The Honourable Cathy Bennett, Minister of Finance and President of Treasury Board, presented the Newfoundland and Labrador budget on April 14, 2016. This year’s budget is squarely focused on solving the unparalleled financial crisis currently faced by Newfoundland and Labrador, which is largely the result of the severe decline in oil prices over the past year. Based on consultations with the province’s constituents, it has been determined that increasing taxes and roughly 350 distinct government service fees (50 of which are completely new) is the best way to address this crisis.
The “Restoring Fiscal Confidence and Accountability” budget contains a deficit for 2016-17 of $1.8 billion, which is considerably lower than the expected deficit range of $2.4 to $2.7 billion, had the announced fiscal proposals not been introduced today. The government has also committed to introducing a supplemental budget later this year.
To prevent further erosion of the province’s economy, this year’s budget contained several interesting commodity tax initiatives, which are discussed below.
Harmonized Sales Tax (HST) Rate Increase
Offering a sense of déjà vu, this year’s budget, like the 2015 version, proposes to increase the HST rate from 13% to 15%. This increase is to become effective July 1, 2016 and will bring the province’s HST rate in line with the rates currently in place in Nova Scotia and proposed for New Brunswick (which is also increasing its HST rate to 15% on July 1, 2016). As a result, the provincial portion of the HST will increase from 8% to 10%.
This announcement is likely to produce some controversy in the province, as exactly 4 months earlier the newly elected Liberal government rescinded the previously announced HST rate increase, making good on an election campaign promise that helped it win a majority.
Elimination of HST Book Rebate
The budget also proposes to eliminate the point-of-sale rebate for the provincial component of the HST that is currently available to individuals when they purchase a book.
Gasoline Tax
As a temporary measure, the government is proposing to increase the tax rates on purchases of gasoline, diesel products and aviation fuel by 16.5 cents, 5 cents and 1.8 cents per litre, respectively. These proposed tax increases will become effective on June 2, 2016, and will be reviewed prior to the release of the province’s supplemental budget in the fall.
This proposed tax increase could have an adverse impact on the economies in Southern and Western Labrador, which border the province of Quebec. As a result, a new rebate of 10 cents per litre will be established for purchases of fuel to be used in motor vehicles in these border zone areas. Homeowners can breathe a sigh of relief, as the taxes paid to acquire home heating fuel will remain unchanged.
Retail Sales Tax
The 15% retail sales tax on insurance premiums issued with respect to risks in the province, which was eliminated on January 1, 2008, will be reintroduced, effective July 1, 2016. This tax will apply to premiums for property and casualty insurance policies.
It is important to remember that the HST generally does not apply to insurance premiums, as they are considered to be the supply of an exempt financial service. Also, unlike any HST paid, this retail sales taxwill not be eligible for an input tax credit.
A retail sales tax also currently applies to the sale of used vehicles in the province at a rate of 14%. The budget proposes to increase this tax rate to 15%, effective July 1, 2016.
Tobacco Tax
The budget proposes to increase the taxes on tobacco by one cent per cigarette and two cents per gram of fine-cut tobacco, with both of these increases taking effect on April 15, 2016.
Tax Review
The new government has acknowledged that tax increases cannot be implemented in isolation and the impact on tax competitiveness must be considered. To this end, the government has announced that it will undertake a comprehensive review of its tax system. However, this review will only be completed after the promised review of the Canadian tax system by the federal government and the release of the 2017-18 provincial budget.
Additional information on the 2016 Newfoundland and Labrador Budget is available on the province’s web site at: