Has Nova Scotia Found a Cure for an Ailing Economy?

Brian Gifford

Nova Scotia’s Tax and Regulatory Review report is bad news with one exception:  A proposed carbon tax  would be a big step in the right direction.   But then it all goes downhill.

It advocates for economic development through tax competition and flatlined public expenditure. It supports infrastructure renewal through “asset monetization” which is selling older public assets to generate funds for new infrastructure and charging the public to use the sold assets.   None of this is good.  

A progressive alternative would be to increase government program expenditures to fund long-awaited changes that would save money or improve service such as: a dramatic shift from institutional health care to home care;  a shift from emergency/police services to homeless housing;   or a guaranteed adequate income.  It would increase progressive income taxes by such measures as adding more tax brackets and taxing 100% of capital gains. And it would ensure the offsets to the report’s positive climate change proposals are equitable or use some of the money to invest in green energy or anti poverty measures.  

The proposed income tax cuts affect everyone but they are heavily weighted to the wealthy and large corporations – including eliminating the 5th tax bracket giving an average of $6,000 more per year to people earning over $200,000.  Nova Scotia has the highest marginal income tax rate but it can’t afford to engage in a tax competition that amounts to a race to the bottom as provinces out-gun each other with lower income and corporate taxes. 

New Brunswick tried that to little effect except ballooning deficits.  The Report would increase inequality through more regressive income taxes and reduced public services.  It would also make the province’s economic performance worse through service cuts and reduced demand in the economy.  To suggest this would be positive for growth runs counter to the growing evidence pointing to the negative economic  (not to mention social) consequences of inequality.  

The Report’s biggest measures are flatlining government program spending for 5 years worth $202 million to $1.14 billion per year with 60% of the savings going to a “transformational fund” and the remaining 40% going to corporate and personal income tax cuts and increased refundable tax credits for lower income individuals.   Program constraint would inevitably lead to service cuts.  Transformational change sounds good as a title but the idea is barely developed in the report and the author says only that it could be used for tax cuts, debt reduction or one time change.  Tax cuts are not one time change as federal tax cuts since the massive service cuts in the 1990’s demonstrated – they permanently starve the government of the funds needed to deliver more and better service.  

The exception to this negative news arises from two dramatic measures to attack climate change – removing the 10% rebate on provincial sales tax for home energy use and adding a pollution tax on greenhouse gas emissions, modelled on BC’s carbon tax.  Both are offset by income and corporate tax cuts and increased refundable tax credits targetting low income individuals.  Revenue neutrality makes the carbon tax politically possible but to be equitable the offsets must be more heavily weighted to low and middle income Nova Scotians and increase as the carbon tax increases over 10 years.   A “fee and dividend” approach is another possibility, giving people an equal payment rather than a tax cut, to avoid the message that taxes are bad and avoid offsets that rise with income level.