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Michelle LeBlanc and Shaun Hussey are chefs and owners of Chinched Bistro in St. John's.

Chinched Bistro

It's a fact that hangs over St. John's chef and restaurateur Michelle LeBlanc every time she goes to work. Dining out is a luxury, not a necessity.

"The sad reality is people don't need to go out to dinner," says Ms. LeBlanc, who along with husband Shaun Hussey, own and operate Chinched Bistro in the city's downtown core.

These days, that's truer than ever in Newfoundland and Labrador. Downturns in the oil and gas and mining sectors have hit the province's economy hard. Its financial situation is also a mess. In April, the provincial government announced a $1.83-billion deficit and plans to introduce tax and fee hikes it projects will give it $647-million in revenue. It's predicting the province won't be in the black until 2022.

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Dwindling royalties from offshore oil production is a big reason why the Liberal government introduced these measures. The province raked in a record $2.8-billion in offshore oil royalties during the 2011-2012 fiscal year, but expects to collect a mere $572-million in 2015-2016. It's also blaming the previous Progressive Conservative government for providing tax reductions during the boom times that it says weren't sustainable.

The tax increases and fee hikes are numerous. Income taxes are going up. The HST will go from 13 per cent to 15 per cent on July 1. The general corporate income tax rate has been increased from 14 per cent to 15 per cent, retroactive to Jan. 1. The gas tax has been increased by 16.5 cents per litre, to 33 cents. The Liberals have also introduced a "temporary deficit reduction levy." The levy will apply to each resident making at least $50,000; someone with a taxable income of $55,000 will pay $100 while someone making $100,000 will pay $700.

This is not a business climate that breeds optimism, especially for entrepreneurs like Ms. LeBlanc, who run small businesses that depend on people having enough disposable income to splurge on things like fine dining. "Yeah, it's good times right now. It's fun," Ms. LeBlanc jokes.

Businesses across the province might have to get used to leaner times. The Conference Board of Canada is forecasting Newfoundland and Labrador's economy will only expand by 0.2 per cent this year, and that it will be the only province facing a recession in 2017.

The Atlantic Provinces Economic Council says the weak economic growth is due to slower spending in offshore oil development projects and weak provincial capital spending and housing activity. The Council's president and CEO Finn Poschmann says small- and medium-sized businesses in the province have been facing trouble for over a year now due to the energy commodity downturn. The tax and fee increases only make matters worse.

"The real impact will come through depressed consumer discretionary spending, owing to the tax and fee increases," Mr. Poschmann says. "The impact will be broad-based, but will be a drag on growth."

Vaughn Hammond is the director of provincial affairs for the Newfoundland and Labrador branch of the Canadian Federation of Independent Businesses. He says the 2,000 members his organization represents in the province are worried about their future in the wake of April's budget. "They're optimistic on the outside, but kind of reeling on the inside," Mr. Hammond says.

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Mr. Hammond believes the tough economic climate is forcing small businesses to cut costs to improve their bottom line. He notes some businesses have turned to compressed work weeks, and are asking employees to work four days instead of five. Layoffs have been inevitable in some cases. "For some of our members, this is the first time in years, or the first time ever, they've had to lay off staff," Mr. Hammond says.

Danny Aylward, who owns and operates five Home Hardware stores in the province, hasn't had to lay off any of his 55 full-time and 12 part-time staff yet. But his business has been affected by the depressed economy. Mr. Aylward is based in Marystown, a community located 300 kilometres from St. John's. The oil and gas industry has been a big employer in the area. But in December, 1,300 workers were let go when the Marystown shipyard completed work on a drilling support module for the $14-billion Hebron offshore oil project.

Mr. Aylward says the layoffs at the shipyard and closures of multiple fish plants in the Burin Peninsula region have hit this rural area hard. The tax increases and fee hikes won't help, either. He thinks the new gasoline tax will have the greatest impact on the people of Burin Peninsula, and it will trickle down to his business. He estimates business revenue is currently down 5 to 10 per cent.

"There are about 5,500 people in Marystown, but 30,000 in our trade area and the Burin Peninsula includes a lot of rural areas," Mr. Aylward says. "If they are driving less, you lose some of that foot traffic coming through your doors."

Ms. LeBlanc is also adjusting to an economy that is no longer booming. That means looking at less expensive cuts of meat and brands of wine to buy for her restaurant. It also means Ms. LeBlanc and Mr. Hussey must do the work of more than two people at times. "You have to pay attention to every dollar you spend," Ms. LeBlanc says.

However, it's not all doom and gloom for small businesses in Newfoundland and Labrador. The unemployment rate is 11.7 per cent, down from its five-year high of 14.4 per cent in December. And the summer tourism season has arrived. Ms. LeBlanc says it's shaping up to be a "spectacular one" that will keep St. John's restaurants busy and might make up for the slow winter and spring they experienced.

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She's also mindful that small business owners in the province are used to hard economic times. They know how to survive downturns. "We need to be determined and optimistic to continue the success of our business," Ms. LeBlanc says. "We've just got to power through this."

Correction: A previous version said the gas tax had been increased to 16.5 cents and that the Temporary Deficit Reduction Levy will cost each resident making at least $25,000 between $300 to $900 annually.

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