Tough Budget For Stores in Newfoundland and Labrador: HST and Corporate Tax Increases, Fee Hikes, Exemptions for Books EliminatedPrint
Newfoundland and Labrador's ongoing economic struggles and the continuing low price of oil resulted in today's tabling of a tough budget featuring a two percent increase in the Harmonized Sales Tax (HST), a one percent increase in the corporate income tax rate, increases to personal income taxes, increases to 300 service fees (e.g. vehicle registration, tourism levies), the introduction of 50 new service fees and significant cuts to the public service.
The budget will result in the average provincial household paying nearly $3,000 more in taxes and fees per year.
RCC met with Honourable Cathy Bennett, Newfoundland and Labrador's Finance Minister earlier this year to express the negative impact of an HST increase on consumer spending; the negative impact of corporate tax increases on attracting and retaining business in the province; the negative impact of income tax increases on disposable income and the impact of significant government job losses on retail spending.
Reaction to the budget has been negative but with the exception of the HST increase, much of this negativity has not been directed towards the newly elected government. The former government was in power for over a decade and during that time, inflation-adjusted program and operating spending for government grew by almost 30 percent, while population growth was only 1.6 percent. The current government is now facing what amounts to revenue collapse. In 2008, oil royalties accounted for 30% of the province’s revenues whereas in this year’s budget, oil royalties will only account for 7% of the province’s revenues.
HST: will increase from 13% to15% on July 1, 2016 (provincial portion moves from 8-10%). The increase is expected to generate $111 million annually for the province. A 15% HST will match the HST rate in New Brunswick's (as of July 1, 2016) and Nova Scotia.
The current government was elected on a promise to reverse the former government’s planned increase of the HST to 15%. The current government followed through on their campaign promise only to reverse this decision in today’s budget.
Government has eliminated the HST point of sale rebate on books purchased by individuals.
General Corporate Income Tax Rate: will increase from 14% to 15%, retroactive to January 1, 2016. This rate is higher than New Brunswick (14%) but lower than NS and PEI (16%).
Small Business Tax: unchanged at 3% on the first $500 thousand of active business income.
Tobacco tax: will increase on April 15, 2016 by 1 cent per cigarette or 2 cents for each gram of loose or fine cut tobacco.
Liquor: prices increased by an average of 3% on April 1, 2016. This followed a government decision to mandate a $3 million increase in the dividend paid by Newfoundland Liquor Corporation to the government.
Drug Coverage: Funding of approximately $2.6 million is committed for coverage of a number of new drug therapies under the Newfoundland and Labrador Prescription Drug Program, presently under review by the national and regional review agencies. Prior to the tabling of the budget, the government also removed coverage in the Newfoundland and Labrador Prescription Drug Program for over-the-counter drugs and introduced limits to diabetic test strips that are consistent with national guidelines, for an annualized savings of $5.5 million.
Food: The budget renewed the government’s commitment to develop a new food security and agriculture growth strategy.
Gas tax: On June 2, 2016, the gas tax will increase temporarily from 8.25 to 16.5 cents per litre for gasoline. This tax will be reviewed every six months. For Labrador border zones: a 10 cent per litre rebate will be provided for gasoline used in motor vehicles, effective June 2, 2016.
The tax rate on diesel products will increase by 5 cents per litre.
Taxes on Home Heating fuels will not change.
Personal income taxes: will increase in each of the next two years. The increases will affect all brackets beginning on July 1, 2016. By 2017, the lowest income bracket will see a 1% increase while the top bracket will see a 3% increase.
Program Cuts: The government eliminated the "baby bonus" of $1,000 paid to parents. The government will revert back to a student loan program following two years of offering grants to students. The Home Heating Rebate Program and the Labrador Building Material Rebate Program have been eliminated.
Infrastructure Spending: Many infrastructure announcements made by the previous government have been either delayed or cancelled.
Public Service Cuts: Between 2004-2015, the former government doubled the size of the public service. Given the dire fiscal situation, 200 direct government jobs will now be eliminated (75 through attrition). 450 full-time equivalent jobs will be eliminated from the province’s many agencies, boards and commissions. But considering that the public sector in the province employs over 46 thousand people, the government has hinted that there will be more public sector job cuts when the Finance Minister presents a mini-budget this Fall.
Cabinet Ministers: have already taken a 10% cut in salary in anticipation of upcoming contract talks with public sector unions.
Deficit / Debt: The deficit for the 2015-16 fiscal year is $2.2 billion. For 2016-17, the government is projecting a deficit of $1.83 billion on a budget of $8.5 billion. The debt for 2015-16 is $14.7 billion for a population of only 528 thousand people. The debt has doubled since 2004.
On July 1, 2016, a temporary deficit-reduction levy of 1.2% will come into effect. The levy will be incremental (based on income) and apply to people earning over $20,000. The levy is expected to raise $126 million annually. Government has pledged to begin phasing out the levy in 2018.
Real GDP: fell by 2.3% in 2015. For 2016, the government expects real GDP growth of 1.0%
The long term plan is to balance the books by 2022.
RCC will continue to oppose the tax increases while working with stakeholders to push the Newfoundland and Labrador government to develop a plan to grow the economy that is not so dependent on oil and gas.
If you have any questions or concerns, please don’t hesitate to contact: Jim Cormier, Director (Atlantic) at: [email protected] or 902-422-4144