years incrementally raise the small business tax rate to 8 per cent from the current 3 per cent. The increased revenue should be used to gradually lower the general corporate income tax rate.”

In other words, small locally-owned businesses would pay higher taxes so rich corporations like Wal-Mart can directly convert lower corporate tax rates into higher profits, which would then be transferred out of the province and into the pockets of corporate executives and shareholders living elsewhere.

Nova Scotia has been implementing corporate-friendly investment policies for more than two decades with very little positive impact on the economy. But this is not surprising. After all, a favourable investment climate from the perspective of a corporation consists of low wages, low taxes and high subsidies. And that, for Nova Scotians, translates into low-paid jobs and insufficient government revenues to effectively fund social programs and infrastructure projects.

It is time for the province to shift course and provide increased incentives to locally-based economic initiatives. Instead of using our tax dollars to subsidize call centres and box stores that provide minimum wage jobs, we should be fundinglocal food production, renewable energy projects and other community-based projects. And instead of increasing the tax burden on locally-owned businesses, we should be subsidizing them while increasing corporate taxes.

For example, a recent study in the United States shows how a shift to locally-owned renewable energy projects, particularly wind and solar, are significant job generators. Meanwhile, Denmark now generates more than 30 percent of its electricity from wind at a lower cost than that produced by fossil fuels. In other words, if we stopped giving away the shop in order to entice corporations from away and instead promoted and subsidized these sorts of locally-based economic projects then Nova Scotians would not only have jobs, they would also pay lower electricity rates while simultaneously reducing their ecological footprint.

Ultimately, instead of looking at large corporations and flawed mega-projects like the Sydney container terminal as solutions to our economic woes, we should instead support the creativity and ingenuity that already exists in Nova Scotia and that has been proven to work elsewhere. Such an alternative approach would not only provide incentives to increasing numbers of Nova Scotians, it would also give us more democratic control over our economy rather than remaining at the mercy of corporations that will move elsewhere as soon as they find more favourable investment conditions.

But alas, for some incomprehensible reason, Broten seems to believe an even larger dose of the same medicine that has failed to cure our economic ills for the past 25 years will somehow miraculously work this time around. It won’t. But that is of little concern to most wealthy Nova Scotians and Corporate Canada, they are just happy that Christmas appears to have arrived early this year.

Author: Garry Leech is a lecturer in the Department of Political Science at Cape Breton University and a member of the J. B. McLachlan Media Collective.

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