P.E.I. government faced with hard decisions prior to spring sitting

Published on March 1, 2016

P.E.I. legislature

March might come in like a lamb today in terms of weather. But there will guttural growls and perhaps occasional roars around the cabinet table in the coming weeks as the government makes some tough choices. The key question is whether to follow through on its balanced budget promise.

Prince Edward Island’s Opposition says there is a growing chorus against increasing the Harmonized Sale Tax to 15 per cent. No one likes a tax hike so popular sentiment is against the one per cent hike.

There is pressure on Premier Wade MacLauchlan from his two fellow-Liberal Maritime premiers to harmonize our HST rate with Nova Scotia and New Brunswick. The Atlantic Provinces Economic Council (APEC) is supporting such a move.

The P.E.I. government will make a lot of hard decisions this month prior to the spring sitting of the P.E.I. legislature in early April. A budget comes down shortly afterwards.

P.E.I. public sector unions might be willing to accept a HST hike if it means government will step away from cuts to the civil service. It would be the lesser of two evils.

The Opposition says the growing chorus is a clear message against a HST increase. It takes money out of Islanders pockets during tough economic times and would hurt the most vulnerable, hamper economic growth and drive up costs like power rates.

The Opposition certainly isn’t alone on the HST issue. Others against a tax hike include the Tourism Industry Association of P.E.I., the Greater Charlottetown Area Chamber of Commerce, the Canadian Federation of Independent Business, the Canadian Taxpayers Federation and the Council of Canadians. The only dissenting voice comes from APEC which supports increasing the HST to 15 per cent.

The chamber is the newest voice to enter the fray. It strongly encourages government to examine cost-saving measures internally before placing an additional tax burden on Islanders. The chamber is speaking for a lot of businesses and workers when it takes a stand. It represents 975 members which employ more than 17,500 Islanders in small, medium and large enterprises in the capital region.

NDP Leader Mike Redmond fears an increase in the HST would further add to the already miserable statistics around poverty on the Island.

The government has been coy on plans — if any — to tinker with the HST. Officially, it hasn’t discussed the proposal but it’s likely been on the agenda since Maritime premiers gathered in Charlottetown last fall.

This government — although under a different premier — campaigned in 2011 against harmonizing the GST and PST but changed its mind in the 2012 budget and launched the 14 per cent tax April 1, 2013.

APEC released a policy paper in late January, entitled Exploring Opportunities for Tax Reform in Atlantic Canada. It suggests that weakening commodity prices and soft economic conditions are making it increasingly likely federal and Atlantic governments will postpone their target dates to return to balanced budgets.

If true, then P.E.I. may back off on balance for the coming fiscal year. It could delay things for a year or so, and then present one or two elusive balanced budgets before the next provincial election.

APEC suggests that with relatively high tax rates in the Atlantic Provinces, governments should be tightening expenditures and considering tax reform over tax hikes. But that didn’t stop it from supporting a HST hike on P.E.I.

APEC terms the past year a grueling one for the Atlantic economy, worsened by falling commodity prices, static populations and about 5,000 net jobs lost. It suggests that sustainable spending management and growth-orientated tax changes are keys for long-term prosperity. The measures are difficult but necessary in the short term.

APEC’s major recommendations for P.E.I., besides hiking the HST, are to keep spending increases below revenue growth and make room for modest growth-oriented tax reforms. It also wants the government to move to annual indexation of its income tax thresholds.

In its fiscal responsibility platform released in April 2015 during the provincial election campaign, the government said its top priority was growing our economy. Its second key plank was respecting taxpayers by controlling expenditures.

Does that respect for taxpayers include a HST increase?