New Brunswick government should cut corporate welfare to generate tax relief

According to a recent study, between 2007 and 2019, the latest year of available pre-COVID data, New Brunswick had the lowest level of provincial business subsidies (a.k.a. corporate welfare) in Canada at $2,614 per tax filer, substantially below Prince Edward Island ($11,760), Nova Scotia ($4,421) and the Canadian average ($8,726).

Further, provincial subsidies have declined slightly in recent years. On a per-tax-filer basis, subsidies in the province averaged $194 per year from 2015 to 2019 compared to $204 (all figures adjusted for inflation) in the five years before that.

That’s good news for New Brunswickers, because there’s little evidence that corporate welfare generates widespread economic growth and/or job creation. In fact, a significant body of research suggests corporate welfare may actually hurt the economy as government interference in the market misallocates resources and ultimately distorts private decision-making by businesses, investors and consumers. Put differently, government attempts to select the winners and losers in the economy generally make the economy less efficient than if those decisions were left to individuals. Indeed, the better option is to let New Brunswickers make their own decisions about where to spend their money and subsequently determine what businesses will succeed.

However, even though New Brunswick is doing well compared to its provincial peers, there’s still much room for improvement. New Brunswick provincial government spending on subsidies exceeded $1.5 billion between 2007 and 2019, and while the level has declined slightly in recent years, provincial subsidies still total more than $100 million per year.

But this represents a golden opportunity for the Higgs government. Because this spending is largely wasteful and inefficient, the government could eliminate subsidies, which equalled approximately one quarter of all provincial corporate income tax revenue in recent years, and use the fiscal room to significantly reduce business taxes. This is a particularly important given that New Brunswick has the third-highest business tax rate in Canada, which makes it less competitive than other provinces in attracting businesses, investment and jobs.

Even with a relatively low level of corporate welfare, subsidies still consume a substantial amount of taxpayer money, which comes with significant costs to New Brunswick taxpayers—and with little evidence of benefit. If the Higgs government wants to truly encourage growth in the economy, it should focus on pro-growth tax reductions that give all businesses the opportunity to thrive.