HALIFAX -- Nova Scotia should introduce a carbon tax like British Columbia has done and broaden its harmonized sales tax to cover previously exempt items including children's clothing, diapers and home energy costs, a review of the province's tax system says.
The report released Wednesday by former Ontario cabinet minister Laurel Broten also recommends that the proposed tax increases should be offset by lower income and corporate tax rates and a government spending freeze that could amount to $1 billion in savings by 2020.
The study says that at virtually every income level, Nova Scotians pay either the highest or second-highest personal income taxes in Canada. Its corporate tax rates are also among the highest in the country.
As well, it's unacceptable to think that as the baby boomer generation retires and ages that a significantly smaller, younger population will support bigger budgets for things like health care, the report says.
"The review confirms that the trajectory Nova Scotia is on is unsustainable," Broten told a new conference.
"Either Nova Scotians can decide to make changes to turn around or we will tumble, without sufficient revenue to pay for the public services we all want to support our quality of life."
Broten's study follows a more expansive study of Nova Scotia's economic trends, which concluded the province was on the verge of a prolonged economic decline unless it embraced major changes.
In the 2013-14 fiscal year, the province's deficit stood at $679 million and it was carrying a record $14.7 billion in accumulated debt while paying $886 million in annual debt servicing costs.
In her report, Broten said Nova Scotia should follow B.C.'s lead by imposing a carbon tax on environmental pollutants and the goods that produce such pollutants.
"The best advice from around the world ... is to tax what you do not like," she said. "Tax pollution. Tax consumption."
Since B.C. introduced its carbon tax in 2008, the province has also reduced corporate and income tax rates to among the lowest in Canada while recording economic growth well above the national average.
B.C. taxes emissions of three types of greenhouse gases produced by fossil fuel combustion. The tax varies across fuel types and is largely aimed at reducing emissions by 33 per cent by 2020.
Broten's report says a carbon tax would generate $229 million in revenue by 2020. She says corporate and income tax cuts would cost the provincial treasury around $274 million, though that doesn't include other proposals she says would generate revenue.
Broten said the carbon tax should not be applied to electricity costs until Nova Scotia Power, the province's privately owned utility, reached its 40 per cent renewable energy target in 2020.
Finance Minister Diana Whalen said she is reviewing Broten's 42 recommendations and declined to comment on the carbon tax proposal.
"I would love to be in a position to offer tax cuts to businesses and Nova Scotians, but given the financial position we're in, we can't just lower taxes without some kind of trade-off, without cutting somewhere else."
The Opposition Progressive Conservatives urged the government to reject Broten's report, describing a carbon tax as a job-killer.
"The report tells (Nova Scotians) that their taxes should go up, they should pay more in HST and electricity rates should be even higher, and it says nothing about job creation," Tory Leader Jamie Baillie said. "Reject it. Start over."
Baillie also criticized proposals to eliminate the province's highest tax bracket and increase the small business tax. He said broadening the application of the HST would also hurt families.
NDP interim leader Maureen MacDonald said the suggested changes to the HST would hurt too many Nova Scotians, particularly those who depend on the home-heating rebate.
"What I see here is a huge tax grab from the average citizen."
Broten said low-income Nova Scotians would be shielded from a broadened HST through increases to low-income tax credits and improvements to the home heating rebate program.
Valerie Payn, CEO of the Halifax Chamber of Commerce, welcomed the measures on tax reform and she endorsed the move toward a carbon tax.
"It has worked in other jurisdictions, why wouldn't it work here?"