Re: Motion 31
Good morning Madame Chair and Committee Members,
Thank you from hearing from our chamber today.
I am Krista Ross, CEO of the Fredericton Chamber of Commerce. We have nearly 1,000 members who employ approximately 27,000 individuals. The majority of our member are comprised of small businesses – about 90% of our members have fewer than 20 employees and whether they realize it or not – each of them has a stake in the outcome of this ongoing discussion.
The relationship between the province’s tax structure, fiscal position, its ability to deliver services and economic growth are symbiotic and inextricably linked. It’s one of the reasons our organizational vision is Stronger Community Through Business Prosperity – a concept that we believe is equally applicable provincially. Every dollar government has to spend on needed services is generated by business so it’s important that economic growth is not stifled. Governments must carefully balance their current short-term revenue needs with their long-term growth needs.
Policy decisions by government must be viewed through different lenses, but one of those has to be an economic-development lens. No doubt that many New Brunswick municipalities and the province itself are searching for ways to increase revenue, balance the books and provide services to their citizens. However, if that revenue comes at the expense of economic growth and competitiveness, it won’t be sustainable. As we heard from the departmental officials yesterday, in exchange for the potential short-term relief, we are risking medium- and long-term detrimental effects of the economy, competitiveness and the tax base. Squeezing additional tax dollars from the existing base is a short-term answer to a long-term problem. It’s like the hungry farmer eating his seeds during a long and harsh winter, leaving none to sow in the spring. It’s a slippery slope that we should not get started down. We need strong, healthy businesses in New Brunswick – and lots of them – otherwise, eventually there will be no economic seeds left to sow.
Today I want to highlight three key points from our members’ perspective:
- Impact on small- and medium-sized businesses
- Best practices and the need for comprehensive tax reform
For your additional reference, in my submission, we have provided a copy of a letter which we sent to all party leaders earlier this year, along with an op-ed that was published in February. Our members have been very concerned about this issue since Bill 9 was introduced in the legislature last fall and have asked us to speak up on their behalf about the negative impact they believe a bill of this nature would have on their businesses and their competitiveness.
First of all, to create the conditions that encourage investment and economic growth, government must be focused on the competitiveness of New Brunswick businesses. As the economy becomes increasingly globalized, our companies are facing competition from all over the globe – as we heard repeatedly from departmental officials yesterday.
When Bill 9 was first put forward, real estate and tax experts Turner Drake calculated that “Manufacturers can expect to see a 5- to 10-fold increase [in their property tax bill] while other businesses may see anywhere from 20% to 100%”. This would obviously have a devastating impact on private-sector capital investments, as companies would be heavily disincentivized to invest and innovate, since their reward at the end of the day will be an increase in property taxes. That would be a big problem in any jurisdiction, but perhaps even moreso in New Brunswick as the province’s current Economic Growth Plan identifies the lack of capital investment and innovation as two of the five ‘challenges’ to expanding our economy.
I don’t know if you had a chance to read Dr Herb Emery’s commentary yesterday, but he writes:
“Motion 31 sets New Brunswick apart from most other provinces and US States. I can’t think of too many governments that purposefully design policy to discourage investment… at least ones that are remembered favorably.
New Brunswick’s economy depends on heavy industry but the province has fallen behind on investment in manufacturing, particularly machinery and equipment, despite the exemption of machinery and equipment from the property tax base. Our plants are getting older and less efficient compared to the competition. Motion 31 would place yet another government erected barrier on productivity-improving investments in equipment and machinery which are so necessary for the sector to survive and grow.”
Dr Herb Emery
The economy works best when all sectors of the business community are firing on all cylinders. The relationship between different industries and size of business is interdependent. In Fredericton, we are known as the Startup Capital of Canada and many of these startups rely on mature businesses for their seed funding and as early adopters of innovative technologies. We do not want to stifle this germination of the ecosystem by applying a new level of tax on the very businesses who would be the supporters and funders of the startup economy.
Impact on Small Business
The introduction of Motion 31 clarified the withdrawn Bill 9’s intent was to more heavily tax ‘heavy industry’ rather than all businesses with machinery and equipment (which would be very nearly all of them). But we should not be targeting big businesses or heavy industry either. Small and medium-sized businesses rely very heavily on the success of larger companies. Large companies have long supply chains that smaller businesses feed into, they provide well-paying jobs (direct and indirect), and they have money to invest.
Affecting the competitiveness of larger businesses including heavy industry will produce unintended consequences for SMEs. Take Fredericton, for example. We are not known for heavy industry, big businesses or natural resource development within the city and yet the natural resource sector alone contributes more than $600 million to our GDP and employs 5,000 people in our community.
The economy is a complex ecosystem that depends on businesses of all sizes, employees, customers, infrastructure, capital investments and much more. It also depends on governments not to create barriers to growth. If we really want to grow as a province and get on our own two feet – this has to be the focus: real, sustained economic growth. Without that, we’re just shuffling the deck chairs on the Titanic and hoping that other provinces can continue to keep New Brunswick afloat. New Brunswick receives billions annually in transfer payments, our debt is many billions more. Private sector success and growth is the only way for governments to take in revenue, so it’s critical that our businesses are not taken for granted, nor punished for growth – but that’s exactly the message that Bill 9 sends and promises to do if adopted.
National Best Practices and Comprehensive Tax Reform
Motion 31 highlights the need for comprehensive tax reform.
The only place in Canada that has this type of machinery and equipment tax is Alberta (and small pockets of Saskatchewan & Manitoba), where Calgary and Edmonton are exempted – in that jurisdiction, it’s an oilsands tax essentially, since there are plenty of properties there that are just machinery and equipment – this is not the case in New Brunswick. The proposal in and of itself does not align with tax policy best practices across the country.
There also seems to be some confusion about the Kitchen and Slack report, which actually calls for a full review of the province’s property tax regime, not to just tax equipment and machinery as another one-off tax change.
The report states that“…three principles of taxation — equity based on benefits received from local services, accountability, and efficiency — suggest that non-residential properties should be taxed less than residential properties ….“The role of property taxes is to pay for services and not redistribute income” and “there is no justification for a higher tax on business because business properties use fewer services than residential properties and they are more likely to move in response to a tax increase.”
We agree with other speakers that New Brunswick’s business, citizens and economy need a comprehensive tax review – starting with the property tax regime.
As we heard yesterday from Finance and Service NB, any one-off change to tax policy would impact the uniform treatment of businesses in New Brunswick as well as having potential impacts on the Community Funding Model amongst other considerations. Moreover, Service NB would have to put ‘significant’ resources to implementing such a change. Does it not make more yes to do a broader, fuller review?
Evidently the answer to that question is ‘yes’ as multiple departments are starting down that path later this year. That review will specifically include the machinery and equipment question as part of the larger review – where it belongs.
There is no chance that more tinkering and cherry-picking certain parts of the tax code will lead to a more fair and modern tax policy, that encourages economic growth for our province. People, capital and many business operations are all highly mobile today. Our province is already struggling with these very issues as we feel the pull to other parts of the country that otherwise have a better economy and more opportunities for people and businesses.
We submit that New Brunswick’s economic potential will not be unlocked without detangling and simplifying the province’s web of intersecting taxes, fees and regulations. If sustained economic growth is the goal (and it must be), then it’s time to get serious about tax reform and ensure that our tax system is aligned with our economic development goals.
Krista Ross is CEO of the Fredericton Chamber of Commerce, a nationally accredited organization with nearly 1,000 members, is an active business organization engaged in policy development and advocacy that affects the competitiveness of our members and the Canadian business environment. The Chamber’s vision is ‘Stronger Community Through Business Prosperity’.