I am very pleased to rise today to announce that in this year�s budget, our government will eliminate the 15 per cent retail sales tax on insurance premiums.

This is yet another concrete example of our government putting money directly back into the pockets of tax payers in this province. This will cost the government approximately $94 million this year and an estimated $75 million annually thereafter.

This substantial investment will benefit each and every individual, corporation, small business, community, municipality and volunteer organization in this province and our government is proud to make it happen.

The sales tax on insurance premiums was implemented in the 1960s. In April 1997, the government of the day harmonized the provincial retail sales tax with the GST, and adopted the same tax base as the GST. However, the sales tax on insurance is not subject to GST/HST. The previous government retained the retail sales tax on insurance premiums, and increased the rate to 15 per cent, leading many people to believe that HST and the RST on insurance premiums were the same tax.

Only two other provinces had imposed a similar tax but with a much lower rate and a narrower base. Those provinces do not have a harmonized sales tax.

While we need to impose taxes to provide health care, education and other public services, this particular tax just did not seem fair and many have advocated for its elimination. I know the Minister of Finance has heard it directly from people through pre-budget consultations.

When we assumed office in 2003, we found ourselves in an extremely difficult fiscal position, heading potentially for billion dollar deficits. We were not in a position to eliminate this tax. As circumstances improved, we had many priorities to address before we could address this problem.

We have made significant inroads in dealing with our infrastructure deficit, including substantial investments into our hospitals, long term care facilities, schools, post-secondary institutions, roads, bridges and ferries. We have implemented a poverty reduction strategy that is held up as the national model. We have assisted seniors in many ways, and we have created more economic opportunities for our people.

Last year, we lowered personal income tax rates to become the lowest in Atlantic Canada. We recognize that competitive tax regimes are critical to economic growth and stimulation and inward investment.

The elimination of this tax will be retroactive to January 1, 2008. We will ask insurers to refund any tax that has been collected from January 1, 2008 until now on new contracts and renewals. I appreciate that this will place a small compliance burden on insurers, however, the insurance industry has lobbied long and hard for the elimination of this tax and I am confident they will be pleased to comply.

Given our province�s ever-improving financial position, we as a government must continue to give back to the people of this province. As Newfoundland and Labrador continues to prosper and grow, our people must benefit in meaningful and tangible ways. Today�s announcement does exactly that.

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BACKGROUNDER
Insurance Premiums Tax

Today, government announced the elimination of the provincial 15% Retail Sales Tax (RST) on insurance premiums, effective January 1, 2008.

RST had been applied to insurance premiums for property and casualty insurance policies (mainly vehicles, homes and business locations).  It did not apply to life, sickness, or health insurance premiums.  The tax had applied to consumers, businesses, municipalities and the not for profit sector.

The tax was payable at the time of purchasing or renewing a contract of insurance.  While it has been common practice among insurers, agents or representatives to extend payment terms to customers over a number of months, the insurer was required to levy and remit the tax upon the full premium amount at the time of the purchase or renewal of insurance, regardless of the payment terms.

Effective immediately, insurers are no longer required to collect this tax.  If a person purchased or renewed a contract of insurance on or after January 1, 2008, that person will receive a refund of tax paid.  No refunds will be available for insurance contracts purchased or renewed prior to the effective date.  No refunds of tax will be provided to taxpayers who cancel insurance policies that were acquired before 2008.
 

Insurers are asked to refund to clients any tax collected from January 1 to the present.  Insurers can apply to the Department of Finance to recover the tax refunded to their clients.

The annual cost to the provincial treasury of removing RST on insurance premiums will be about $94 million this fiscal year, and $75 million annually thereafter.

For more information about the elimination of sales tax on insurance premiums, please contact:

Department of Finance
P.O. Box 8700
St. John's, NL
A1B 4J6
Telephone: (709) 729-6830