Province to move to Tax on Income in 2001

Finance Minister Lloyd Matthews confirmed today that Newfoundland and Labrador will move to a Tax on Income system in January 2001. The Tax on Income system will permit the province to levy its provincial tax directly on taxable income rather than as a percentage of federal tax, as is currently the case. It also gives the province the flexibility to determine its own tax brackets and non-refundable credits.

Minister Matthews also confirmed that, in addition to the $30 million provincial income tax savings announced in November 1999 for the 2000 taxation year, the province�s income taxes will be reduced this year by a further $12 million resulting from income tax changes announced in the federal budget on February 28. This means that provincial income taxes in Newfoundland and Labrador will be decreased this year by the unprecedented amount of $42 million. Together with the $18 million federal personal income tax reductions, Newfoundlanders and Labradorians, will pay $60 million less tax this year.

Minister Matthews stated that the province had anticipated the impact of federal tax changes to the provincial treasury and built the estimated revenue reduction into its fiscal plan. "Now that our estimates have been confirmed by the federal budget, we are in a position to advance our tax reduction strategy by another $12 million this year," said Minister Matthews.

Minister Matthews noted that a number of provinces are taking advantage of an intermediate step to the Tax on Income model in the current year. While this intermediate step does not provide provinces with the full flexibility of the tax on income system, it allows those provinces to insulate themselves against the recently announced federal changes by clawing back the provincial tax reduction which otherwise would have occurred. Mr. Matthews stated that taxpayers in Newfoundland and Labrador will not be subject to this claw back.

Media contact: Paula Dyke, Communications, (709) 729-0329.

2000 03 003                                                                     10:40 a.m.