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April 18, 2012
For immediate release

Budget 2012 sets the course for balance, focuses on protecting gains and strengthening the economy

Finance and Energy

Budget 2012 sets forth a realistic three-year plan to return to balance while, at the same time, protecting gains in areas important to the Island way of life, says Finance, Energy and Municipal Affairs Minister Wes Sheridan.

“Ultimately, our goal is to achieve a greater degree of economic security for Islanders – and an assurance to future generations that their legacy has been protected,” said Minister Sheridan.

The Province is under significant fiscal pressures, resulting in a projected deficit of $78.6 million for 2011-2012. This is largely attributable to a substantial increase in public sector pension costs; increases in hospital and drug costs; rising costs of disability support, social assistance and support for children in care; as well as increases in agriculture costs. On top of this, overall economic conditions have contributed to a marked decline in corporate tax revenue.

In 2012-2013, the budget deficit is expected to improve by $3.7 million, despite a decrease in federal revenues of $13.2 million. This improvement in forecasted deficit is the direct result of a comprehensive three-year plan that moderates spending while maintaining vital programs and services.

• Health PEI will receive a funding increase of 4.1% this year but will be capped at 3.5% in subsequent years.

• The Department of Education and Early Childhood Development will receive a funding increase of 1.8% this year, with no further increases in year two and three.

• Most other departments will be reduced between three and five percent this year.

• Government will initiate consultations with stakeholders to review public sector pension plans so they remain on a solid and sustainable footing.

• The public sector will be reduced by 300 positions over the next three years, with two thirds of those reductions in the current year. The vast majority of these reductions will be found through attrition. Going forward, vacant positions will be reviewed as they occur.

There are some new initiatives in this budget, including the establishment of a $2,000 George Coles Graduate Scholarship, improvements to the existing George Coles Bursary, moving to provide interest-free student loans, and establishing a $500 refundable income tax credit for volunteer firefighters with at least 200 hours volunteer service a year.

Government also announced entering into formal negotiations with the Federal government to implement a harmonized sales tax.

Under a harmonized sales tax, the Provincial rate will be reduced from 10 per cent to 9 per cent. Combined with the Federal rate, the harmonized rate will be 14 per cent. This drop from the current rate of 15.5 per cent means the Island will have the second lowest sales tax rate in the Maritimes, instead of leading the country with the highest rate. The proposed model would apply the tax on the same base as the GST which, for example, does not include basic groceries and prescription drugs. The Province will not tax:

• home heating oil,

• children’s clothing, and

• children’s footwear.

In addition, an enhanced refundable tax credit will be created so that the impact of a new tax model will not affect Islanders with low and modest incomes.

“Today’s announcement will level the playing field for Island businesses in the region, reduce red tape, result in increased investment in jobs and growth, and end the practice of applying the provincial sales tax on top of the GST,” said Minister Sheridan.

Over the coming months, a detailed plan will be developed, with input from the private sector and the public to ensure smooth and orderly implementation, including adjustments to provincial and excise taxes to accommodate the harmonized tax, as well as transition rules concerning transactions that straddle the implementation date. A package of legislative changes will be tabled and debated during the Fall session of the Legislature.

Media Contact: Jennifer MacDonald-Donovan
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