NLEC reacts to Budget 2015
Finance Minister Ross Wiseman brought down the 2015 Budget for Newfoundland & Labrador yesterday in the House of Assembly.

NLEC Executive Director, Richard Alexander reacted strongly in the media to some decisions, in particular to oppose the two percent increase in the provincial portion of the HST. While they may have been overshadowed by increases in taxation, the 55 page budget speech contained many items that the NLEC has been lobbying for, and reflected language very close to that used by the NLEC. Announcements made in the days preceeding the official budget speech also support the NLECs lobby efforts.The NLEC has no doubt that our recent public and behind the scenes efforts to draw attention to the need to reduce spending are reflected in this year's budget speech, in particular government's "eight long term principals" - nearly all of which were issues raised in the NLECs pre-budget submission or recent Conference Board of Canada benchmarking report

See below for details on the good and bad news items announced in yesterday's budget. 
Government increases HST and personal income tax
Effective January 1, 2016, the provincial portion of the HST will increase from eight per cent to 10 per cent. Low income earners will receive an enhanced HST credit to help offset this increase.

Government will also increase personal income tax for high income earners. Effective July 1, 2015 two new tax brackets will be created:

  • A fourth rate of 14.3 per cent for taxable income of $125,001 to $175,000.
  • A fifth rate of 15.3 per cent for taxable income over $175,000
Government will also increase the Financial Corporations capital tax rate from 4% to 5%, effective April 1, 2015 and will collect $18 million through a variety of increases in new or increased fees

More information on tax changes.

The NL Employers' Council had asked government to hold the line on any increases in taxation, and instead restructure program and services delivery to bring spending in line with the Canadian average in order to deal with the deficit. Given that NL has the highest transportation, utility and labour costs of nearly all competing jurisdictions we cannot afford to become uncompetitive on taxation. This increase in HST makes us tied for last place with Nova Scotia as having the highest sales tax in the country. 

Spending problem, not a revenue problem

The current fiscal situation faced by the province is due to overspending, not due to a lack of revenue. Despite historical revenues, the province has run a deficit in four of the last six years. Even before the recent drop in oil, the province was projecting a $500 million deficit. With these tax increases and steps taken to reduce expenditures, the government is projecting a $1.1-billion deficit for 2015-16. The province's net debt will also grow to roughly $11.5 billion by the end of this year.

The NLEC reacted strongly to this increase and is hopeful that the negative public reaction to the increase in HST will draw more attention to sustainable expenditure levels. Opposition leader Dwight Ball has already stated publicly that, if elected, the Liberal party would repeal the HST increase. The NLEC will continue to push for competitive taxation as an election issue.
Government to launch process to overhaul program and service spending
Minister Wiseman announced yesterday that government will engage in a process to overhaul existing program and service delivery model in order to contain expenditure growth. Reforming program and services spending was a key ask from the NLEC in pre-budget consultations.

Wiseman himself will lead this process and has already issued a request for proposal to bring in an external consultant to manage the review, aimed at determining why Newfoundland and Labrador ranks below other provinces in terms of cost and efficiency in the delivery of public services. Wiseman said in the budget speech that they will work with employees to cultivate a "culture of cost management" in a sustainable, progressive and continuous manner that will "constantly strive to provide better services for less money."

Government also announced plans for cost cutting measures such as consolidating administrative functions among regional health authorities and the Centre for Health Information, as well as promoting regional clustering for the delivery of services. Their five year strategic deficit reduction plan includes published fiscal targets to measure performance. 

This review will be in addition to government's attrition plan, announced two days before the budget. The NLEC is supportive of this initiative, which has received an extremely negative reaction from union leaders. While the NLEC had lobbied for a more aggressive plan to bring spending down to the national average in three years instead of five, the NLEC supports attrition as a responsible and less impactful method of reducing the size of the public service.

In Ross Wiseman's speech yesterday, he expressed the need to "strategically right-size our public service", acknowledging the large public service per capita and the need to achieve efficiencies through a "streamlined public service."

The NLEC is pleased that government has finally admitted publicly that both their program and services spending, and size of the public sector, are unsustainable and that they are taking steps to address this issue. The NLEC will continue to monitor this review process and update members.
Government solidifies commitment to sovereign wealth fund, continued infrastructure investment, and industry driven skilled trades
Government reaffirmed their commitment to establish a Generations Fund in Budget 2015, another key ask from the NLECs pre-budget position. They are developing and will bring forward legislation to establish this trust fund, which will be protected for use down the road by future generations as opposed to a contingency fund to offset annual deficits.

Budget 2015 also included plans to continue investment in infrastructure at a level of $660 million, albeit a slightly lower level than 2014, and included plans for a long-range investment schedule that will plan across multiple years. Wiseman's speech also mentioned plans to overhaul their approach to trades education by working with College of the North Atlantic to develop a direction that is industry-driven. All of these initiatives were recommendations from the Conference Board of Canada report, Achieving Sustainable Prosperity, commissioned by the NLEC.
 
In This Issue
Government increases HST and personal income tax
Government to launch process to overhaul program and service spending
Government solidifies commitment to sovereign wealth fund, continued infrastructure investment, and ...
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