Newfoundland and Labrador government unlikely to reduce tax rates despite taxpayer wishes

According to new polling data, most Atlantic Canadians—including Newfoundlanders and Labradorians—want lower top tax rates.

The province’s top (federal and provincial combined) marginal personal income tax (PIT) rate is 54.8 per cent—the highest in the country—thanks to a Furey government tax hike in 2021, which raised the provincial PIT rate for income over $135,973, to purportedly shift the fiscal burden off lower-income residents and onto the shoulders of high-income earners.

And yet, according to the poll (conducted by Leger and published by the Fraser Institute), the majority (56 per cent) of Atlantic Canadians believe the top tax rate on high-income earners shouldn’t be over 50 per cent.

Furthermore, among all Canadians across the country, Atlantic Canadians were the least likely to support tax increases on high-income earners—only 27 per cent of Atlantic Canadians felt that high-income earners should pay more in taxes than they already pay. Respondents might feel this way because the region’s taxes are already very high.

However, despite these attitudes, Newfoundland and Labrador will not see tax reductions anytime soon. While the Furey government forecasts budget surpluses for the next four years, these estimates rely in part on US$86 per-barrel oil prices. Should prices fall below that mark, these surpluses may never materialize. Even if resource revenues stay high, the province has a track record of using resource revenue to increase spending, again leaving no room for tax cuts.

Even if the Furey government achieves these surpluses, it still must contend with a large debt burden. A string of budget deficits in recent years has increased Newfoundland and Labrador’s net government debt to $16.2 billion (or $30,544 per person) and debt interest charges to $1.05 billion ($1,981 per person). As such, Newfoundland and Labrador ranks highest among the provinces in per-person net government debt and government debt interest charges. Such high debt costs strain government finances, meaning the government may need to prioritize debt reduction over tax relief.

So what’s the solution? How can the government in St. John’s create the fiscal room to provide the tax relief for Newfoundlanders and Labradorians?

Simply put, it should reduce spending. By doing so, it will become less reliant on volatile oil revenues to balance its books. Then the province could reduce taxes while maintaining a balanced budget.

Atlantic Canadians, including Newfoundlanders and Labradorians, think top tax rates are too high. Unfortunately for taxpayers in Newfoundland and Labrador, the Furey government hasn’t put itself in the fiscal position to reduce taxes anytime soon.