Nova Scotia government doles out corporate welfare while taxpayers pay the bill

The golden rule of a fair tax system is that those in equal situations pay equal taxes. That’s not the way it works in Nova Scotia. Businesses and sectors can get their taxes cut by catching the fancy of powerful politicians or bureaucrats, all in the name of “economic development.” The favoured few don’t pay the same taxes as everyone else. They pay less.

A recent albeit minor example of tax hocus pocus involves a New York-based marketing technology firm. It aims to expand in Nova Scotia but doesn’t want to pay Nova Scotian taxes. That’s fine with government.

Invest Nova Scotia, the province’s economic development agency, has granted the firm a “payroll rebate” of $1.07 million for hiring 60 people (less, if fewer). The government estimates that would create a payroll of $13.5 million, producing a $1.8 million in provincial income and consumption taxes. More than 60 per cent of that lands in the company’s coffers from the $1.07 million “rebate.”

Oddly, the kickback is on taxes paid by its employees, not the company. But among other things, it allows the company to compensate employees for Nova Scotia’s mega tax burden. Nova Scotia competes with Quebec for the most onerous taxes in Canada.

Nothing wrong with this tech company doing it—hundreds, probably thousands, of businesses, have been kindly treated by Nova Scotia’s government under a variety of programs. I haven’t named names since the companies are not to blame. Turning down free money would be corporate recklessness. The problem is the government handing out the money while the rest of us, in government tax thrall, pay the bill.

For example, one of Canada’s largest and most profitable corporations landed an expansion “rebate.” The expansion is expected to generate a $366 million payroll over six years and provincial taxes of $49.5 million. Invest Nova Scotia kicks back $37.8 million or three-quarters of the tax take.

These stories illustrate an important point. The government apparently believes tax “rebates”—i.e., lower taxes—spur development but then charges other Nova Scotians among the world’s highest taxes.

Instead of reducing the burden on every Nova Scotian business and potential entrepreneur, a pool of hundreds of thousands, the province picks a lucky few. The rest of us pay more taxes, which, by the province’s own logic, retards economic development.

That might be defensible if it worked. Government has a lousy track record of giveaways. History is littered with costly failures not just in Nova Scotia but across the region; car manufacturing and lumber in New Brunswick; growing cucumbers and clean-up technology in Newfoundland; metal fabrication, entertainment technology and voting systems in Nova Scotia, etc.

This isn’t ancient history. Nova Scotia taxpayers subsidize everything from wine, to film, to banks, to ferries. Think of the $17.9 million in 2022 alone, showered on the Yarmouth-Maine fairy, including subsidies for U.S. customs. Nova Scotians continued shovelling money during COVID and when the ferry was shut down by a botched move from Portland, Maine, to Bar Harbor, before a new terminal (paid for by Nova Scotians) was ready.

But wait, as the T.V. pitchers say, there’s more. Invest Nova Scotia wants to give you money if you pick the “right” business—agriculture tech, clean tech, health tech, ocean tech and software. But that’s not all. How about the “Digital Media Tax Credit: a refundable tax credit of up to 50% for costs directly related to the development of interactive digital media products. [The] Digital Animation Tax Credit … applies to costs directly related to the development of digital animation in Nova Scotia.”

Finally, these programs cost more than the money they giveaway. Well-paid civil servants must create and administer these programs. Nova Scotia Finance Minister Allan MacMaster promised to spend whatever he can, "We're willing to spend, if we do have the money to spend.”

Instead, with its new majority mandate, the Houston government should stop spending recklessly so tax reductions can benefit all Nova Scotians. That would be a true economic development strategy.