Saskatchewan’s New Provincial Sales Tax: Impacts on Construction and Housing Affordability
As of April 1, 2017, Saskatchewan’s construction companies and contractors are required to collect provincial sales tax (PST) on new contracts—a shift that has sparked significant debate across the industry. This policy aims to address builders’ labor and overhead costs and is projected to contribute an additional $345 million annually to provincial revenues. While the government’s intention is clear, the repercussions are already raising concerns among builders and potential homebuyers.
The Rationale Behind the Change
The Provincial Government’s decision to implement a PST on construction projects reflects a broader strategy to transition towards a more consumption-based tax system. Finance Minister Kevin Doherty acknowledged that this move might deter some homeowners from embarking on renovations or new constructions. However, he emphasized its necessity for ensuring stable revenue streams, given fluctuating economic conditions.
Concerns Over Affordability
Critics of the PST policy argue that it will have dire consequences for housing affordability in Saskatchewan. Christiane Guérette, the CEO of the Saskatoon & Region Home Builders’ Association (SRHBA), expressed profound disappointment, noting that neighboring provinces like Alberta and British Columbia do not levy a similar tax on construction projects. Guérette estimated that this policy might inflate the prices of new homes by at least 5%, further straining the budgets of prospective homeowners.
In a region where housing prices in Saskatoon and Regina hover around $450,000, adding a considerable tax burden could push the cost of a typical home beyond the reach of many families. With affordability already a critical issue, this new tax policy is seen as an added hurdle for first-time buyers and those looking to upgrade their living situations.
Economic Backlash and Potential Risks
The taxation policy’s timing raises alarms about potential economic repercussions. Builders worry that introducing a PST on renovation contracts may inadvertently incentivize cash-only arrangements, which would not only circumvent the tax but also diminish labor standards and protections. This concern was echoed by Ron Olson, the general manager of Boychuk Construction, who described the tax as "draconian."
Olson’s critiques extended beyond immediate affordability, suggesting that such policies disregard the long-term impacts on the young generation of homebuyers. He lamented that the burden of maintaining balanced budgets seems to fall disproportionately on those entering the housing market today.
Mitigating Factors: Material Tax Exemptions
In an effort to balance the tax’s impact, the Saskatchewan government has introduced exemptions for contractors on materials as of the same date. By allowing contractors to source materials without incurring PST, the province aims to level the playing field against out-of-province competitors, particularly those from Alberta and British Columbia, who have been able to offer lower bids due to their lack of such taxes.
Kevin Doherty reassured local businesses that this exemption would foster fair competition, particularly in bidding environments where contractors often face external pressures from cheaper out-of-province materials.
Conclusion
Saskatchewan’s PST on construction contracts marks a significant change in the province’s tax landscape, with widespread implications for builders, homeowners, and the regional economy. As stakeholders assess the immediate and long-term effects of this policy, the focus will remain on housing affordability. Both the government and the construction industry must navigate these challenging waters carefully, balancing revenue needs while ensuring that homeownership remains a feasible goal for residents. With ongoing dialogues and assessments, it remains to be seen how effectively these taxes can be managed to promote a healthier economic environment for both builders and homeowners in Saskatchewan.
