Newfoundland and Labrador budget delivers tax hikes, job cuts, $2B deficit

ST. JOHN’S, N.L. – Critics are calling Newfoundland and Labrador’s new spending plan the Tax on Pretty Much Everything Budget, saying it could repel investment and migration to a province that badly needs both.

“We cannot tax our way back to prosperity,” Des Whelan, chairman of the St. John’s Board of Trade, said as the new Liberal government delivered its first fiscal blueprint Thursday.

“In this budget we have seen an increase in every tax, fee and levy that you could possibly do. That’s going to take money out of the hands of small business people and it’s going to hamper our ability to have our province’s economy grow.”

Perhaps the worst part? Despite that dizzying range of tax and fee hikes on everything from gasoline to ferry rides — including a “temporary” deficit-fighting levy of up to $900 a year for top earners — the forecast deficit is still $1.8 billion.

Finance Minister Cathy Bennett blamed 12 years of Progressive Conservative rule that ended when the Liberals won power last fall, promising “a stronger tomorrow.”

She accused the Tories of squandering historic wealth with spending increases and tax cuts hinged on volatile oil prices that have since crashed.

“The previous government’s willingness to mortgage our future has left Newfoundland and Labrador with the biggest deficit and highest net debt ever recorded in our history,” Bennett said in her speech to the legislature.

“As our premier has said, knee-jerk reactions have created mistakes that, unfortunately, Newfoundlanders and Labradorians are paying for now.

“Band-aid solutions will not fix the challenges we face.”

The $8.5-billion budget includes infrastructure investment and some new health and education spending as net debt is forecast to reach $14.6 billion from $12.6 billion last year.

Gas taxes are going up by 16.5 cents per litre — double the current rate — starting June 2, adding about $8 to fill a mid-size vehicle tank. The increase will be reviewed next fall when the government delivers a fiscal update that will include “continuing action” to clean up a fiscal mess years in the making, Bennett said.

She hinted at measures to create a “sustainable” public service that has swelled in size over the last decade.

Government spending has also soared. The Canadian Federation of Independent Business has reported that between 2003 and 2014, inflation-adjusted program and operating spending grew almost 30 per cent, while population growth was just 1.6 per cent.

An income-based levy of up to $900 is being imposed on all taxpayers to fight the deficit, with the exception of those earning $20,000 of taxable income or less. Bennett said this “temporary tax” will be phased out starting in 2018 as finances presumably improve.

The HST rate will increase by two percentage points to 15 per cent as of July 1 — reversing a rollback Premier Dwight Ball campaigned on, calling the higher rate a “job killer.”

Measures to cut government spending and raise cash are expected to cost average families about $3,000 in new taxes and lost baby bonuses while eliminating about 650 public-sector and 2,000 private jobs.

Bennett, who did not buy new shoes as per budget day tradition, said the hard-hitting blueprint affects everyone.

Income taxes are going up for all brackets. Those earning $35,000 to $70,000 will pay 13.5 per cent, up from 12.5 per cent. The rate rises another percentage point next year.

Corporate income tax rates will go to 15 per cent from 14 per cent, retroactive to Jan. 1, 2016.

Starting Friday, tobacco tax also climbs by one cent per cigarette.

Class sizes are increasing for Grades 4 to 12, affecting an undetermined number of teaching positions. And the operational grant to Memorial University of Newfoundland has been cut by $14 million.

Bennett stressed that the province has still provided cash to help the university keep tuition rates among the lowest in the country, but that it’s up to administrators to set fees.

The budget forecasts a return to modest surplus by 2022-23, assuming Brent crude sells for US$74 a barrel, up from about US$44 in trading this week. Offshore oil royalties that once provided 30 per cent of provincial revenues have plunged to an estimated seven per cent at $502.1 million.

A global supply glut has helped drive prices down from US$115 a barrel since mid-2014.

“Our province has been left in a very difficult situation because of the circumstances and the decisions the former administration made, and because of the rapid decline in oil price,” Bennett told reporters Thursday.

“And we have a tremendous amount of work to do to change that.”

Former premier Paul Davis, now leader of the Opposition, said blaming the previous regime “is the oldest trick in the book.”

The budget flies in the face of election promises the Liberals made last November, he said.

“You won’t be able to walk across the street without paying a fee. They’re smothering the economy. They’re smothering Newfoundlanders and Labradorians.

“This is in no way what they sold the people of the province on as a stronger tomorrow and a better way forward.”

Follow @suebailey on Twitter.