10/08/2014 11:58 EDT | Updated 12/08/2014 05:59 EST

New Brunswick cutting small business income tax rate by half percentage point

FREDERICTON - New Brunswick's Liberal government used its first full day in office to act on a promise to help small businesses by announcing a tax cut for them.

Premier Brian Gallant said lowering small business income taxes by half a percentage point to four per cent, starting Jan. 1, will reduce their costs and make them more competitive.

"It is a way for us to give small businesses a break and even help some of them survive in these trying times," Gallant said Wednesday.

"We have a diversified approach to growing our economy and creating jobs, one that includes helping and supporting our small- and medium-sized businesses."

The small business tax rate is applied to any business with taxable income of less than $500,000 per year.

The Liberals promised during the recent election campaign to drop the tax rate to 2.5 per cent by 2018.

Gallant says that would give New Brunswick's small businesses the lowest income tax rate east of Manitoba.

Elsewhere in Atlantic Canada, small businesses in Prince Edward Island pay 4.5 per cent, while the rate in both Nova Scotia and Newfoundland and Labrador is three per cent.

Gallant said the change will cost the government $1.5 million in revenue over the remainder of the current tax year, and mean a loss of $4.5 million per year for each half-percentage-point drop.

Denis Robichaud, the New Brunswick director of provincial affairs for the Canadian Federation of Independent Business, said the tax cut is welcome news and will help small businesses create or maintain jobs.

"This is a step in the right direction ... and every little bit helps," Robichaud said.

He said it could mean that companies can give employees more hours or invest in training and equipment.

However, Robichaud said the impact could be offset by a plan by the Liberals to raise the minimum wage by a dollar to $11 an hour by 2017.

Many businesses have told him they are worried, he said.

"We know many CFIB members will be affected by this increase and will have no choice but in some cases reduce hours or put the brakes on future hirings," Robichaud said.

New Brunswick's minimum wage is supposed to rise to $10.30 per hour from $10 by the end of this year.