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Economic and fiscal developments in New Brunswick.

What is going on in New Brunswick is inextricably linked to developments at the national, and indeed at times, the international level. The government deficit and debt situation is not a new phenomenon. It has been at least a decade in the making, and it took the latest recession to bring attention to a significant "structural" problem that had been imbedded in government finances since the late 1970s. A structural problem exists when the long run spending growth rate is greater than the capacity of the economy.

The government's financial position has been a net penalty to the remainder of society because current and future key social programs are robbed by rapidly rising interest on the debt, and the current and future economic structure is penalized by either current or expected increases in taxes. All Canadians face the same problems together and we must right the financial wrongs of the early and mid 1980s. The decisions of those years drove debt to totally unacceptable levels. Governments across Canada were spending far too much money - money they did not have. It is clear that Canadians cannot continue to live beyond their means indefinitely.

In New Brunswick, we recognized the need for substantive change five years ago. We knew we had to be part of the solution - not part of the problem. We knew we had to do more with less. We knew we had to make administrative savings, downsize government, and at the same time protect key programs. We knew we had to ensure we were getting the most we could from our development efforts and from training programs.

The problem could not be turned around in a year, but we knew unless we started soon, it could never be done, without inflicting great pain; and a key point of the overall strategy was a plan for getting the job done. That budget, and the five since then, have all had the same theme: to make the system work better, protect programs, and solve the financial problem that was developed and compounded over the previous decade.

The basic premise is that if government does its part on these issues, the private sector and the economy will respond and create the needed jobs and incomes. These efforts have paid off so far, but continued progress is required if our fiscal objectives are to be reached. In the March 31st budget, I projected that there will be an ordinary deficit this year of $41.5 million, while significant ordinary surpluses in 1994-95 and 1995-96 will be realized. In fact, for the three-year period, I anticipate surpluses will exceed any deficit for this three-year period by $ 126.5 million.

The budget announced a five-point fiscal strategy, which I believe strikes a responsible balance between cutting the growth in government expenditures on the one hand, and increasing our revenues on the other:

* New Brunswick is the first province in Canada to have balanced budget legislation.

* Further increases in government efficiencies will result in a $70 million saving over the coming year.

* We are making structural adjustments to some of the essential but fastest growing problems; at the same time, we will continue to ensure support for those who need it most.

* Revenue measures, which will reduce the deficit by $75 million, have been carefully chosen to ensure that tax increases are distributed fairly. For every dollar increase in taxes, we reduced spending by over $3.00.

* There will be a moratorium on the construction of new capital facilities.

A key factor in the fiscal future of New Brunswick and in our ability to stimulate growth is our tax competitiveness. On this issue, statistics show that New Brunswick, prior to this budget cycle, had the third lowest tax burden in the country. Independent opinion has determined that our tax regime is among the most competitive.

It is no accident that the economy in New Brunswick has done well in recent years. Good fiscal management and proper allocation of scarce tax dollars have been important factors in attracting firms and creating a good environment in which to live, work, and invest. The statistics show New Brunswick has weathered the economic storms of the last couple of years better than most parts of this country. This economic success has been achieved because of active dynamic policies - not by accident. The right fiscal policies and tax environment are just part of the story. We have also made the right investments - even at a time when restraint is required.

The recent budget marked another step to achieving our financial goals. It is difficult to relentlessly tackle year after year the daunting task of cutting more and more from the expenditure budget. However, we have an obligation to society not to waiver from setting the accounts straight. The New Brunswick budget for 1993-94 continued the progress made in recent years. We are looking at all our boards, commissions, and agencies with the objective of eliminating or amalgamating as many as possible. We have made a commitment to achieve further efficiencies through the establishment of service centers and the elimination of many separate government offices, all in the same communities.

These actions, while necessary, clearly will have an impact on some people in our society and we have to stand firm in our resolve-but at the same time protect those in our society who cannot protect themselves.

Although the quest to gain as much efficiency as possible from the spending side of the budget continues, it is not enough on its own and some taxes were increased. The increased burden rests mainly on those capable of paying, and the impact for those people as I said earlier, still compares favourably with the rest of the country. I would prefer that these was no additional burden on anyone. But the real fiscal and financial world is such that some major changes in what we do and how we pay for programs and services, are absolutely unavoidable.

It is no secret that the country is facing a serious fiscal situation and it is the moral responsibility of every government to fact the challenge and make the right decisions. Governments of all political stripes have done that - Newfoundland, Saskatchewan, Manitoba, Ontario, Alberta, and others, in addition to New Brunswick, have all indicated a will to face the problem head on. The fiscal situation is at a point where political gamesmanship is a luxury Canadians cannot afford.

I would like to briefly outline the tax changes that were included in the budget, so that you are able to put them in perspective. The main point I want to make with respect to these tax changes is that they were carefully considered in terms of making the system fair and equitable.

* The income tax rate was raised from 60 to 64 percent over two years. Since this is a progressive tax, it will increase the impact on those more able to pay. And on an effective tax paid basis, New Brunswick is the fifth lowest in the country.

* The sales tax base was extended so that it is more fair and equitable, and so that those participating in golf, curling, skiing, racquet sports, and private gymnasiums, will not pay tax.

* Clothing and footwear will be exempt from tax only when the price per unit is not more than $100. This exemption still compares favorably with other jurisdictions.

* I will be negotiating with my federal counterpart to collect provincial sales tax at the border. In order to do this, we must apply the sales tax to a broader range of goods including fertilizer; lime; shrubs and plants sold to non-farmers; wood stoves; patterns and fabrics; single copy purchase of newspapers; and snack foods.

* On the property tax side, there have been small increases for farm woodlot and the low income property tax threshold is increased, with eligibility now based solely on income - not age.

* The application of sales tax to Indians will now be consistent with Newfoundland, Nova Scotia, Quebec, Manitoba, British Columbia, and the Federal GST.

* The provincial share of the video lottery will be increased.

In summary, the New Brunswick financial story is one which is being played out on the national stage. If we are to succeed in gaining control of our respective financial situations, it will be important that we work in tandem. Soon, I will be meeting with my counterparts at the federal and provincial levels and I expect that a good part of the discussion will be on this very critical issue of controlling deficits and debt. New Brunswick has shown it will play its part in contributing to the solution of this national problem.

It is clear that the most important issue for governments today is coming to terms with the new realities. Structural adjustments in programs, services, administration, and delivery systems are essential if this country is going to continue to prosper. And if change is undertaken in partnership with business and individuals, the chances for long term success will be much more promising. I believe New Brunswick is on the road to success.

Pending Technical Projects

As of July 28, 1993, the Institute's committees had the following technical projects on their agendas:

Canadian Income Tax Committee

(Committee Chair: Vincent Alicandri)

* Comments on Draft Information Circular relating to Advance Pricing Agreements.

Federal Tax Committee

(Committee Chair: Michael A. DeLuca)

* Continued Monitoring of the 1993 Tax Bill. * Comments on Proposed Implementation of the Corporate Information Reporting Program. * Comments on Proposed Investment Adjustment Rules Affecting Affiliated Groups filing Consolidated Returns. * Possible Comments on Arkansas Best and Business Hedging. * Monitoring of Proposals for a Single Wage Reporting System. * Follow-up Comments on QSLOB Regulations. * Possible Comments on One-Year Rule Limiting Travel Expense Deductions. * Possible Comments on Proposed Alternative Minimum Tax Rules for Corporations filing Consolidated Returns. * Comments on Proposed Single Wage Reporting System.

International Tax Committee

(Committee Chair: Lisa Norton)

* Continued Monitoring of the 1993 Tax Bill. * Comments on Temporary and Proposed Section 482 Regulations. * Comments on Rev. Rul. 93-4 Relating to Entity Characterization. * Comments on the Competent Authority Process. * Comments on Proposed DASTM Transition Regulations. * Comments on Section 898 Regulations Relating to Taxable Year of Controlled Foreign Corporations.

IRS Administrative Affairs Committee

(Committee Chair: Robert D. Adams)

* Continued Monitoring of the 1993 Tax Bill. * Comments on Issues Associated with Employer Facilitation of Electronic Filing of Individual Tax Returns.

State and Local Tax Committee

(Committee Chair: James J. Coppola, Jr.)

* Possible Comments on the Definition of "Solicitation" in the Aftermath of the Wrigley Decision. * Possible Comments on State (Source) Taxation of Nonresident Pensions.

Tax Information Systems Committee

(Committee Chair: Anthony P. Verdino)

* Comments on Issues Associated with Employer Facilitation of Electronic Filing of Individual Tax Returns. * Comments on Electronic Filing of Corporate Returns.

Anyone wishing more information about the listed projects should contact the designated committee chairs or a member of the Institute's legal staff.
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Title Annotation:Canada
Author:Maher, Allan E.
Publication:Tax Executive
Date:Jul 1, 1993
Previous Article:Keystone Consolidated Industries: Supreme Court holds property contributions to pension plans for funding obligations to be prohibited transactions.
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