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If the provincial government insists on cutting my personal income taxes I'll take the extra money. I do worry that my friends earning less income and those who own small businesses will foot the bill.

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Barbour's General Store, a Saint John landmark, is moved by truck to a new foundation. Since New Brunswick was founded, small and mid-sized businesses have made up the bulk of the provincial economy. Such businesses are not likely to relocate based on tax policy.

Reforming the tax system is a great idea, but the proposals in the government's discussion paper will move us little towards self-sufficiency because they are based on two faulty premises.

The first is that lower tax rates play an important role in attracting workers and businesses. It would be nice if they did, as N.B. has been decimated by out-migration, especially youth, between 1990 and 2006. The problem is that workers and most businesses pay scant attention to tax rates when deciding where to work or do business.

Most New Brunswickers have friends or family working in Fort McMurray. Ask them if they went to Alberta because of lower tax rates. No, they went there because they needed a job, or because they were getting paid double the wages. In fact, research shows that finding a job, matching skills, high wages differentials, urbanization rates and family ties play a much stronger role than tax rates in motivating individuals and families to move to another province.

Tax rates also have little effect in attracting businesses. Most jobs across Canada are found in small and medium-sized enterprises and it is naïve to think small businesses in Ontario would pack their bags and move to New Brunswick just because we lowered our income tax rates, much like our small businesses in Rothesay are not looking to jump ship if rates fall in other provinces.

There are two caveats. Differentiated tax rates can motivate businesses to build in unincorporated areas where rates are lower, and the N.B. property tax system review can address this gap. Second, there are large multinationals and Canadian companies that look closely at cost structures (i.e. wages, rents, tax rates) when deciding where to locate offices and production units. However, if the objective is to attract company divisions that are constantly looking for the lowest cost structures, we are doomed to fail. As we near self-sufficiency, overall wages in NB will increase, and we will lose our competitive advantage (and appetite) in attracting low-cost-structure-seeking companies.

Thus lowering corporate income taxes will achieve little in attracting businesses. Where they are really helpful, however, is in allowing existing N.B. businesses to invest in their company. The discussion paper considers the issue scarcely. Moreover, lowering corporate income taxes would be more beneficial to the N.B. economy than lowering personal income taxes for three reasons:

1. Businesses inevitably pass on income taxes to others, either by suppressing employee wages or by increasing the price of the good or service sold to customers;

2. Businesses, particularly small and medium-sized enterprises, reinvest most of their tax savings back into their company: equipment, training, hiring workers and increasing wages. These investments are more local, whereas we individuals invest in mutual funds and RRSPs that are invested relatively more outside the province.

3. The smaller the corporate tax rate compared to the personal tax rate, the more small and medium-sized business owners will reinvest in their business rather than bonus out a salary at a higher tax rate.

The discussion paper leaves many scratching their heads when casting aside the need for a small to medium business tax rate, calling it "a disincentive to growth." This is the same as saying that a worker earning $35,000 or $75,000 would refuse a pay raise because the added income would be taxed at a higher rate. Those who own a business understand the role of a lower tax rate. Because smaller companies have fewer assets and younger ones have little track record, they have more difficulty accessing financing from banks. Starved for capital, they reinvest just about every tax dollar saved back into their business.

The second premise in the discussion paper is that it is better for the economy to hike consumption taxes like the HST in order to lower income taxes. In theory, this is a good idea. The problem, once again, is that our purchases are more local than our investments.

A worker earning $100,000 does not spend five times as much on groceries, housing, electricity and fuel than someone earning $20,000. Low-income earners spend more of their disposable income while high-income earners tend to invest more.

Hiking the HST will hurt low- and middle-income earners by making basic necessities more expensive, as only a few are HST exempt. It will also hurt the N.B. economy, as low- and medium-income earners will reduce spending on non-essential goods. Since we purchase more locally than we invest, raising the HST so to lower-income tax rates may help the Ontario economy but hurt ours.

Investments are, of course, important to our economy, but we need means to ensure that more investments are directed locally.

On a selfish level, I am hoping the government goes through with lowering my personal income taxes. In terms of economic growth and self-sufficiency, however, they would be better off to keep the HST where it is and let people spend locally than invest elsewhere. And if the government can afford to lower taxes, I'd rather see the owners of small- and medium-sized businesses pay less, as they do a better job investing in the local economy with their tax savings than I would.

Yves Bourgeois holds a PhD in economic development at UCLA and is Senior Researcher at the Canadian Institute for Research in Public Policy and Public Administration in Moncton.