The Canadian Press
Nova Scotia already has Canada’s highest personal income taxes and its highest corporate taxes, and now the province can claim another dubious distinction: the highest harmonized sales tax.
The province’s NDP government, elected last June, said in a $9-billion budget tabled Tuesday that it would hike the HST by two percentage points to 15%, boosting the price of everything from groceries to cars.
The government also plans to reduce the size of the civil service, overhaul public sector pension plans and reduce its spending by $772 million by 2013.
“The worst of the recession appears to be behind us, but we’re not out of the woods yet,” Finance Minister Graham Steele said in a budget address, his second since September.
A household earning between $30,000 and $60,000 annually will pay about $412 more in HST, according to government figures. Households earning between $60,000 and $100,000 can expect to pay $631 more.
Steele says the tough medicine is needed to help the government cope with flatlined revenue and a deficit pegged at $488 million for 2009-2010.
He said his goal is to reduce the budget shortfall to $222 million by the end of 2010-2011 and balance the books by 2013-2014.
“Spending must be controlled,” he said. “Revenues must be increased. And the economy must grow.’’
The tax increase will generate $215 million in revenue this fiscal year, the government said.
But businesses and local governments are warning the tax hike will damage the province’s feeble economy — and the NDP’s political fortunes.
When the party assumed power last summer, Premier Darrell Dexter had promised to balance this budget without raising taxes or cutting spending.
The government’s popularity has plunged since it retreated from that promise, claiming the province’s finances were much worse than it expected.
Judith Andrew, Atlantic vice-president for the Canadian Federation of Independent Business, said the HST increase will cost jobs.
“When businesses feel this kind of impact, sometimes they just close their doors, or don’t expand or decide to expand elsewhere,” she said.
“There’s not going to be a grand announcement when small businesses close … We’re quite uncompetitive here, and that was even before today’s announcement.”
Anticipating a backlash from the business community, Steele promised to reduce the small business tax rate by 0.5% as of Jan. 1, generating $6 million in savings for that sector.
Luc Erjavec, Atlantic spokesman for the Canadian Restaurant Association, said the tax cut doesn’t amount to much.
“It’s pretty minor,’’ he said. “A lot of my members would say, ‘You have to be profitable before you start paying tax.’ A lot of businesses are on the edge.”
When asked how the government could justify raising the HST after an auditor general’s report recently revealed excessive and inappropriate spending by members of the legislature, Steele said politicians would also face fiscal restraint.
Proposed legislation would cut $1.3 million from their expense accounts “in order to show Nova Scotians that they will live with the same rules of restraint that we’re expecting from everyone else,” Steele said.
Nova Scotia isn’t the only province boosting consumption taxes to pay for big spending aimed at stimulating sputtering economies.
Ontario and British Columbia are introducing an HST, while Quebec plans to increase its HST by two percentage points over the next two years.
But Nova Scotia’s HST will still be a half percentage point higher than Quebec’s once that measure is fully implemented.
Prince Edward Island has a 10% sales tax and the 5% federal GST, but those levies apply to a narrower range of items than in Nova Scotia.
The Nova Scotia government’s move effectively eliminates two tax cuts offered by the federal government, which has reduced the GST by two points since 2006.
To ease the pain, Steele said tax rebates will be provided for low-income earners.
Households earning less than $30,000 will see about $240 trimmed from their annual tax bill.
As well, the 10% provincial portion of the HST will be removed from children’s footwear and clothing, feminine hygiene products and diapers.
Seniors will also get a break. The government plans to stop charging provincial income tax on the Guaranteed Income Supplement, saving 18,000 seniors about $200 annually.
And a poverty reduction tax credit will shrink the tax load for about 15,000 individuals by $200 annually.
But the rich will feel extra pain.
The budget creates a new 21% tax bracket for the 7,000 residents earning more than $150,000 annually.
The Canadian Press