In Nova Scotia, the corporate tax fear is real as election campaigning begins

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Government accounts for more than half of Nova Scotia’s economy, it has one of the highest sales taxes and six other provinces have lower corporate taxes.

Halifax Chamber of Commerce president Patrick Sullivan considers himself an optimist, but that’s a hard job given those figures.

“When you look at all those things combined, you have to say, ‘Is Nova Scotia an attractive market for new jobs, for businesses to expand, for businesses to open? The answer is probably ‘no.’”

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The province’s election campaign is less than a week old and two parties have said they will lower the sales tax if elected, but none have mentioned the tax on businesses.

Sullivan said Nova Scotia can and should lower its corporate tax rate if it’s serious about attracting and keeping businesses.

The corporate tax rate is 14 per cent, two points higher than in most other provinces.

Sullivan said Nova Scotia business owners also face some of the highest commercial taxes, levied by various levels of government, from hotel taxes to occupancy tax to taxes on signage encroaching on sidewalks.

Then there’s the province’s personal income tax rates, which are near the highest in Canada.

But Sullivan is focused on the corporate rate, which he wants to be in line with other provinces at 12 per cent.

“I congratulate the businesses that open every year,” he said. “I congratulate the businesses that expand in Nova Scotia, but they’re doing it in the face of some pretty strong headwinds.”

On Sunday, Premier Tim Houston called a snap election, with affordability and housing on voters’ minds.

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Houston has already pledged to reduce the HST by one percentage point to 14 per cent, while the Liberals have promised to lower it to 13 per cent.

Sullivan said he welcomes the cut, but a tax break also needs to be extended to the business community.

Nova Scotia is in a position to do so, he said, since the province’s revenue has soared due to a population boom that is adding residents at the fastest rate since the 1950s.

The province’s revenue was over $1 billion more than budgeted in each of the last two fiscal years. Instead of projected deficits, the province ended up with $116-million and $143-million surpluses, respectively. Tax revenues in the 2022-23 fiscal year increased to $763 million, $193 million of which came from corporate taxes.

Nova Scotia spent more than $1.3 billion in money that was not originally budgeted in its last fiscal year 2023-24.

“There is a lot of spending going on,” Sullivan said. “It would be great to perhaps return some of that spending to residents or businesses rather than (leaving) the government to decide where that significantly increased revenue should go.”

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To attract industry and manufacturing, Nova Scotia needs to be competitive with other markets, he said, and having a competitive tax rate is part of the equation.

“Businesses make decisions every day based on how much money they’re going to make and how much they can return to their shareholders. We want to ensure that businesses are getting the greatest return,” he said.

“When they’re getting the greatest return, that’s to further invest in business, or that’s to share with their employees or that’s to adopt new technologies so we can be more efficient than we have been in the past.”

But Melvin Cross, an adjunct professor of economics at Dalhousie University in Halifax, isn’t buying the argument, which, in short, is that a rate cut would be good for business and what’s good for business is good for Nova Scotia.

“The first assertion is easy to accept. A lower corporate tax rate surely will benefit business,” he said. “The second assertion deserves empirical support.”

Cross wants to see the effect a cut would have on corporate profits, provincial tax revenues, new businesses, new employment and the payment of wages and salaries in Nova Scotia. He’d also like to see the methodology.

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Sullivan said the proof can be found in the six other provinces that have lower corporate tax rates.

“Every one of those provinces has a larger economy. That seems to be empirical evidence of how the corporate tax rate works,” he said. “If an individual has a choice to start a business, or where to move a business or where to expand a business, it would seem to me that those are probably areas that might be considered before Nova Scotia or any Atlantic province.”

Sullivan has also heard such tales firsthand.

“I have talked to businesses that have said, ‘I am looking at my options, including Ontario, Western Canada … Atlantic Canada or Nova Scotia,” he said. “Money moves to where it’s most effectively used, where business can grow.”

What he hears is that the tax fear is real.

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