New Brunswick government has golden opportunity to reduce income taxes

The Higgs government will table its next budget on Tuesday and has an opportunity to address New Brunswick’s punishingly high personal income taxes.

Personal income tax rates in New Brunswick are among the highest in North America. For example, among 61 jurisdictions in Canada and the United States, New Brunswick’s (combined provincial and federal) tax rate at $50,000 of income is the fourth-highest and fifth highest at $75,000. And high-income earners pay more than 52 per cent, the sixth-highest rate in North America.

Of course, high tax rates can discourage people from relocating to New Brunswick, and this effect is stronger among high-income earners. Much-needed top talent, such as medical professionals or entrepreneurs, tend to be more mobile and more responsive to high tax rates when choosing where to live.

Further, high marginal tax rates discourage workers from working extra hours, or adding a second job. According to a recent study, workers with average incomes in New Brunswick must earn $155 in extra income to take home $100 after taxes, the second-highest level in Canada. During a time when cost of living is top of mind, taxes remain the largest expense for many in the province.

Fortunately, the Higgs government is in a strong position to tackle the tax problem this year. A string of balanced budgets has reduced the debt, and last year Canada’s Parliamentary Budget Officer said New Brunswick was “fiscally sustainable” for the first time in many years.

Neighbouring governments in Nova Scotia and Prince Edward Island are running large deficits and will be hard-pressed to reduce taxes in the coming years, presenting an opportunity for New Brunswick to create a tax advantage compared to its neighbours.

For perspective, in the last three fiscal years (prior to 2023/24, which is not yet complete), New Brunswick averaged a provincial surplus of $730 million. If the government projects another surplus of this size, it could cut revenue from personal income taxes by about one-third and still maintain a balanced budget.

One can debate the size and structure of the tax reduction. However, with some of the highest personal income taxes in North America, stable finances and a cost-of-living crisis, New Brunswick is ripe for a tax cut.