Amid the panic-stricken, a model of cool restraint

OTTAWA -- reynolds.globe@gmail.com

Canada Day congratulations to the Liberal government of New Brunswick Premier Shawn Graham, winner of this column's first annual Keeping Your Cool in Exceptionally Hot Times Award, so named to recall Rudyard Kipling's famous first definition - please pardon the anachronistic sexism - of manhood: "If you can keep your head when all about you are losing theirs...." Far more than most of his peers in recession management, Mr. Graham kept his cool. The province's payoff will be lower taxes and more economic growth.

Amid the extraordinary political pressure arising from the global economic meltdown of 2008, Mr. Graham skillfully exploited the panic of the moment to introduce tax reforms that will make his province one of the most economically attractive in the country in the years ahead. And, more astonishing still, he kept a relatively determined grip on the province's spending.

The long-term dividends actually begin immediately. Effective today, New Brunswick cuts its income tax rates for all four of the province's tax brackets.

For taxable incomes less than $34,836, the rate drops from 10.12 per cent to 9.65 per cent. For taxable incomes between $34,836 and $69,673, the rate drops from 15.48 per cent to 14.5 per cent.

For taxable incomes between $69,673 and $113,273, the rate drops from 16.8 per cent to 16 per cent. For taxable incomes above $113,273, the rate drops from 17.95 to 17 per cent.

These cuts in the province's marginal tax rates are the first steps toward a dramatic lowering of rates and the simultaneous elimination of brackets. By 2012, the province's four brackets will meld into two with a single lower-income rate of 9 per cent and a single higher income rate of 12 per cent.

The province will have reduced its highest marginal tax rate for individuals by 33 per cent. New Brunswick taxpayers will have kept more than $336-million of their own money. The province will have effectively turned an astute piece of tax reform into a multiyear stimulus package that will be more equitable and less profligate than most.

Further, New Brunswick's corporate tax rate drops today from 13 per cent to 12 per cent. It will drop to 11 per cent in 2010, to 10 per cent in 2011, and to 8 per cent in 2012. Within the next three years, the corporate tax rate will have dropped by 33 per cent. The province has explicitly articulated its strategic purpose. Simply put, the government seeks to emerge from "the storm" in better shape than when the storm started - and to do so primarily through lower taxes and spending restraint.

You can get a sense of the province's restraint from a quick calculation of per-capita stimulus spending in New Brunswick and a few other jurisdictions. (For the purpose of this calculation, we'll arbitrarily assume that budgetary deficits are a credible measure of emergency spending.) Thus New Brunswick, with a deficit of $800-million and a population of 800,000, will spend roughly $1,000 per capita to stimulate its economy in 2009-2010.

On a comparative basis, Ontario (deficit: $14.1-billion) has budgeted for hard-times expenditures of $1,280 per capita. Worse than the province's biggest deficit ever, though, are tax increases that Ontario will impose next year when it meshes its sales tax with the federal GST. Toronto home builders say the merged tax will cost the buyer of a median-priced condo an extra $40,000 in taxes - an absurd way to stimulate economic growth in a recession-devastated province.

Quebec (deficit: $3.9-billion) would appear at first glance to have budgeted only a modest stimulus package equal to roughly $500 per capita. In fact, though, Quebec's stimulus package will cost $15-billion - or roughly $1,875 per capita, twice the stimulus recommended by the International Monetary Fund. The province will pay for part of this package by using reserve funds and by raising its sales tax to 8.5 per cent from 7.5 per cent, a 13-per-cent increase.

The federal government's deficit will be $50-billion, perhaps more - pushing per-capita stimulus spending on a national basis to roughly $1,500 - with a substantial part of the money used to buy shares in two bankrupt car companies. Strip out the government's panic investment in GM and Chrysler and the government could have matched New Brunswick in restraint.

The U.S. federal government panicked more than any other government on the planet. President Barack Obama will run a deficit of $1.75-trillion (U.S.) in his first budget - or roughly $5,830 per capita. Simply put, the U.S. stampeded - a distinctly sweaty performance regardless of Mr. Obama's reputation for cool. The country cannot productively spend this much money - but will nevertheless have to pay it back, either through higher taxes or inflation.

Deficit spending is always deferred taxation. We'll pay for every cent of our respective stimulus packages. According to the annual calculations of the Vancouver-based Fraser Institute, Alberta reached its Tax Freedom Day this year on May 16, New Brunswick (in second place) on May 31. With its smart strategy of lower taxes and restraint in spending, the province will decisively increase its economic incentives as it competes for investment and people with other provinces - leaving such incentive-challenged provinces as Ontario and Quebec further behind in the process.