The 2017 Saskatchewan Budget took one step forward on spending restraint, and a triple jump backwards with $908 million in tax hikes. The Provincial Sales Tax (PST) was increased from 5 to 6 per cent and the PST base was expanded. Find out what this means for your business.
Spending Restraint: The Budget includes a $250 million reduction in total public sector compensation funding, a savings of approximately 3.5%.
CFIB’s Views: 72% of Saskatchewan small business owners support significant spending restraint as the way to help balance the budget. While pleased the budget begins to bend the cost curve, we don’t think the province went far enough to reduce the size/cost of government (e.g. further narrowing the wages/benefits disparity (20.4%) between public and private sector employees, reducing the size of government through workforce attrition).
Getting back to balance in three years: A deficit of $685 million is forecast for this year. A shortfall of $304 million is projected for 2018-19, followed by a $15 million surplus in 2019-20 and a $183 million surplus in 2020-21. CFIB’s Views: While pleased the province outlined a plan to balance its budget, we are disappointed it will be balanced on the backs of taxpayers through tax hikes.
Investing in Saskatchewan's infrastructure: $3.7 billion in capital investment is planned for 2017-18. CFIB’s Views:Business owners recognize the importance of infrastructure investment to the province’s long-term growth.
$908 Million in Tax increases:
CFIB’s Views: With only 7 per cent of entrepreneurs supporting tax hikes to balance the budget, we are disappointed the government decided to increase taxes by $908 million. Saskatchewan small business optimism is lagging and hiring plans are at record lows, so we worry this will jeopardize our overall competitiveness.We are also extremely disappointed the province decided to eliminate the Commission Allowance on Tax Collections. As the province’s finances improve, we expect government to reduce the PST.
Provincial Sales Tax (PST)
- The PST rate increased from 5% to 6%, effective March 23, 2017.This measure will increase revenue in 2017-18 by an estimated $242.1M.
- Elimination Of Commission Allowance On Tax Collections Effective April 1, 2017, the commission allowance for the collection and remittance of Provincial Sales Tax, Liquor Consumption Tax and Tobacco Tax is eliminated.
- The Budget maintains many of the current PST exemptions for basic necessities, including basic groceries, heating fuels, residential electricity, prescription drugs and reading materials.
Expansions to the PST base include:
- Children’s clothing will become taxable effective April 1, 2017, matching the current federal Goods and Services Tax (GST) treatment. This measure will increase 2017-18 PST revenue by an estimated $15.6M.
- Restaurant meals and snack foods will become taxable as of April 1, 2017, adding an estimated $94.5M to PST revenue.
- Value of a trade-in allowance will no longer be deductible in determining the PST on the purchase of vehicles that are new or have not been previously taxed in Saskatchewan. This measure takes effect as of April 1, 2017 and is expected to increase PST revenue by $17.8M.
- The Budget reforms the taxation of contracts for the repair, renovation or improvement of real property. New contracts entered into on or after April 1, 2017 will be subject to PST on the total contract price to the purchaser. However, contractors will now be eligible to acquire tax-free building materials for use in fulfilling a contract. This measure impacts residents and businesses and is expected to increase 2017-18 PST revenue by $344.6M.
- The PST base is expanded to insurance premiums. The Government of Saskatchewan has extended the effective date for the application of PST to insurance premiums from July 1, 2017 to August 1, 2017. This measure impacts residents and businesses and is expected to increase PST revenue by $157.9M in 2017-18.
- The exemption for permanently mounted equipment in the oil and gas sector, resulting in $16.7M in incremental PST revenue in 2017-18.
Other Tax Expenditure Changes:
In addition to the elimination of these PST exemptions, the Budget also makes changes to tax expenditures related to several other taxes.
- Fuel tax exemption for bulk purchases of gasoline is eliminated and for bulk purchases of diesel is reduced to 80% of the purchase, effective April 1, 2017. This measure impacts farmers and other primary producers and increases Fuel Tax revenue by $40.2M.
- Employee’s Tools Tax Credit is eliminated for the 2017 taxation year ($1M incremental revenue in 2018-19) and the Labour-sponsored Venture Capital Tax Credit rate will be reduced from 20% to 15% for the 2018 taxation year ($4M in 2019-20).
- Indexation of the Personal Income Tax system is being suspended starting for the 2018 taxation year ($1.9M in 2017-18).
Tax Rate Increases
In addition to the increase to the PST rate, the Budget also increases:
- Tobacco Tax rates by 2¢ per cigarette effective March 23, 2017 ($10M in 2017-18);
- Liquor mark-ups as of April 1, 2017, will increase revenue by $5M. Wholesale mark-up rates will increase 6.8% for most beer products, 6% per cent for most coolers, 5.3% for most wines and 4% for most spirits.
- Education Property Tax mill rates increased to bring the contribution level to 40% of school funding, an increase of $54M (base growth provides a further $13M).
$107.5 Million of Tax Relief:
CFIB’s Views: We certainly welcome this tax relief and understand Saskatchewan will have among the lowest income tax rates in the country, when implemented. However, these changes will be more than muted by the massive tax hikes introduced in this budget.
- Personal Income Tax rates will be reduced in half-point increments effective July 1, 2017 (15% to 14.75%; 13% to 12.75% and 11% to 10.75%) and effective July 1, 2019 (14.5% to 14%; 12.5% to 12% and 10.5% to 10%).This change will save Saskatchewan taxpayers $82.2M in 2017-18.
- The general Corporation Income Tax rate will be reduced in half-point increments effective July 1, 2017 (12% to 11.75%) and effective July 1, 2019 (11.5% to 11.0%), saving Saskatchewan businesses $25.3M in 2017-18. This tax rate will be the lowest in the country; and Saskatchewan will also have the lowest tax rate on manufacturing and processing income in the country.
Next Steps: While pleased the Budget takes one step forward on spending restraint, we are disappointed to see taxes increased by $908 million, which will further erode business confidence. CFIB will continue to push the government in the coming months to implement additional spending restraint measures that will further reduce the size/cost of government.
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