November 16, 1999
(Executive Council)

Multi-year tax reductions announced

Premier Brian Tobin, along with Finance Minister Paul Dicks, today announced a $175 million personal income tax reduction strategy which will commence January 1, 2000 to be phased in over three years.

"This is the first reduction in personal income tax rates for residents of Newfoundland and Labrador since we joined Confederation 50 years ago," said Premier Tobin. "This government pledged to share the fiscal dividend with the people of this province as soon as it was affordable and responsible to do so. I believe these tax measures do just that."

Minister Dicks noted: "The first year of our three-year plan for tax reductions will see $30 million in tax savings put back into the hands of Newfoundlanders and Labradorians as we enter the new millennium. The multi-year strategy will see a reduction of $60 million in 2001 and $85 million in 2002. Once the strategy is fully implemented, this province will have a competitive personal income tax regime."

Over the next three years, the province intends to reduce the basic personal income tax rate from 69 per cent of basic federal tax to 49 per cent, plus surtaxes.

As of January 1, 2000, the basic personal rate of tax shall be reduced from 69 per cent of the basic federal tax to 62 per cent. On January 2001, the province will likely move to a "Tax on Income" system. However, the basic rate will be the equivalent of 55 per cent of the basic federal tax. In 2002, the rate will be the equivalent of 49 per cent of the basic federal tax.

"To provide for greater equity among taxpayers at the lower income levels and to make this change more affordable, we will implement gradually increasing surtaxes each year," said Minister Dicks.

When fully implemented in 2002, a family with two income earners, making $40,000 each, will realize provincial tax savings of $1,334 annually.

The people of the province have clearly stated that they wanted tax reductions, but not at the expense of funding for health care and education.

"These tax reductions are responsible and manageable," said Premier Tobin. "Unlike the almost $900 million in tax reductions suggested by the Opposition last winter, this tax reduction is realistic, prudent and will not come at the expense of funding for health care and education. Newfoundland and Labrador is leading the country in economic growth and future prospects are positive. Now is the time to reward taxpayers for their patience."

Minister Dicks noted that this is the second time government has enacted major tax reform. The implementation of the HST in April, 1997 put approximately $105 million back in the hands of taxpayers. The HST low income tax credit pays $8 million to those most in need. The first payment of the senior's benefit, in October of this year, provided another $5 million to low income seniors. Federal income tax changes in the past two years have resulted in another $30 million in provincial income tax reductions annually. These reductions and credits now total more than $150 million per year.

The multi-year tax reduction strategy was formulated with the input of the Premier's Advisory Council on the Economy and Technology (ACET) which held public consultations in September in 11 venues around the province. ACET received 98 submissions and presented its report to government on November 5, 1999. The report contained nine recommendations, many of which have been incorporated into the multi-year tax reduction strategy announced today. The other recommendations of ACET, including reducing the payroll tax and increasing corporate income tax, are under review and decisions will be made in time for the 2000 Budget.

Media contact:

Heidi Bonnell
Office of the Premier
(709) 729-3564

Paula Dyke
Department of Finance
(709) 729-0329

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BACKGROUNDER

NEWFOUNDLAND AND LABRADOR

PERSONAL INCOME TAX REDUCTIONS

General Overview

• The provincial government has announced a $175 million, multi-year, personal income tax reduction strategy which will commence January 1, 2000. This is the first time the province has initiated personal income tax reductions in 50 years of Confederation.

Details

• These measures will result in savings of $30 million in 2000, $60 million in 2001 and $85 million in 2002, and each year thereafter.

• As of January 1, 2000, the personal income tax rate will be reduced by seven percentage points from 69 per cent to 62 per cent of basic federal tax plus surtax.

• On January 2001 the province will likely move to a "Tax on Income" system. However, the basic rate will be the equivalent of 55 per cent of basic federal tax. In 2002, the rate will be the equivalent of 49 per cent of basic federal tax. These phases of the strategy will be implemented if it is fiscally responsible to do so.

• To provide for greater equity among taxpayers at the lower income levels and to make this change affordable, we will implement gradually increasing surtaxes each year.

• When fully implemented in 2002, a family with one income earner, making $40,000 will realize provincial tax savings of $667 annually. A family with two earners making $40,000 each will realize savings of $1,334. In order for a person to otherwise realize this kind of an improvement in his or her disposable income, gross pay would have to increase by about 2.5 per cent.

• This tax reduction plan will make Newfoundland and Labrador a more attractive place to live and do business. It will help create employment opportunities and help us attract and maintain meaningful well paid jobs.

CHANGE IN NFLD PIT BURDEN
(Newfoundland Reduction Only)

1999 11 16                        11:30 a.m.