Saskatchewan construction companies and contractors must collect provincial sales tax on new contracts starting April 1, 2017.

The move targets builders' labour and overhead costs. It's expected to add $345 million each year to provincial coffers.

It's one of the single largest contributors to government revenue in this year's budget.

"Do I think it might curtail some people ordering a renovation on their home, or building a new home for the time being? I acknowledge that's a possibility," said Finance Minister Kevin Doherty.

"But if we're going to move to a more consumption-tax base those were big areas we had to look at."

Affordability will suffer, say builders

Saskatoon and Region Home Builders' Association CEO Christiane Guerette said the tax will have "a significant impact" on the affordability of new homes. (Radio-Canada)

"We're hugely disappointed," said Christiane Guérette, the CEO of the Saskatoon & Region Home Builders' Association (SRHBA).

She noted Alberta and British Columbia do not charge provincial sales tax on construction jobs, and estimated this will raise the prices of new homes by at least five per cent in Saskatchewan.

"It's going to have a huge impact on affordability," said Guérette.

She said imposing PST on renovation contracts may backfire, as it may encourage more builders to take on cash-only jobs.

Tax measures target new homebuyers

A construction worker cuts pipes for natural gas fittings for a new home on Newton Way in Saskatoon. (CBC)

"It's a measure that on the housing part is draconian," said Ron Olson, the general manager of Boychuk Construction.

Olson is the past president of the Canadian Homebuilders Association, the SRHBA, and the Saskatoon Real Estate Board.

He noted in 1990, Ottawa initially promised to index its Goods and Services Tax to the price of housing, and issue rebates to new homebuyers. Olson said the price of Canadian homes has since increased threefold, while rebates have not kept pace.

"The budgets are balanced on the backs of young people paying mortgages today. And that's where that money will go," Olson said.

Contractors' materials exempt from PST

Workers from a flooring company unload flooring tiles for a new home in Saskatoon. Materials like these will become PST-exempt for contractors starting April 1, 2017. (CBC)

With the average new home in Saskatoon and Regina selling for close to $450,000, Olson estimated taxes will now raise the sticker price of that house to $478,500.

To soften the blow, contractors will be exempt from paying PST on materials starting April 1, 2017.

Saskatchewan's finance minister said when it comes to bidding for jobs, that puts Saskatchewan contractors on a more even footing with their competitors in Alberta and British Columbia.

Kevin Doherty noted the change will no longer allow contractors from out-of-province to bring in cheaper materials, then outbid local firms on the final construction cost.