So what does a government do when faced with a “white-hot” economy, real wage growth,
skyrocketing consumer and business confidence, the best annual employment gains in history, and a whopping 32 per cent increase in capital investment, not to mention a GDP that has doubled in a decade?
Well, apparently you push the panic button.
You muse about slashing public services and jobs, including in core areas such as health and education despite earlier promises not to do so.
You also, after cutting taxes by about $1.2 billion (between 2007 and 2010) announce we need to have a conversation about taxes because, according to the premier, 16 per cent of the people in this province pay nearly 70 per cent of the taxes.
She was referring to personal income tax only. We pay all kinds of other taxes in this province, sales tax, gas tax, sin taxes and business taxes.
When the premier uses these numbers, it only tells part of the story.
She is not just referring to people who work and pay taxes, those of us with market or earned income, she is instead referring to anyone who files a tax return, including the
85-year-old pensioner. In total, we are talking about 400,000 Newfoundlanders and Labradorians.
The fact remains, we are an aging society, and as people retire, their incomes are lower and they pay smaller income taxes.
Of those 400,000 or so people in our province who file taxes, 25 per cent of them or 100,000 had taxable incomes of under $10,000 a year, 60 per cent or about 240,000 people had taxable incomes of under $30,000.
Low incomes mean, and should mean, you pay lower personal income taxes.
And low personal income taxes was the government’s plan.
According to 2010 budget documents, including a news release from Finance Minister Tom Marshall, the government’s goal was to have the lowest tax rates in Atlantic Canada.
“Since 2007, our government has made significant progress in reducing the tax burden … providing $1.2 billion in cumulative tax savings for Newfoundlanders and Labradorians. These reductions also fulfill
our government’s commitment to maintain the lowest tax rates in Atlantic Canada,” said Mr. Marshall in 2010.
One of those tax decisions was to have one of the lowest tax rates in the country for those who fall into the highest income tax bracket. Only high income earners in Ontario and Alberta pay a lower tax rate.
Luckily, the government did not lower corporate taxes. Our rate remains at 14 per cent and despite claims by some, it has in no way discouraged business investment.
Business investment and confidence remains very high. According to the government’s fall economic update, capital investment is expected to reach $9.7 billion in 2012, or a 32 per cent increase over 2011.
Average wages are also increasing. As of 2012, average weekly earnings in our province surpassed the national average.
This is partly because of increasing wages, partly because we work the highest average hours per week in Canada and partly because wages have been stagnant in many provinces. Nonetheless, increasing incomes, including the wages of thousands of Newfoundlanders and Labradorians commuting to other provinces and countries to work, are driving economic activity.
And yet despite this extremely strong economic outlook, the provincial government is preparing, or so it says, to unleash a nasty budget.
The jury is still out on just how nasty it will be.
But what’s really driving the panic?
The $725-million deficit, ann-ounced by Minister Marshall in late fall, is largely a result of lower oil production and lower than predicted oil prices in 2012. But then most found the $124-a-barrel forecast to be rather on the high side.
And for this government, it is safe to say, that all roads (all decisions) lead to Muskrat Falls.
The government has touted the billions it will spend on Muskrat Falls as a necessary and important investment for the future of the province. It has called this investment and other capital investments fiscally responsible.
According to budget estimates, $713 million was allotted for capital spending on resource developments in 2012-13, coincidentally nearly the entire amount of the expected deficit. This represents about 45 per cent of the total estimated capital expenditures for this budget year.
In total, estimated capital spending in the $7.5 billion 2012-13 budget was a significant $1.57 billion, compared to (and double) $783 billion in 2011-2012.
If these investments in energy, schools, hospitals, roads and other infrastructure projects are good and responsible investments, perhaps the government should stop complaining and panicking about the short-term deficits these investments create.
After all, the government did double its planned capital spending in 2012 — at a time when it knew there would be lower oil production.
So if we are going to have a conversation in this province about public services and taxes, we need to be up front with people about why the conversation is needed. It is not just about having enough revenue to support public services like strong health and education — also investments in the people of our province.
Indeed, it is about having enough revenue to pay for the government’s aggressive capital expenditure commitments.
How many ways will Newfoundlanders and Labradorians be expected to pay for the development of Muskrat Falls?
Is the government now asking us to pay for this hydro project with higher taxes and fewer services?
If that’s the case, we need to make sure any conversation about taxes, public services and public spending has all the facts on the table.
One thing is certain — a government pushing austerity during times of unprecedented prosperity can, and should, expect resistance.
Lana Payne is president of the
Newfoundland and Labrador Federation of Labour. She can be reached by email at email@example.com.
Her column returns Jan. 26.