Budget means more bankrupt families, says N.L. insolvency expert

Dramatic and sweeping efforts by the Newfoundland and Labrador government to subdue a crushing deficit will push some individuals and families into bankruptcy, says insolvency trustee Sean Stack.

Stack presented a jarring scenario whereby the cost of Thursday's budget for a young family could surpass $6,000 in 2017, a price that may be too steep for many to handle.

"An impact of three or four or five hundred dollars per month in free cash flow? Most families can't absorb that," said Stack, who established S.R. Stack and Co. Limited in St. John's two years ago.

A fictitious family facing financial hardship

Thursday's provincial budget included across-the-board increases in taxes and fees totalling nearly $900 million annually, and the elimination of some programs.

Despite these tough measures, the government is still projecting a $1.83 billion deficit for 2016-17.

Finance officials stated Thursday that an average family will face an additional $3,000 yearly in taxes and fees.

Under Stack's scenario, the cost is more than double that, because it factors in the cancellation of the parental benefits program, which pays $2,200 in a combination of monthly and lump sum payments following the birth or adoption of a child.

He paints a picture of a husband and wife with one young child, and a new baby expected in January 2017.

The husband earns $75,000 a year, while the mother has decided to stay at home while the children need care. 

Stack said this family will pay $1,875 more in income tax, and another $750 for the so-called deficit reduction levy.

A 16.5 cent per litre increase in the gas tax and the reintroduction of the retail sales tax on insurance will add roughly $800 per year to the cost of operating two vehicles, while a two-point hike in the harmonized sales tax will cost the family $400.

Stack also included the effects of fee increases for things such as vehicle registration and drivers' licence renewal.

Under these assumptions, the "cost" to this family would amount to an extra $507 per month, or $324 if they weren't expecting a child.

Insolvencies will accelerate because of budget

He called this an "incredible burden" on his fictitious family, one that would increase if one of the parents smoked, hunted or fished.

Insolvencies in Newfoundland and Labrador were already on a sharp upward swing because of a slump in the oil and mineral sectors, and the gradual decline of employment on major projects.

Stack expects those numbers will now accelerate.

"I do expect this will lead to more families having to file for bankruptcy or proposals declaring themselves insolvent," he said.

To avoid this, he said families need to take a page out of the government's playbook and immediately do up their own budget, one that allows them to live within their means.