May 13, 1999
(Finance)

The following statement was issued today by Paul Dicks, Minister of Finance. It was also read in the House of Assembly:

I would like to take this opportunity to advise members of the House of Assembly of government's intention over the coming months to undertake a comprehensive review of this province's tax policy. As part of that review, we will undertake an examination of Newfoundland and Labrador's competitive tax position in relation to other jurisdictions.

Once completed, this review will serve as the basis for the province to move forward with appropriate changes to its overall tax regime. Our approach is to develop a new tax policy over the next 12 months which will facilitate a multi-year reduction in personal income tax.

At 69 per cent of the basic federal tax, plus a surtax of 10 per cent on provincial tax above $7,900, this province currently has the highest provincial income tax rate in the country. New Brunswick, which is next with a rate of 60 per cent, pledged in its 1999 budget to reduce taxes to 57.5 per cent. In Ontario, the government will further reduce the provincial tax rate from 40.5 per cent to 38.5 per cent as of July 1, 1999. The tax gap is widening, and we cannot allow this competitive disadvantage to grow.

As honourable members are aware, an integral part of this government's mandate is to reduce taxes, including personal income tax, when it is fiscally prudent to do so. However, in doing so we must be careful not to affect government's ability to provide services and programs.

During our pre-budget consultations, many individuals and groups maintained that tax reductions would stimulate our economic growth with a consequent increase in employment. At the same time, most of those who spoke did not want these tax reductions to come at the cost of decreased programming or services. There is an acute public awareness of the delicate balance to be maintained between revenues and expenditures. There is no strong public appetite for deficit spending.

Over the past number of years, we have taken a number of steps to create a more favourable tax climate. The introduction of the HST in 1997 represented the largest single tax reduction in this province's history - from 19.8 per cent to 15 per cent. In the 1999 Budget, we introduced the Seniors' Benefit, which will provide a credit of up to $200 to qualifying seniors.

Government has also undertaken to provide a more favourable business tax environment. Our corporate tax rate is among the most favourable in the country. For the second consecutive year, we were able to raise the threshold for the payroll tax which has exempted more than 500 employers from the tax roll and provided a tax reduction for most other employers. This is in addition to the substantial competitive advantage which the introduction of the HST has provided to businesses located in this province.

These initiatives are a good beginning, and we look forward to being in a position to do more - but we must do so in a responsible manner. Government is faced with the challenge of balancing the need to ensure adequate revenue to provide vital public services, with the need to reduce taxes for the benefit of all Newfoundlanders and Labradorians. Government must endeavour to share our limited resources among all Newfoundlanders and Labradorians in an equitable manner. We feel that the best mechanism to achieve this is through tax reductions.

Newfoundlanders and Labradorians deserve fair tax policy. They also deserve to have that policy implemented in a manner which is fiscally prudent.

1999 05 13 2:25 p.m.

Provincial Personal income tax at January 1, 1999 (chart)