Picture of Provincial Debt: Part 10, Prince Edward Island
At first glance, the picture of provincial debt in Prince Edward Island could indeed look grim. P.E.I. is the third most indebted province in all of Canada behind Ontario and Quebec, with a total net debt of $1.8 billion, that’s currently 34% of the province’s GDP. But aside from these alarming statistics, it might be even more worrisome that while Prince Edward Island fared okay during the recession, it was afterwards that things really started to plummet.
After seeing a surplus in the two fiscal years between 2005 and 2007 it was, like all provinces, during the 2007-2008 fiscal year that the province started to run a deficit. However it was a small one, and the following year 2008-2009 wasn’t that much worse, although it was this year that the deficit almost reached a level it hadn’t seen in four years. But in 2009-2010 the deficit plunged – dropping twice as much as it had during 2008. And things haven’t gotten much better since. Last year’s deficit for the province was the lowest its been in the year represented, and next year projects to be only slightly better.
The huge deficit during the past fiscal year was due to higher employment benefit costs, over-expenditures in health and social services, as well as additional costs spent to help support the local beef industry. The provincial government has acknowledged that this kind of spending is simply unsustainable and so, they’ve proposed measures that are to be implemented within the next three years, that will see the province returning to a surplus once again.
Much of that plan revolves around a new HST plan that the government has implemented, to take effect as of April 2013. This tax, already in effect in many provinces (and about to be booted out in British Columbia) will combine the PST and the GST of PEI into one Harmonized Sales Tax totaling 14%. Also just like in other provinces, this is in fact lower than the percentage of the two put together is; but the fact that HST is applied to more items, it will end up bringing in much more revenue than the two taxes separately.
The provincial government of PEI does realize that this could put a strain on some families, and so they’ve also given PEI residents a credit of $150 – $200 per household, for those households that have an income of $55,000 or less per year.
PEI is going to have to instate the HST in order to get them back into the black. This measure will be the driving factor of PEI’s success in the coming years. Fortunately, the province is going to have the easiest time out of any in implementing it. That’s because many of the provinces surrounding PEI already have the HST in place, and so it’s become easier to accept in the Maritimes. Plus, a look at how these measures are going to help the province get back into the positive side of things should also be pretty convincing.