TAXING GROWTH

Provincial Government Erodes Affordability and Stifles Growth, Virtually Overnight

The Saskatoon & Region Home Builders’ Association is extremely disappointed in the Government of Saskatchewan’s decision to attempt to overcome a substantial deficit by introducing a budget that stifles growth, discourages professionalism, and fosters an already thriving underground construction economy that puts workers and homeowners at risk both financially and with respect to safety.

Yesterday, Finance Minister Kevin Doherty presented a budget with a number of troubling details. Most notably, the Government lifted the PST exemption on “construction services,” which includes construction of new homes, renovation contracting work, and any construction work which adds to the value of a property. This obviously hurts every single business whose key product is the construction of homes and all of the infrastructure that allows Saskatchewan to grow, but there’s another group of people that this hurts just as much: every single family and person who wants to enter into home ownership in Saskatchewan.

The reality is that the addition of PST to construction services (which in the same address was raised from 5% to 6%, effective today) erodes the affordability of new homes in Saskatchewan and the Saskatchewan advantage. This means that once again, the homeowner carries the tax burden, funded through their mortgages. It also means that there is now an entire group of people who can no longer afford to buy a home at all. The fact that the First Home Plan, introduced just last year in order to help people who have already invested in education and chosen to stay in Saskatchewan purchase their first home was eliminated in the same budget for a forecasted revenue of only $8 million, adds insult to injury.

Since 2010, the population of Saskatoon has been growing by roughly 3% per year, making it one of the fastest growing cities in Canada. The reasons that growth is beneficial to everyone in a city like Saskatoon have been extensively studied and are numerous. Benefits of this kind of growth include diversified business and education, improved infrastructure, and overall improved quality of life for the residents of the city. The Government of Saskatchewan is well-aware of the benefits of growth, and that affordable home ownership is a large driving force of growth. Now, confusingly, they have managed to erode affordability and stifle growth virtually overnight, all in what they’ve said is actually an effort to balance the budget and grow the economy.

Furthermore, 75% of the builders that the SRHBA represents are small businesses who build less than 10 homes per year. The new home building market in Saskatoon is very competitive due to a high number of builders (some of whom you may have read about in the news recently) who cut costs by not conducting themselves with the professionalism required of a responsible home builder. The SRHBA members who have elected to conduct themselves with that professionalism, displayed by their dedication to safety and proper business practices and ethics, have had to invest a lot of time and experience into developing business plans that allow them to operate responsibly and still compete with those who have opted to sacrifice professionalism in favour of cost savings. Now, those business plans have been completely turned on their heads, with only a week to reevaluate and make the change. Even if we accept that there may have been reasons that the Provincial Government decided to raise the costs of construction labour and effectively tax growth, what was the reasoning behind enforcing this in a time frame that doesn’t allow these businesses to adequately prepare?

Many builders, contractors, renovators and consumers are forced to decipher the roll out of these new measures and how exactly they apply to them, with little guidance from the government and a very short implementation window.  The Government appears not to have taken the time to fully assess how these changes will be implemented and the various scenarios in which there could be an impact.  They instead appear to have tried to use a magic bullet to solve a problem, without fully understanding the complexities and ramifications to an industry that has historically fostered and facilitated growth and investment in the province.

It’s not just the building and buying of new homes that is affected by this exemption, either – it also applies to renovation work and any construction services that increase the value of a property. Saskatchewan already has a massive underground cash economy in the renovation market, a cash economy that undercuts renovators who have elected to hold themselves to high professional (and legal) standards that ultimately protect consumers. With the cost of hiring a professional being raised as a result of the new budget, it has now become even more appealing to consumers to go for a cheaper, illegal “cash deal.” The underground market that thrives off of the cash deals that are responsible for incomplete projects, inadequate worker safety, and a lack of accountability, have now been energized. The new budget disincentivizes professionalism, and this is troubling.

While Finance Minister Kevin Doherty specifically mentioned structuring this deficit budget “in a way that maintains our Saskatchewan advantage,” we fail to see how greatly increasing the difficulty of owning a home in our province, thereby stunting the overall growth of our economy, keeps with this statement.