Taxes up, jobs frozen to curb GN deficit

JOHN THOMPSON

The Government of Nunavut will increase taxes and freeze hiring to reduce a growing deficit that’s projected for the end of the 2006-07 fiscal year, Finance Minister David Simailak announced this past Tuesday, in his mid-year fiscal update.
These changes are needed, Simailak said, because the government now expects to run an $8.7 million deficit – $1.1 million further into the red than estimated last March.

And there’s no end in sight, he said.

“Long-term projections suggest that, without corrective measures, deficits will only increase in the years ahead,” Simailak said.

Nunavut’s payroll tax will increase this year, from one to two per cent. The government expects this will bring in an additional $5.3 million in taxes.

But to ease the pain, the government will also increase the cost of living tax credit, from $700 to $900. The average claim will be about $500, Simailak said.

Residents won’t notice these changes when they cash their pay cheques. Both the payroll tax and cost of living credit are applied at the end of the year, when residents file their income tax returns.

Simailak said the payroll tax increase brings Nunavut in line with the Northwest Territories. He said this tax is aimed at transient workers who earn large salaries in Nunavut, then leave.

Smokers will also pay more: by about $1.30 a pack, as of Dec. 15, when the government increases its tobacco tax.

That move is expected to bring in the government between $2.5 to $3 million each year.

But Simailak said the savings will be far greater in the long run, given how costly it is for the government to treat smoking-related diseases.

“We know that higher tobacco taxes encourage people to quit smoking and discourage young people from starting. And that’s something I am sure all people in this territory want to see,” Simailak said.

Meanwhile, to slow government spending, each department has been asked to identify and freeze all vacant jobs that “do not negatively impact on the delivery of necessary programs and services.”

That move follows a cost-cutting measure that Premier Paul Okalik announced in September. Each department must cut one per cent of spending from their budgets, to trim $10 million from the government’s spending.

To explain why government spending continues to swell, the finance minister pointed his finger squarely at the federal government.

Federal transfers to the GN increase by 3.5 per cent each year. But the GN’s own spending needs grow at twice that rate, by 7 per cent.

Negotiations for a new territorial formula financing deal, or “TFF,” look uncertain at this point, Simailak said. He plans to raise the issue when he meets with finance ministers from the provinces and territories later this month.

But he did say that any new TFF deal would not benefit Nunavut until the 2007-08 fiscal year, which starts April 1, 2007.

Simailak also tabled the GN’s capital budget for 2007-08. In it, the GN plans to spend $91.8 million on buildings and equipment, down from the $103.5 million they expect to spend by the end of the 2006-07 fiscal year.

Simailak is expected to table a number of supplementary appropriation bills during this sitting of the legislative assembly.

They include:

$3.79 million to cover cost over-runs in the last fiscal year by the Department of Health and Social Services. Most of this was incurred because of unexpected costs related to medical travel and agency nurses;
$17.53 million in extra operations and maintenance funding. Most of this is related to the rising costs of fuel. This bill also includes more money for daycares, Nunavut Arctic College nursing grads and efforts to cut wait-time reductions;
$7.59 million in supplementary capital funding. Nearly $5.8 million of this will go towards building public housing, through the Nunavut Housing Trust, which is created out of the $200 million in housing money for Nunavut that the federal government announced this past spring.