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What you need to know about COVID-19: August 6, 2020
The Prince Edward Island budget showed some positive signs to taxpayers, such a continued commitment to a balanced operational budget and a little bit of tax relief, but it could do so much more.
The province’s new government was handed a surplus of $13.8 million and the budget brought that down to $1.8 million. That means the government frittered away $12 million on new spending and an adverse wind on the revenue side could now easily blow the province into deficit.
And it’s not a truly balanced budget when the debt is increasing. The government is adding over $100 million to the province’s net debt by 2021-22. All debt must eventually be paid off, so increasing the net debt is simply deferring tax hikes onto future generations of Islanders.
For taxpayers today, increasing the net debt means hiking the bill for debt interest payments, which will rise to $128 million this year. Islanders will be paying $350,000 per day, every day, to the big banks to cover the interest charges. That’s money that won’t be spent on textbooks or long-term care beds. It’s pure waste.
Thankfully, the government offered some tax relief to taxpayers and job creators. The reduction in the small business tax by half a per cent is welcome news and increasing the basic personal exemption by about $900 – the amount on which you pay no income taxes – will help working Islanders at every income level, and especially those who are struggling.
The budget also shared positive news about P.E.I.’s economy. The population is increasing, as is the number of people employed. Retail sales and international exports are both up. But the unemployment rate, at 9.3 per cent, is still significantly higher than the national rate of 5.4 per cent.
There is still lots of work to be done to drive growth, but the economy is strong. And P.E.I. is certainly in a strong enough position to begin paying down its debt, like New Brunswick where the debt is actually shrinking. P.E.I.’s debt clock should be rolling down, not up.
About two-thirds of the province’s increased revenues came from the federal government. Overall dependence on Ottawa has increased to about 39 per cent of the total budget. With strong economic performance, P.E.I. should be increasing its financial independence.
Doing so would reduce risk for Island taxpayers, as the federal government is elected and influenced by people and special interests right across the country – not just those looking out for P.E.I. The provincial government controls only its own budget, and strengthening that budget is the best way to look out for P.E.I. taxpayers.
The province needs to trim spending because Island families are carrying a tax burden that’s too heavy. A family making $75,000 per year in Charlottetown will pay about $9,300 in provincial taxes. If that family lived in St. John’s, the provincial tax bill would be about $8,700. If the family lived in Saint John, it would be $8,500.
High business taxes and the carbon tax were flagged by the Greater Charlottetown Area Chamber of Commerce. The numbers are clear. P.E.I.’s business tax rate is 16 per cent. Right next door in New Brunswick, the rate is 14 per cent. In most provinces, the rate is 12 per cent or less.
Dollars and cents matter to families and job creators who need to make ends meet. With a relatively strong economy on the right track, now is the time for the P.E.I. government to set out on the path to eliminating the province’s debt and deliver broad-based tax relief to make life easier for Islanders.
Paige MacPherson is atlantic director of the Canadian Taxpayers Federation. The CTF released its 2019-20 pre-budget submission to the P.E.I. government in February.