By: Greg Staley
Detailed in the report from Premier Andrew Furey’s Economic Recovery Team is an extensive list of recommendations to reduce the debt load of the province and many of the solutions mean higher taxes for Newfoundlanders. “The most urgent task assigned by the Premier was to review the financial state of the province and recommend actions to improve the fiscal situation.”
The report poses the following questions:
- “What happens when the province can’t borrow anymore or if interest rates rise?
- What if the province runs out of money and must quickly shut down services?
- How much debt is reasonable to pass on to the province’s children and grandchildren?”
Some of the challenges facing Newfoundland according to the report are communities in decline, the ageing population and the dependence on government transfers to individuals which they say “remains unsustainably high.”
The report says that their conclusion is “that a debt wall is fast approaching and that it is unreasonable to pass high debt levels to our children.” The report noted that failing to take action could accelerate the issue of out-migration in the province of the youngest and brightest and lead to a downward spiral of the economy and the province.
The report also makes many bold proposals, referring to the work of the World Economic Forum and the 4th Industrial Reset as guiding principles for some of their proposals. One quote that stood out from the report was that “change means that less is expected and required from Government and more must come from the people of the province and from entrepreneurs.”
Interestingly, although the report speaks of green energy and the need to get away from technologies like oil – they also advocate for more oil exploration and a more competitive regulatory environment.
They acknowledge that low-carbon fossil fuel production is something they can do well and that the world would benefit from the expanded offerings of low-emission oil production in Newfoundland. It would allow other countries to buy Canadian oil and get away from coal and other dirtier energy sources.
The report also promotes investments in lumber production and alternative heating technologies like biofuels, wood chips and wood pellets.
Report says to cut red tape for oil regulatory framework
The report says that the “province must remove the red tape associated with development in all sectors.” It noted that “the regulatory framework for oil and gas has slowed progress, and the province has not always been a good partner.” I don’t disagree with this assessment but find it ironic that oil, which is so often demonized by those promoting “green” tech and policies is simultaneously being promoted in the same document.
Increase Mining in Newfoundland
The report says the following about increasing mining in Newfoundland:
“Private sector investment is required for the low-carbon extraction of Newfoundland and Labrador’s high-quality offshore petroleum resources, as well as the extraction and processing of iron ore, nickel, and cobalt and rare earth minerals.” They feel there is a need to get the resources developed or it will result in Newfoundland being left behind.
Report Recommendations – Migration and immigration
The report says that “Newfoundland and Labrador currently has the second-lowest total fertility rate (1.3) in the country” which is well below the 2.1 replacement rate required for long-term population levels to be sustained. That’s why the report says that “population growth will require more in-migration to the province, either interprovincial, international or both.”
So they want more Canadians coming to the province or more international migrants or both according to the report. This is because “an adequate labour supply is necessary for sustained economic growth” the report reads.
The report paints a dire picture
The report doesn’t paint a pretty picture. Cash deficits in Newfoundland in the last five years have averaged $1.9 billion annually. The province has added $12.6 billion to its debt over just the past seven years.
The report says that “If debt levels get too high, Newfoundland and Labrador is at risk of not being able to pay salaries, operate hospitals, or provide other public services.” It also means that “Instead of spending money on infrastructure or social programs, the money is applied to interest payments with no current economic benefit in this province.”
The report also notes that “In total, the province’s liabilities plus other obligations and exposures stands at $44.5 billion as of March 31, 2020. Adding in borrowings to cover the 2020-21 shortfall of $2.8 billion brings the number to $47.3 billion. This amount is sitting on the shoulders of a labour force of about 260,000 people and about 220,000 households. It is the equivalent of $182,000 for every worker or $215,000 for every household in the province.”
The province’s unfunded pension liabilities as of March 31, 2020, totalled $4.89 billion. The teacher’s pension plan has $1.6 billion in unfunded liabilities alone.
Speaking of these unfunded liabilities the report says that “social programs must support individuals when they need it and facilitate entry or re-entry into the workforce. Social programs must encourage self-reliance.”
Proposed budget cuts
Here is a shortlist of some of the proposed budget cuts and ways to save money:
- The Provincial Government should reduce its operating grants to Memorial University and the College of the North Atlantic by 5 percent per year over six years, for a total reduction of 30 percent.
- The Provincial Government should reduce its operating grants to the Regional Health Authorities by 4.15 percent per year over six years, for a total reduction of 25 percent
- The Provincial Government should reduce its operating grants to Newfoundland and Labrador Housing and Legal Aid by two percent.
- The Provincial Government should reduce its grants to other government agencies by 20 percent.
- The Provincial Government should reduce core expenditures by five percent with no expenditure growth for six years.
Proposed tax increases
For the sake of making this an easier read, we will simply list the proposed tax ideas from the report below.
- The Provincial Government should increase the HST and provincial sales tax by one percentage point and consider expanding the base for the HST
- The Provincial Government should increase the gasoline tax by 1.5 cents per litre.
- The Provincial Government should increase the payroll tax by 0.5 percentage points.
- The Provincial Government should increase the corporate income tax rate by two
- percentage points.
- The Provincial Government should increase all personal income tax rates by one percentage point and introduce tax credits for the lowest income group to offset the increase
- Implement an annual wealth tax of one percent on wealth exceeding $10 million or an agreed-upon threshold.
- Increase probate fees for a $1 million inheritance to $50,000, with other categories, increased proportionately.
- The Provincial Government should implement a gift tax for the transfer of all types of assets worth over $10,000.
- Develop a tax for second residences/vacation homes valued at $100,000 or more owned by individuals in addition to their primary residence, no matter the location
- Develop a new tax to be levied on the sale of properties to non-residents with differential rates depending on whether the buyer is Canadian or foreign.
- Institute a progressive tax on all land transfers, for example 0.25 per cent for up to $300,000, 0.35 per cent for $301,000 to $600,000, and 0.5 per cent for properties over $600,000.
“Culture of tax evasion”
The report suggests that a culture of tax evasion is prevalent in Newfoundland as the report reads that a “culture of tax evasion will require great effort to reverse” and suggests that the most effective way to uncover this type of fraud is “through payment for information (tips)” from the public.
That’s why the report recommended establishing “significant fines and other penalties (confiscation of assets) for nonreporting of income or performing work under the table. The fine should be large enough to be a deterrent.” So if you don’t report that you made a few bucks under the table you could have your assets confiscated?
No more double-dipping
The report notes that some MHAs are receiving multiple pensions and that “the Provincial Government should legislate that MHAs will no longer be allowed to receive multiple Provincial Government pensions.” The report also said that all bonuses and dividends be eliminated for all publicly funded organizations.
Another recommendation was to drop the amount required to be on the sunshine list for provincial employees to a lower amount of $80,000 from the current amount of $100,000. At home, work policies were promoted as was a 4 day work week for public-sector employees to help reduce wages. In addition, a wage freeze for provincial employees is proposed to remain in place until the budget can be balanced.
The report noted that Newfoundland offset the income provided from the carbon tax by reducing the provincial gasoline tax and called this measure counterintuitive. Instead, they recommend keeping both and note that by 2030 the carbon tax will equate to “37.57 cents per litre on gasoline.”
Mineral resources that were recommended to sell were Julienne Lake and Strange Lake. The report also recommended that “the Provincial Government should revise legislation to require that all unregistered land be registered within eight years. After this period, all unregistered land would revert to the Crown The Provincial Government should sell Marble Mountain ski resort and related assets.”
Other capital raising ideas included:
- Offer transmission and distribution assets to the private sector to either own or operate;
- Offer the sale of island generation assets to the private sector;
- Sell the Provincial Government’s oil and gas equity interests when oil prices increase; and
- Sell the Bull Arm Fabrication Site, currently owned by the Oil and Gas Corporation
Ultimately Newfoundland is in the position of many other provinces – a ballooning debt and lack of ability to pay for it. Get ready for higher taxes like the 15 per cent increase proposed to the renewal of driver licenses and other provincially granted licenses.
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