Review | Flat tax will 'help attract workers'

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By STEPHEN LLEWELLYN
llewellyn.stephen@dailygleaner.com

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Switching to a flat 10 per cent personal income tax would give New Brunswick a huge edge when it comes to attracting skilled workers, says Charles Cirtwill, executive vice-president of the Atlantic Institute of Market Studies.

"The upsides are a lot better than the downsides, I think, when you look at a 10 per cent flat tax," he said.

"You just look at the competitive advantage that is going to give you versus all the other jurisdictions in Canada, let alone North America and the rest of the world," said Cirtwill.

In December, the final report of the Select Committee on Tax Review recommended that the government introduce a flat 10 per cent personal income tax and increase the non-refundable basic personal deduction and spousal deduction to $12,000.

"The implementation of a flat tax provides the province with the opportunity to depart from the status quo and simplify the administration of our tax system," stated the report.

"It was the option favoured by the most respondents and would give New Brunswick one of the lowest overall personal income tax rates in Canada," said the report.

A one-income New Brunswick family with two children earning $40,000 a year would see its provincial taxes fall from $2,501 a year to $700 a year, a savings of 72 per cent.

Cirtwill said with a flat rate of 10 per cent in New Brunswick, some people here would be paying half the provincial tax that they would pay in Nova Scotia.

"Only Alberta has a 10 per cent rate in Canada right now," he said.

Some jurisdictions in the United States are talking about it, he said, but have not implemented it.

Cirtwill said professionals earning more than $40,000 a year will decide where in Canada to live partially based on the provincial tax rate.

"AIMS itself experienced that just a year or so ago," he said. "We had offered a job to somebody in Ontario to come to Nova Scotia.

"When he did the math, although we were paying him more, he would take home less so he declined the job."

Cirtwill said every province is competing for highly trained people making $40,000 or more a year.

"Those are the folks that have the most mobile jobs," he said. "They are in the information economy, in the financial sector, they are the engineers."

Cirtwill said the downside to the flat tax cited by its opponents is whether it's progressive enough.

The idea behind a progressive tax regime is that those who earn more should pay more. Under the current system, there are four tax rates and the more you earn, the higher a percentage of your income you pay in tax.

But Cirtwill said that criticism of the flat tax ignores the basic math: with a flat tax the more you earn the more you pay.

For example, someone making $140,000 a year would pay $13,724 annually if there is a provincial flat tax of 10 per cent compared to $45 paid by someone who earns $15,000 a year.

But critics of the flat tax point out that individuals earning $140,000 annually would have paid $19,912 under the current tax system.

That high income earner will save $6,188 or 31 per cent under the flat tax. The person earning $15,000 will save only $20 or 30.8 per cent.

The total cost to the province of implementing the personal flat tax is $415 million a year.

Not surprisingly, the report found people like the idea of paying less tax.

"Respondents agreed that this offers New Brunswickers more freedom to decide how to spend or invest," stated the report.

Cirtwill said people also agree that the higher a government makes the basic personal exemption, the better off the people on the low end of the income spectrum are going to be.

That's why increasing the personal exemption from about $7,000 to $12,000, and over time even higher, is the best tool for combating poverty, he said.

One area Cirtwill wants to hear more about is if the proposed changes will eliminate other exemptions in the tax code.

"That is something they need to specify as they go forward," he said.

But that's more important on the business side than the personal side because the business side has more exemptions, he said.

Cirtwill dismissed the suggestion in the report that if a flat tax comes into effect, New Brunswickers won't need professional help preparing their tax returns. He said accountants shouldn't worry about losing their jobs.

"Remember, you are dealing with both the provincial and the federal tax structure," he said.

The provincial government is expected to respond to the idea of a flat tax in its spring budget.