Debates of February 2, 2006 (day 21)

Thank you, Mr. Speaker. Mr. Speaker, I’d like to ask some questions on the budget to the Minister of Finance as well. It’s in regards to the tax rate, corporate tax rate reduction that he’s announcing in the budget, Mr. Speaker. One of the perverse elements of our funding formula with the federal government is that when we have windfalls in our corporate tax revenue, we get penalized. The Minister of Finance has sat with me in committees where we’ve been dealing with this for the last four or five years. We also know, and those in the know, and one of the good things today about having a reception is that we have very well-educated people among our public telling us all sorts of things and the ideas for questions. Too bad we don’t have them every day. But anyway, one of the questions is with respect to extra money we hope to get by reducing the corporate tax rate and whether or not most of it, if not all of it, will be taken back by the federal government by their claw-back arrangement. I believe the Minister has told us about how this might work differently and I’m wondering if the Minister could explain that for us for the benefit of the public. Thank you.

Thank you, Ms. Lee. The honourable Minister of Finance, Mr. Roland.

Return To Question 322-15(4): Reflections On Budget Address

Thank you, Mr. Speaker. Mr. Speaker, I guess we should provide a little bit of background because as we sat down initially as Members of the 15th Legislative Assembly, our fiscal picture was significantly different, as well as our arrangement with Ottawa on the formula financing, which had attached to it the tax effort adjustment factor. In that case, we would be penalized. As we look at transfer payments across Canada, there’s a measurement done on tax across jurisdictions. We were deemed to not be taxing our residents and businesses comparable to the rest of Canada in some areas. If we had set a low tax rate, we would take a penalty on any income and transfer payments from Ottawa. Since then, Mr. Speaker, the feel that we have put together our fiscal strategy on has changed significantly. Ottawa has put that all in abeyance. An expert panel has been established and a three-year agreement with the potential for expansion to future years was put in place. What happens in this case, and what we are feeling the effects of in this fiscal year, is the fact that if we were to gain more money in revenues, we wouldn’t be able to keep 100 percent of it. If we lose revenues, we lose 100 percent. That’s what we found ourselves in, and I had to make an announcement in October that our corporate income tax revenue had dropped because we are now under this new fiscal arrangement that allows us to take all the risk or all the rewards. Unfortunately, because of our corporate tax rate, we took the risk and we’ve lost out on that end.

So we’ve had to look at our fiscal picture and say in this environment we are operating now, it is better to start being competitive with other jurisdictions and we will be able to keep, in the interim, all of the revenue that’s filed in the North. Part of our problem is because our rate was so much higher than our neighbours to the South, that large companies were starting to look at moving tax filings to other jurisdictions. We all know when our revenues drop, so we had to take some decisive action in some area and move to be competitive.

Thank you, Mr. Roland. Supplementary, Ms. Lee.

Supplementary To Question 322-15(4): Reflections On Budget Address

Thank you, Mr. Speaker. There are a number of questions that arise out of that answer. The first thing might be why didn’t we know about this arrangement, but I am not going to ask that question. The Minister mentioned that the regime is in abeyance for the three years. I think that’s the time limit he mentioned. Could the Minister assure us that the abeyance is something that he knows to be permanent in that we are not going to be told a year or two later that we made a mistake? It was in abeyance temporarily, but you are going to have to pay back whatever you have gained. What kind of assurance can the Minister give that he knows, with certainty, that we can do this now without any concern for penalty in the years to come? Thank you.

Thank you, Ms. Lee. Mr. Roland.

Further Return To Question 322-15(4): Reflections On Budget Address

Thank you, Mr. Speaker. We know that in the upcoming fiscal year, the year we’ve announced, July 1st, in that fiscal year, it is in abeyance. It’s a three-year agreement that could go to five years, as some of the indications that we’ve received. Ultimately, if a new arrangement is made with Ottawa and federal Finance about the fiscal arrangements in place or that will be put in place as a result of the expert panel report and the Council of Federation work, we’ll have some discussions about that risk and reward sides. Right now it is punitive. If it were to come back with the existing arrangement, we would then have to look again at our fiscal strategy and decide if we are going to still proceed to try to win on the other side of having more revenues filed in the North. Thank you.

Thank you, Mr. Roland. Supplementary, Ms. Lee.

Supplementary To Question 322-15(4): Reflections On Budget Address

Thank you, Mr. Speaker. I am no tax expert, but just the very topic of this could risk us losing everybody. Minister Floyd is very sufficient in this area. Mr. Speaker, I want to ask why, then, the Minister mentioned that we get to keep 100 percent risk and 100 percent reward, the decision on the 11.5 percent? Why don’t we go down lower? Where is the formula that tells him that this is the best number to be at in order to encourage or at least not lose the corporate tax filings that we have lost? I am sure there is a consideration for him to make about any penalty about what we might get if we go too out of sight. Thank you, Mr. Speaker.

Thank you, Ms. Lee. Mr. Roland.

Further Return To Question 322-15(4): Reflections On Budget Address

Thank you, Mr. Speaker. First and foremost, the message today being sent to the companies doing business in the Northwest Territories is, don’t shift your payments out of our jurisdictions. Keep them in the Northwest Territories and continue to look at filing in the Northwest Territories for those companies who do business in the North. The tax arrangements in Canada allow flexibility for where they can file their income. Ultimately the message today is being sent to companies in the Northwest Territories to file their tax in the Northwest Territories because we will be as competitive with our southern neighbours and that will be, at this time, Alberta having the lowest corporate tax rate. We will match them.

The other side of the equation we will have to sit down and review after we get some indication from federal Finance as to what portions of the panel report they will adopt. Thank you.

Thank you, Mr. Roland. Final supplementary, Ms. Lee.

Supplementary To Question 322-15(4): Reflections On Budget Address

Thank you, Mr. Speaker. Mr. Speaker, on page 8, in talking about revenue from corporate income tax, the Minister stated that the GNWT received $3.5 million. I am assuming that that constitutes rather a lower amount than what was expected, hence the change in corporate tax rate. So could the Minister indicate what he’s projected to have lost by the high rate prior to the reduction? Thank you.

Thank you, Ms. Lee. Mr. Roland.

Further Return To Question 322-15(4): Reflections On Budget Address

Thank you, Mr. Speaker. Mr. Speaker, as I announced back in our last sitting, the corporate tax situation we faced, we went from projecting a surplus of about $40 million down to where we are identifying now…In fact, at one time we predicted we would go into a slight deficit position. But because of adjusting our budget, we’ve managed to stay out of that area. But the immediate impact of our higher tax rates and the fiscal arrangements we have in Ottawa right now is that companies have started to move their file to other jurisdictions. In fact, as well, our estimates of companies paying some new tax in the North did not occur. I announced back in October that we were hit by almost, when you look at the combination of past companies refiling against profits to losses, and then other companies filing out of the North, we were hit by almost $30 million to the negative. Thank you.