HALIFAX — An increase in the harmonized sales tax in Nova Scotia has some worried that the province is making itself less competitive as it earns the tag as the highest taxed jurisdiction in Canada.
The tax hike was the big news in last week’s provincial budget and is intended to help the NDP government hold the line on expenses to battle a deficit pegged at $488 million for 2009-10.
Although hardly a surprise, the government’s move to boost the HST by two percentage points to 15 per cent has drawn general scorn from the business sector, which maintains it continues to pay as provincial spending increases.
Among the most vocal have been members of the small business sector, seen by many as Nova Scotia’s economic backbone.
“Small business is infinitely adaptable and small business will find a way to survive, but they certainly won’t be as successful on a go-forward basis under this budget,” Peter Wilde, a Halifax-area chartered accountant, said in an interview.
Wilde took part in an economic roundtable sponsored last month by the Canadian Federation of Independent Business. The group warned that further tax increases risk the health of a small business sector already dealing with increases to the minimum wage and other rapidly rising costs during a period of uncertain economic recovery.
Wilde said the HST increase that takes effect July 1 will be felt — especially by businesses directly having to deal with tax inequities with neighbouring New Brunswick.
“Where it’s really going to hurt is people are not going to buy as much,” he said.
Wilde contends that as retail sales drop, potential employers simply won’t set up shop in Nova Scotia. He said he currently has two business clients who are now “seriously looking” at moving to New Brunswick, where corporate taxes are lower and the small business tax limit is higher.
The heavy criticism from business has stung Finance Minister Graham Steele, who last week expressed his frustration with the business federation in particular.
“Nothing seems to be good enough for them,” he told reporters at the legislature.
Steele maintains the province’s business climate is healthy and will improve as the economy recovers from the global recession.
However, he will meet with merchants and municipal officials this week in Cumberland County to discuss the ongoing concerns along the New Brunswick border.
Steele said the challenges in the area around Amherst are complex, adding: “There is no simple solution for Nova Scotia to that problem.”
Doug Brown, a political scientist at St. Francis Xavier University in Antigonish, agrees.
“There’s no miracle cure for the Amherst area,” he said.
Brown said shoppers from that part of Nova Scotia have been flocking across the provincial boundary to Moncton, N.B., for years for reasons that go beyond the price of gas or cigarettes.
“The tax level isn’t going to make that much more of a difference when you’ve got other factors that make Moncton a much more competitive environment — bigger stores, more selection and price competition,” he said.
And while Brown doesn’t dismiss concerns that the HST increase will hurt the hospitality and tourism sectors in particular, he believes the government took the “lesser of evils” approach in dismissing hikes in corporate and personal income taxes as it struggles to boost sagging revenues.
He said the budget is clearly part of a longer-term plan to balance the province’s books. But without more specifics on spending and potential cuts to programs it’s fair for business to seek some indication of when they can expect to see tax levels lowered to at least the “middle of the pack” nationally.
“If two years down the road they (the government) haven’t got a handle on program spending then I think the business community will really have cause to push the panic button,” said Brown.
However, that time period is too slow, said business magnate John Risley, the co-founder of Clearwater Seafoods who called the budget a “typical half-measure.”
Risley said he preferred to see an immediate indication the government is ready tackle its spending and the province’s debt, which is set to grow to around $14 billion.
He said further delays would only hurt an economy hindered by a shrinking and aging population.
“It’s a bit of a shame because Nova Scotians generally are not unsophisticated as a population in terms of understanding the extent to which we needed to take severe action, and we haven’t done that,” he said.