Newfoundland and Labrador should lower taxes to help attract health-care workers

If a patient in Newfoundland and Labrador goes to the province’s health services website today and clicks on the “Find Health Care” section, they’ll be met with a list of “Temporary service closures and changes,” which names the emergency rooms and clinics that are closed due to lack of staff.

It’s no secret that health-care staff recruitment and retention in Newfoundland and Labrador, alongside resultant service disruptions, is a major issue in the province. In fact, the province has had to rely heavily on costly travel nursing agencies just to fill the gap (something the Furey government will now also spend money to investigate).

And while the Furey government announced last year it would spend more on recruiting nurses and physicians, it’s ignoring a key contributor to the province’s health-care recruitment challenges—namely, it’s tax competitiveness problem.

Indeed, Newfoundland and Labrador has some of the highest personal income tax rates in North America. According to a new study, among all 61 provinces and U.S. states, the province has the third-highest combined (provincial and federal) tax rate at $50,000 in income, the fourth-highest at $75,000, the fifth-highest at $150,000 and the second-highest at $300,000.

And residents of the province will likely experience tax hikes, not tax reductions, in the future because the provincial government continues to operate a budget deficit and increase provincial debt. Of course, more debt today simply means higher taxes tomorrow.

Why does this matter for health-care worker recruitment and retention?

According to extensive economic research, high tax rates can impact the decisions of workers when they choose where to live. In other words, when the province, as part of its health-care recruitment strategy offers taxable signing bonuses and “competitive salaries,” it only addresses part of the decision-making equation of workers. Health-care workers, particularly those with specialized skills and higher incomes, will face punitive tax rates for the entirety of their working careers in Newfoundland and Labrador. This is a clear incentive for them to look elsewhere.

High tax rates also affect the existing group of workers. While a large share of their paycheques already goes toward taxes, workers in the province are incentivised not to work extra hours or accept overtime because—due to the province’s high marginal tax rates—they’ll lose a large share of these earnings. For example, if a worker in Newfoundland and Labrador was seeking to increase their income by taking on extra work, assuming they had an average income, they would need to earn $153.80 just to take home an additional $100 in after-tax earnings.

Of course, Newfoundland and Labrador’s tax challenge doesn’t only affect health-care workers. Given the province’s broadly uncompetitive tax structure, much-needed workers across the income spectrum are incentivised to live and work elsewhere.

The competition for health-care workers, including doctors and nurses, will become increasingly intense in the years to come. If Newfoundland and Labrador want to successfully recruit and retain health-care talent, it must reduce its tax rates.