October 2, 1996
(Finance)

Minister of Finance responds to comments made by Opposition Leader on Harmonization

Paul Dicks, Minister of Finance, responded today to comments made by the Leader of the Opposition on certain aspects of the harmonization of the provincial and federal sales taxes. The minister said that Mr. Loyola Sullivan's comments indicate a lack of understanding of harmonization, and as such he proceeded to clarify some of the issues of concern raised by Mr. Sullivan.

"Harmonization has been an integral part of the Strategic Economic Plan since 1992 and government could not be considered to have rushed into this agreement. Mr. Sullivan's statement indicates that the talks have been `strangely quiet'. While negotiations are never carried out publicly, a considerable amount of time has been spent in consultation with various groups, including businesses and employees," said the minister.

"In commenting on the revenue shortfall for the province, government has acknowledged that the revenue shortfall will be $105 million after $85 million is recovered from other tax and expenditure adjustments. Transitional assistance is a fixed amount of $348 million designed to offset the revenue shortfall for four years. The tax on insurance premiums, as well as adjustments to alcohol and tobacco, were outlined in April 1996 when the Memorandum of Understanding (MOU) was signed publicly.

"Mr. Sullivan's calculation of the revenue shortfall is based on a 1993 estimate of the Goods and Services Tax collected in Newfoundland. This information does not reflect current estimates.

"On the subject of employees, the province will transfer to the federal government professional staff which are excess to the province's needs in winding down Retail Sales Tax and administering our other taxes. The administration of taxes collected in Newfoundland will be carried out in the province.

"Employees who transfer to the federal government will not have a reduction in pay. In fact, some employees will be placed on a pay scale which is almost 20 per cent higher than the top of their current scale. Employees who have completed their probationary period with the province will not have a probationary period with Revenue Canada. Employee performance will be evaluated in accordance with Revenue Canada's performance procedures for all employees.

"Harmonization recognizes that both governments tax the same taxpayer and that we have to impose and collect the tax in a manner that is fair to consumers and is economically efficient. By having a single rate, which the Leader of the Opposition finds appealing, the provincial government will sacrifice some flexibility, but will not lose its autonomy.

"On the issue of public consultation, the province has met with a considerable number of groups and received briefs from others. We announced at the time of the MOU signing in April that we were quite willing to meet with groups or individuals who wanted to provide input, and we are still committed to open consultation.

"In conclusion, I wish to advise the people of Newfoundland and Labrador that negotiations with the federal government on the harmonization of the two sales taxes is nearing completion. Details on the agreement and the operation of the tax will be made available in the near future for comment."

Contact: Karen McCarthy, 729-0110.