This is one of the measures the government has indicated it will use to grapple with the $1.1 billion deficit it’s facing in 2015-16.
Without doubt, the decline in the price of oil is putting tremendous strain on the provincial budget. But the price of oil is not the sole reason. There is a strong argument the government was in structural deficit before the price of oil dropped. For example, from 2009 to 2014, during a time of relatively high oil prices, expenditures were greater than revenues in four of those years.
Raising the HST is seen as a fairer way (than payroll taxes, for instance) to raise revenues. As it is a consumption tax, the more money spent, the higher the taxes paid. Further, the effects on a small business owner, for all intents and purposes, are neutral. The cost to the small business owner of collecting HST on behalf of the federal and provincial governments is not really any different at 13 per cent than it is at 15 per cent.
But, it’s the impact on the consumer that concerns small business owners, though the level of concern depends on the industry. In the housing and automotive sectors, consumers may re-think larger purchases or consider less expensive alternatives. For the restaurant industry, consumers may look at the effects of HST on a meal, particularly taking into account the HST does not apply to any food prepared at home. Other small business owners worry they may become less competitive against online retailers and retailers outside of the province.
If the HST is increased in January we should be prepared for any short-term effects on consumption, a key driver of our economy. The government estimates the increase in the HST will generate $182 million annually. This is $182 million that will be removed from the provincial economy.
Small business believes the government should cancel the increase in the HST and focus instead on reducing government spending.
Unsustainable government spending was based on the assumption that oil royalties would be significant for many years. Rather than paying down debt or putting money aside as a contingency for when oil revenues drop, government expanded its bureaucracy and created new, expensive programs.
Canadian Federation of Independent Business (CFIB) analysis shows while government has been making a little bit of progress on spending reduction, this doesn’t come close to offsetting the substantial growth in spending between 2008 and 2010. Rolling back those changes may not be an easy solution, but government must recognize that prudent forecasting and responsible government spending is the best way to manage the province’s fiscal affairs.
CFIB members support reducing government spending and the size of government in order to address the government’s deficit. They know deficits mean simply delaying the pain until later. Either way, Newfoundlanders and Labradorians will have to pay.
The upcoming provincial election campaign is one of the most important in a generation. All political parties have to commit to a credible plan that will reduce government spending. Our collective future depends on it.
is Director of Provincial Affairs
for CFIB in Newfoundland and Labrador.