N.B. premier, Ottawa at odds over compensation for tax holiday

Premier Susan Holt's government appears headed for a confrontation with Ottawa over $70 million in tax revenue the province will lose as a result of a federal sales-tax holiday starting this weekend.

Holt says New Brunswick has a right to the money under a federal-provincial agreement and will not waive that right.

But Dominic LeBlanc, the senior federal cabinet minister from the province, said Friday that there'll be no reimbursement.

"There'll be no direct compensation," he said at an event in Fredericton. "We've made that clear."

WATCH | 'That sounds like a question for them':

He pointed out that Ottawa had reached an "understanding" with three of the four other provinces in the same situation as New Brunswick and said he was "convinced" there'd be a similar understanding with Holt.

Holt warned on Thursday, however, that if Ottawa doesn't pay up, "we'll have to have a pretty serious conversation about the terms of that agreement and our interpretations of them."

Asked if that meant legal action, the premier said, "Possibly. I'm optimistic that that won't be required."

Premier Susan Holt has previously said that the federal tax holiday could cost the province lost revenue. (Stephen MacGillivray/The Canadian Press)

The issue stems from the 1996 Comprehensive Integrated Tax Collection Agreement, known as a CITCA, between Ottawa and New Brunswick that created the blended, federal-provincial harmonized sales tax.

The federal government collected the tax for both levels of government and remits the provincial portion to the province.

But the Trudeau Liberals' two-month GST holiday on some consumer goods announced last month means that Ottawa won't be collecting the money — including New Brunswick's share.

Under the agreement, any tax change at the federal level that affects one per cent or more of the provincial tax amount entitles the province to compensation.

"They have to provide compensation," Yves Giroux, the parliamentary budget officer in Ottawa, told a Senate committee earlier this month. "CITCAs are quite clear, unless the province explicitly waives their right to get such a compensation."

Holt was emphatic in the legislature this week that New Brunswick would insist on being paid.

"We have not waived and will not be waiving our participation in this agreement," she said Thursday in question period.

She told reporters that officials had talked about other ways to make up the lost $70 million in provincial revenue but none of those options produced "sufficient amounts" of money.

"Our bottom line is New Brunswickers have to remain whole," Holt told reporters. "We haven't found another way to do that, other than the agreement.

"I can't take $70 million out of our budget without it being reimbursed."

Holt's government is already projecting a $92.1 million deficit this year and recently announced nurse retention bonuses that will add another $60 million to the province's bottom line.

The tax holiday begins Saturday and will remove the federal GST from various items, including snack foods, alcoholic drinks, restaurant meals, books, newspapers and children's toys and diapers.

In the five provinces with HST agreements, the provincial portion of the tax is being removed as well.

Ontario, Prince Edward Island and Newfoundland and Labrador have all agreed to provide provincial sales tax holidays as well, waiving their right to compensation, and a spokesperson for Nova Scotia premier Tim Houston hinted this week a similar plan is in the works there.

"Nova Scotia looks forward to working with the federal government on any measures to help Nova Scotians make life more affordable," said Catherine Klimek.