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November 16, 1999
(Finance)


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

Mid-Year Financial Report

I am pleased to provide this House with a mid-year update of the economic and financial position of the province.

It is within this context that, today, we are able to announce personal income tax reductions for the people of our province. These reductions are the first initiated by any government of Newfoundland and Labrador since Confederation.

ECONOMIC PERFORMANCE

A year ago there was concern about the world economic situation. However, the international recovery has been faster than anticipated.

Canada has benefitted from export growth and higher commodity prices. National real GDP growth this year will be about 3.6 per cent. Within Canada, the economy of Ontario has been particularly strong reflecting its close trade ties to the booming U.S. economy. However, the fastest growing provincial economy in the country is that of Newfoundland and Labrador.

Provincial growth is being led by the oil and gas, fishing, tourism, and construction industries, and is expected to be greater than five per cent this year.

Retail sales in the first eight months of this year have grown 6.8 per cent compared to last year. The number of new motor vehicle sales, alone, has increased 13.1 per cent. The value of fish landings is expected to rise 30 per cent from last year and the total value of fish production is expected to exceed $900 million in 1999. This is the highest value fishery in our history and we have, for the first time, surpassed Nova Scotia.

Between January and October, 10,500 more people were employed than in the same period last year, an increase of 5.3 per cent. Mr. Speaker, 208,400 Newfoundlanders and Labradorians are employed - the highest number ever recorded for this period.

Non-resident tourists are expected to exceed 400,000, an eight per cent gain over last year, and up 32 per cent over 1996 levels.

Oil production is expected to be about 35 million barrels this year, up from 23.8 million in 1998. The Terra Nova project is under development and over 1,300 people were employed on that project at the end of September.

We have every reason to believe that this economic performance will continue. Terra Nova will enter production next year and oil production will increase at Hibernia. 1999 has been the most active year in a decade for exploration with seven wells drilled on the Grand Banks and two on the West Coast.

Last week, Husky Oil announced details concerning the Whiterose project. From the beginning, Husky Oil will undertake engineering, design and management of the project in Newfoundland and Labrador. This establishes the benchmark by which other projects will be measured. Secondly, Husky disclosed that there is an estimated two trillion cubic feet of potentially recoverable natural gas. The company will undertake drilling of two to four wells in the new year to confirm and to expand the extent of those reserves. Having become an oil producing province, we are optimistic that we will also be a producer of natural gas.

Iron ore production is expected to rebound and a major capital investment program at IOCC will increase capacity and output. Recovering nickel prices may set the stage for moving the Voisey's Bay Nickel project ahead. However, agreement with INCO will be contingent on the company submitting a plan that will see a finished nickel product produced in Newfoundland and Labrador. The Gull Island Power Project is being negotiated as we speak. Non-resource based industries, including manufacturing and information technology, will also contribute to economic growth.

FISCAL OUTLOOK

In March, we projected a budgetary deficit of $33.3 million. Over the past six months it has been necessary for the province to respond to expenditure pressures. In health care, we have allocated another $7.5 million for the conversion and creation of nursing and support positions, which is in addition to the $47 million extra funding for health care provided in the 1999-2000 budget. Other major expenditure variances include $6.5 million for forest fire suppression, $3.5 million related to student aid and $1.5 million for additional teaching positions.

Even with these increases in spending, I am pleased to announce that the financial position for 1999-2000 remains on target.

TAX REFORM

In early summer, the Premier's Advisory Council on the Economy and Technology was asked to review taxes in this province. The council was given a mandate to examine the tax burden on individuals and businesses to ensure that our overall tax regime is fair, competitive and effective, while providing adequate revenues to maintain social programs and a responsible budgetary position. As part of its review, the council undertook a public consultation process, and earlier this month, released its report.

Some of their recommendations focused on reduction and eventual elimination of the payroll tax, as well as increases to the corporate income tax. Over the coming months we will thoroughly review these suggestions to fully evaluate the impacts on businesses employing people in this province. Decisions on these issues will be made in time for the upcoming budget.

The people of Newfoundland and Labrador believe that personal income taxes are too high, but that tax reductions should not come at the expense of health and education.

Today, is an historic occasion. For the first time in our 50 year history as a province of Canada, a government of this province has chosen to implement a personal income tax rate reduction. It is, moreover, the second time this government announced and 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.

We have provided these tax reductions while maintaining a stable fiscal position. Over four successive budgets, we have effectively balanced the books. We are also the first government since Confederation which did not add to the public debt.

Today, I am pleased to announce personal income tax reductions which will see the Government of Newfoundland and Labrador collect $175 million less provincial tax over the next three years.

The government intends to reduce the basic personal income tax rate from 69 per cent of basic federal tax to 49 per cent, plus surtaxes over the next three years. As of January 1, 2000, the basic personal rate of tax will 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. We will, over three years, move our basic rate of tax from 69 per cent to 49 per cent of the federal tax.

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.

These measures will greatly enhance the competitiveness of our personal income tax regime.

These measures will result in savings of $30 million in 2000, $60 million in 2001 and $85 million in 2002, and each year thereafter. A total of $175 million will be put back into the hands of Newfoundlanders and Labradorians over this three year period.

The changes for 2001 and 2002 are contingent on our economy continuing to grow and our spending remaining prudent. We will not fund tax reductions through cuts to social programs or by deficit spending. Income tax reductions must be manageable, acceptable, affordable and sustainable.

This tax reduction program is prudent and within our means. It will not compromise funding for social spending in areas such as health care and education. These measures are in sharp contrast to the desperate promises made by the Opposition during the election campaign in February of this year which would have drained the public purse by almost $871 million over five years with large, unconditional reductions to personal income tax, immediate elimination of the payroll tax and large HST rebates. These could only be implemented by unacceptable cuts to health care and education combined with unsustainable deficits.

Through this tax reduction, workers in Newfoundland and Labrador, whether they are private or public sector workers, are getting a raise in pay. The net impact of this tax reduction is equivalent to almost 2.5 per cent increase in gross pay for a married person earning $40,000.

CONCLUSION

Responsible management of the Province=s finances is paying off. We continue to lead the country in economic growth and are well poised for future prosperity and diversification. That prosperity and success will be shared with those who are most in need in our society and the people who shouldered the burden of high tax rates for too long a period of time.

1999 11 16                2:30 p.m.


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