The Canadian Federation of Independent Business reacted angrily to a big increase in the small business income tax rate in the P.E.I. budget Wednesday.

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Erin McGrath-Gaudet was expecting a more business-friendly budget. (CBC)

The rate rose from 1.0 to 4.5 per cent.

"Seeing this increase to the small business tax rate to us is just such an insult," said Erin McGrath-Gaudet, director of provincial affairs for P.E.I.

The jump comes as the government is about to introduce the harmonized sales tax. That was announced last year, and touted as a major boost to Island businesses. McGrath-Gaudet said she was expecting a similar business-friendly budget this year.

Small business tax rates in Atlantic Canada

Newfoundland and Labrador: 3.5%

Nova Scotia: 4.0%

New Brunswick: 4.5%

P.E.I.: 4.5%

"[They've been] making all these comments about HST and trying to benefit the small business community and helping our economy grow, so they're giving with one hand, and taking away with the other," she said.

Finance Minister Wes Sheridan said the tax rate had been artificially low to compensate Island businesses because they couldn't claim HST tax credits. With the HST, he said, Island businesses are on a level playing field.

Progressive Conservative finance critic James Aylward said this tax hike will stymie much of the growth the HST would have allowed.

"If you're jacking up the tax all of a sudden by 350 per cent, I mean, I'm not an economist but it's pretty easy to figure out that I'm not going to be able to grow my business," he said.

In his budget address, Sheridan said the new tax rate is competitive with other provinces in the region. In fact, it's moving from the lowest in Atlantic Canada, to a tie for the highest.

Overall, the province is projecting it will raise $7.5 million in corporate taxes in the coming year.

For mobile device users: Are small businesses being treated fairly by the P.E.I. government?