New Brunswick, Prince Edward Island and Quebec are raising questions about compensation for lost tax revenue after Prime Minister Justin Trudeau announced plans for a two-month targeted GST cut on a wide range of products.
PEI Premier Dennis King, New Brunswick Premier Susan Holt and Quebec Finance Minister Eric Girard all said Friday they were caught off guard by Mr. Trudeau’s announcement.
“We did not get the courtesy of a call or any kind of request for our input,” Mr. King told the PEI legislature Friday, estimating the federal announcement could cost his province $14-million in lost sales tax revenue. “But as of today, there is no agreement in any way that the federal government would come in and give us that money or make us whole in any way. We’ll continue to negotiate with them to see what we can do because it will drive a bit of a hole in our budget.”
Mr. Girard, who said the federal announcement appeared improvised, was asked during a Montreal radio interview Friday morning whether the Quebec government would be willing to match the federal sales tax cut.
“If they want to compensate us, we can facilitate that,” he said, before adding that Quebec would not match the tax cut without federal compensation.
Canada’s sales tax regime varies by province. The federal GST is five per cent across the country. In Ontario, it is blended with an eight per cent provincial sales tax for a combined harmonized sales tax (HST) of 13 per cent. The Atlantic provinces also have an HST, set at 15 per cent.
Alberta has no provincial sales tax, while Saskatchewan’s PST is six per cent, British Columbia and Manitoba collect a seven per cent PST and the Quebec sales tax rate is 9.975 per cent.
The HST agreements include provisions requiring automatic federal compensation for any unilateral GST changes that would reduce provincial sales tax revenues by more than one per cent, but Finance Minister Chrystia Freeland’s office declined to say Friday whether that would apply in this case.
“We hope all provinces will join us and provide their share of tax relief for their residents over the holidays,” said Ms. Freeland’s spokesperson Katherine Cuplinskas in an e-mail when asked if provincial compensation will be offered.
What’s included in the GST cuts and what isn’t?
Newfoundland and Labrador Premier Andrew Furey praised the tax change Thursday and made no mention of seeking compensation. Ontario Premier Doug Ford also welcomed the federal announcement, which included sending most working Canadians a $250 cheque in April.
“Hey I’ve got to give them kudos. Any government, I don’t care what political stripe, wants to put more money back into the people’s pockets, good for them,” Mr. Ford said, pointing out that his own government has made similar announcements in the past.
While Quebec can decide whether it will match the federal GST cut, provinces that are part of the HST are automatically affected.
“That was a surprise,” said Ms. Holt, the recently elected Liberal premier of New Brunswick, during an interview with CBC Radio. She said the announcement is expected to cost her province $62-million in lost sales tax revenue.
“That’s not money that you can just find through regular efficiency mechanisms. So there’s a conversation we’ll be having with the federal government about how they’re going to offset that so that New Brunswickers don’t feel it,” she said.
“We’re really hoping and expecting that the federal government will be able to cover that, because this is a program that they put in place, and I don’t want to prohibit New Brunswickers from receiving that kind of benefit.”
Mr. Trudeau was asked Friday whether Ottawa will compensate provinces for lost revenue as a result of the federal GST cut announcement. Mr. Trudeau was non-committal.
“I think every provincial government across the country understands how important it is to be there for Canadians who are facing real pressures around the cost of living. That’s what we’re doing. That’s why we’re stepping up to support Canadians,” he told reporters in Brampton, Ont. “And I’m expecting provinces who can see the challenges that their citizens are facing to realize that this is a way they can be there for people as they face the challenges of the next few months.”
Parliamentary Budget Officer Yves Giroux said in an e-mail that his team is currently analyzing the proposed measures.
“We have not yet seen sufficient detail allowing us to determine whether the federal government will absorb the cost of the provincial component of the HST rebate. If Canada absorbs it, the cost could be higher than what was announced,” he said.
The measures will cost the federal government $6.28-billion, including $1.6-billion for the sales tax break and $4.68-billion for the cheques.
University of Calgary economics professor Trevor Tombe said in an e-mail that it would appear the one per cent threshold will be met and HST provinces will be compensated, but cautioned that he was not 100 per cent certain.
Brian Ernewein, a former senior Finance Department tax official who is now a senior tax adviser at KPMG, also said it is possible the threshold for compensation will be met, but said it may depend on how the rules are interpreted.
Meanwhile Friday, Mr. Trudeau increased pressure on the NDP to work with the Liberals on ending the current logjam in Parliament.
The Conservatives have been leading a procedural protest since Sept. 26 over the Liberal government’s refusal to fully comply with a June House of Commons motion calling on it to release documents related to a green technology fund.
Neither the Bloc Québécois nor the NDP have been willing to give the minority Liberal government the votes it would need to shut down the debate and the NDP did not change its position following Thursday’s GST announcement.
Mr. Trudeau said it “boggles the mind” that the NDP won’t help the government move ahead with important legislation on a wide range of issues.
“That’s not who the NDP is supposed to be,” he said.
NDP House Leader Peter Julian responded Friday with an e-mailed statement.
“Justin Trudeau knows exactly how to get the House of Commons back to normal business – he can hand over the documents he’s hiding and be transparent with Canadians. He’s the only one who can do that,” he said.
With reports from Stephanie Levitz in Ottawa and Jeff Gray in Toronto