The Hamm government deserves two cheers for its recent decisions: (1) to cancel the planned corporate tax cut in light of the September budget update and the additional strains on the provincial budget since September 11 and (2) to promote equalization between municipalities in Nova Scotia. By delaying the corporate tax cut, the government shows flexibility. By promoting equalization at the municipal level, it shows creativity.
But the government gets a big raspberry rather than the full three cheers. It is again talking of additional cuts to expenditures, to show "fiscal responsibility". And it proposes financing the equalization payments by a levy against the municipalities, using the property tax to provide equalization.
One clear message from the tragedy of September 11 is that government services play a crucial role in our individual lives and in maintaining a civil society. It is beyond irony that the voices now decrying government's inability to protect us from or to respond to the terrorist attacks are the very same voices that clamored for years for cuts to government. Does it take a massive tragedy for them to realize that government services are central to the type of society we are and want to be?
Surely the lesson goes beyond security. Government services are important in many areas. Public services such as health and education have been cut far below what Canadians need, expect, and can afford. The impacts of these cuts are not as sudden or visible or dramatic as September 11, but they affect us all in important ways. That's why polls consistently show Canadians are willing to pay higher taxes for improved public health and education.
Fiscal responsibility means using the spending and taxation powers of government to meet the needs of Nova Scotians. Balancing the budget is desirable, but secondary. If the Government wants a balanced budget, it should raise taxes. Cancelling the planned corporate tax cut seems to recognise this. Talks of further budget cuts, on the other hand, suggest that the flame of responsibility is flickering in the wind of the Government's own election rhetoric.
The Province's equalisation proposal also falls on both sides of the fence. The idea itself is great! Equalisation between municipalities has the same rationales as equalisation between provinces. Fairness - no one should do without the services deemed necessary. Equity - people should be entitled to similar levels of government services for similar tax loads no matter where they live. Efficiency - people should be healthy and educated; since many will move from poor to wealthy regions, the wealthy regions should help pay for their education and health care. Thus, equalisation makes sense from both an ethical and an economic perspective.
Again, the issue is one of finance. Equalisation is intended to be progressive, to provide benefits to those less well off. To finance it through the property tax is counter-productive.
The property tax is regressive, it places a heavier burden on those with low incomes than on those with higher incomes. It makes no sense to finance a progressive policy with a regressive tax!
Yes, let's have a municipal equalisation plan, but finance it through income taxes. Nova Scotia now has its own tax structure. We can increase the progressivity of the income tax by adding two or three more tax brackets. Use the extra funds to finance municipal equalisation and enhanced government services in health, education, etc. This would be true fiscal responsibility. Cutting programmes to balance the budget while still planning income tax cuts reflects a government unwilling to serve the majority of Nova Scotians.
So it's two cheers for cancelling the corporate tax cuts and promoting municipal equalisation. But its a raspberry for the Government's view on how to balance the budget. Hold the third cheer until the Government declares that its services are necessary to what we aspire to be and is prepared to finance them with progressive taxation.
Michael Bradfield is a professor of Economics at Dalhousie University and a Research Associate of the Canadian Centre for Policy Alternatives - Nova Scotia.