Debates of March 30, 2004 (day 11)

Thank you, Ms. Lee. That is a very good question. Mr. Roland.

Thank you, Madam Chair. Again, the way our corporate tax is reported to our government, it is through the federal government. They collect our corporate tax and report it back to us. What we have done, is based on estimates of prior years, felt that we would build estimates on that, and as it gets closer to the actual time of preparing the draft main estimates we call federal Finance to get the actual last sort of up-to-date number that they have available. Based on those, we build our estimates.

Now on 12 percent, looking at what the estimates were built on, we felt, and through the rebasing of the tax effort, we knew that based on the numbers that federal Finance was using we would lose money. So the example of $12 million is just that. It is an example of the figures we had in our formula based on discussions with Revenue Canada that in fact we would be losing money at 12 percent. At 13 percent, we would just begin to break even with that loss scenario. Now going to 14 percent we know we will secure the base and in fact earn some revenue for the Government of the Northwest Territories. So that is why we have gone to the 14 percent.

As well, there were options that we looked at in trying to come up with what we decided as the 15th Legislative Assembly, that when we looked at our fiscal picture we would be looking at approximately $50 million in deficit. In doing that we needed to reduce expenditures or reallocate expenditures in the area of $10 million, as well as raise $10 million in our own source revenues. Based on those discussions we have gone about that duty of trying to find that balance of reducing or reallocating from internal dollars, and increasing our own source revenues to come up with the number of a $50 million deficit.

Now we have been fortunate, as stated, that federal Finance Minister Goodale has seen that our arguments were valid with respect to the impacts of rebasing and has foregone that for one year. By doing that, he has allowed us to remove our deficit for the 2004-05 year. We are definitely thankful for that, but more critical I would say is the fact that we have been given a year’s time to come up with an actual new tax effort measurement, and that is our goal now to get down to that work, because if we can come up with an agreement on that and stabilize our situation, we would be better years down the road.

Today, we have to operate with what we have using the numbers we have available. I have heard concerns, and as a previous Member of previous assemblies, trying to come up with hard facts of what today’s corporate values are in tax measures. The personal income tax measures can fluctuate from one presentation to the next as the phone calls go between federal Finance and our own Finance department. We’ve used the information available that was in discussion with federal Finance, and built on that basis. In the initial discussions we talked about potential revenue. Once we have talked with federal Finance on the figures and our estimates, we had to re-evaluate and adjust our figures. That is where we are now with coming up with approximately $8 million. Again, through that exercise of working with federal Finance on our figures, we have had to do some adjustments and recalculate, and that is where we now come up with $8 million. We know based on the discussions we’ve had with federal Finance that 13 percent would be about a break even mark. We feel that to actually go ahead and increase some of the revenue that we need for securing our level of programs and services that we should be doing a little bit more, and that is why we have gone to the 14 percent number. Thank you.

Thank you, Mr. Minister. Ms. Lee.

Thank you, Mr. Chairman. I don’t believe still that I have gotten the confirmation and clarification on what the net return is to our government at 14 percent. I understand, and I have heard this many times, that there are all sorts of factors that go into this and there is never any certainty on the forecast and the assumptions that the government makes to crunch out numbers. We are just fed like lap dogs, whatever they tell us at any given time is what we get.

Limiting the calculations to the assumptions the government made in drafting this paragraph, I am going to narrow it down to this paragraph, the second paragraph on page 2 of 2, I am told that at 13 percent we are going to come out even. At 12 percent we are going to lose $800,000. At 14 percent we are going to raise $8 million. Is that $8 million a net gain, net revenue to the government? In case I run out of time, depending on the length of the Minister’s answer, when the time comes to approve or take a vote on this bill as a whole, I would ask for a recorded vote. Thank you.

Thank you, Ms. Lee. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, on that second paragraph we put in our estimate of the net gain of going from 12 percent to 14 percent. We are expecting $8 million. We have built that into the budget document that is before all Members in this House. For the 2004-05 year, we are estimating that we will receive approximately $31.750 million in corporate tax. That is our estimate based on discussions with the federal government. Thank you.

Thank you, Mr. Minister. Mrs. Groenewegen.

Thank you, Mr. Chairman. With respect to this bill, as a lot of Members have already stated, there is never anything popular about taxes. As a matter of fact the saying goes that there are only two things for sure in life, and those are death and taxes; two very unpleasant things that go together it seems. Mr. Chairman, I think that taking this out to public consultation would not have been a bad idea. I am not sure that we would have been able to get an opinion of consensus from the public. It is a very complex issue. I have already stated in the House that I think the advantage of consultation would have been to create awareness, and I think that even after we pass the bill it is not too late to make the effort to create that awareness in the public about what we are trying to do and what direction we are going in with these taxes. I would suggest that where an opportunity arises or where Members would like to have that discussion in their regions, that they invite the Minister there to do that. Because it is a complex issue, I concur with people who have expressed the opinion that we have to place some confidence in our senior officials, and in our Minister here on this. I will quickly conceive that they know a lot more about this complicated regime in how it relates to our formula, and our funds that we get from the federal government than I will ever be able to absorb I’m sure. So I will give them the benefit of the doubt on that.

As for the corporations, 500 or so that will be affected, a lot of them didn’t come here yesterday. They were probably here before when the rate was 14 percent and they saw a decrease to 12 percent. They enjoyed the benefit of that for a short window of time, and now all we are doing is going back to something that was the status quo previously. So in that sense I don’t see it as being that big of a hardship. Certainly, when we talk about the strain on our program services, particularly our infrastructure, which we are struggling as a public government to maintain, I think that some of the industrial activity that is taking place is in some part, although it is very welcome, contributing to that stress and our ability to keep up. So in terms of the way this tax is directed and the history of the rates that we have seen in the past, the fact that the Minister has agreed to consult and talk to people about it after the fact, I would like to say that I will be supporting this bill. Thank you.

Thank you, Mrs. Groenewegen. Mr. Minister, did you wish to comment?

Thank you, Mr. Chairman. Mr. Chairman, again, I would like to thank the Member and all of the Members for their comments regarding the initiative that is before them, and the increase of corporate taxes. I agree, taxes are never popular, and I didn’t take this job with a goal that l would cause an increase in order to provide services to our NWT residents. But after looking at the scenario presented to us and trying to come up with a balance, we have had to wrestle with this, look at our options that we had available in trying to get something in the 2004-05 year. I have heard a lot of Members now talking about what we are going to do next, and I hope we still have your support when we do actually start looking at those reductions.

A lot of Members are calling for looking internally, and that is the exercise we are going to embark on after this. What we are doing here is just to secure where we are in providing the level of service we have available to residents to date. There is no real increase, and if you look at a lot of the departments' increases they are based on forced growth, whether it is an increase in providing the service through union agreements to pay wages to nurses and doctors, or teachers, or trades people, those that we have left in trades that is. So we are trying to come up with that balance of what we can do in trying to meet our own goals and providing a level of service that is not only expected, but to meet the requirements that we have put upon us.

It is difficult, and I am willing to go to the regions and Members' constituencies to go through this and explain the impacts, as well as where we are going as a government with these initiatives, but it is not going to get any easier. As the Member stated, right now we are dealing with the strains on our programs and services, and the philosophy of the 15th Assembly is different than that of the 14th Assembly in trying to meet our goals as a government and still provide services to our residents. We have changed our philosophy, and we are going to go about that in trying to come up with an appropriate balance, and not all Members will agree with the scenarios that will come out. Again, at the end of the day we are going to have to meet those targets that we set for ourselves. Thank you.

Thank you, Mr. Minister. Mrs. Groenewegen.

Thank you, Mr. Chairman. Something the Minister said just reminded me that, yes, this is just one part of a multi-faceted approach to what we are seeing as fiscal responsibility, and there will be other things that will go together, work together with this single initiative, which we are considering right now, that all together will hopefully take us down that road towards having a more balanced and less stressful approach to our fiscal situation. It does put the government in an awkward position when we are constantly looking at that debt. I think it will be good for us, it will be perhaps painful in the short term, but when I put myself into the position of the Finance Minister, which I am very glad I am not, but in all honesty as a regular Member it is easy to take exception, and to take shots, and to find fault, but I can’t see anything that Mr. Roland is doing that I wouldn’t be doing exactly the same if I was in his position. Let me reiterate, I am very glad I am not in his position. Thank you, Mr. Chairman.

Thank you, Mrs. Groenewegen. Mr. Minister, do you wish to comment?

Just a comment and again I thank the Member for speaking to the bill. Thank you.

Thank you, Mr. Minister. Clause by clause. Bill 2, An Act to Amend the Income Tax Act, Clause 1.

Agreed.

Clause 2. Ms. Lee.

Thank you, Ms. Lee. The motion is in order. We are going to circulate that motion. Thank you. The motion is in order. To the motion. Ms. Lee.

Thank you, Mr. Chairman. I am presenting this motion because I do believe that we cannot be at 12 percent where we are losing money for having the corporate tax at that rate. I do believe that 13 percent will allow us to break even and possibly a little more. I do understand that our government is in fiscal restraint but, as I have stated, I don’t believe that we have an opportunity to go through our final situation to the detail where we could prioritize. I do believe that 13 percent will give us extra money, but 14 percent would take us to a two percent increase. That is higher than I would like to see, so I am proposing this motion. I am not going to ask for a recorded vote on this. I understand that we can have a recorded vote on the third reading. Thank you.

Thank you, Ms. Lee. Mr. Braden.

Thank you, Mr. Chairman. I can’t speak in favour of this. I am satisfied that the information presented to us justifies that 14 percent is a realistic tax level, and that the increase of two percent is not excessive. I guess what convinces me of this is that if we go from 12 to 13 percent we are just sort of tweaking and tinkering here, we are not giving ourselves the margin that I would be satisfied with to know that we are not going to continue to be in a negative revenue situation. I think 14 percent is realistic because it gives us a buffer. That being said, that is my comment. Thank you.

Thank you, Mr. Braden. Any other comments? Mr. Hawkins.

Thank you, Mr. Chairman. I will be supporting this motion. I think it is a good step, and I think it is a recognition that we still have to work a little harder to sharpen our pencils. As it has been said, I don’t really think that this burden is necessarily fair to be taken solely on the 15th Assembly’s shoulders, but unfortunately we have to make corrective actions. The Minister has quite clearly said that if we don’t take some steps we are going to be penalized by Canada. I think it is a good saw if we are taking corrective steps, and I think we need to go back to the drawing board and make a few more creative solutions. The last point I want to hammer out, and I may have to repeat this later, but the point is if this side of the Assembly makes any comments in regard to the budget, we have to recognize that it is a position of weakness because our comments are only treated as creative suggestions, and any comments we make, they don’t even vote on them for goodness sakes. It is kind of pathetic, because we may vote unanimously on a suggestion and then we just watch it go through. So it seems almost embarrassing that we provide creative suggestions, the majority of this House provides good feedback on what we want to see in this budget yet we get no reaction, it is at their discretion. So at the end of the day it seems quite sad. I will finish by saying I will support this at this time. Thank you, Mr. Chairman.

Thank you for your comments, Mr. Hawkins. Mr. Roland.

Thank you, Mr. Chairman. Mr. Chairman, the work that has been done to date in here is the best work we have available in working with the federal government on the numbers provided, in trying to secure the base that we have of revenue, and ensuring that we can deliver the programs and services we have available to residents today. This is not about getting rich, this is not about enhancing what is there, it is about securing the revenues that we have to date so that we can deliver the programs that we have, and it is about sustainability.

Being a money bill, this is very important to us that in fact we proceed with this. The revenues, as I stated earlier, in the draft main estimates that we are about to vote on later, include a 14 percent amount. So we have already got it built into the system and we are still just barely delivering what we have in programs and services, and there have already been calls from Members to spend more on different areas that are important. What Members say in this House isn’t just going to be thrown out as we walk out of this House. We are going to be using comments that Members are giving to go forward. I take the comments Members say in this forum seriously, as well as in committee, in helping me look at the issues before us when it comes to the fiscal side and how we should build these things into our budgets. As Mr. Braden said, at 13 percent we are just making the line. If we are going to deliver the level of programs and services we have at least for 2004-05, we are going to have to do more than just meet that level.

Again, as Members are saying, we have to look internally, that is the case. When we get back to planning for the business cycle, and business plans we are looking, as I stated in the budget address, to take $20 million out of the system. So we are going to be going in that direction of taking out instead of just trying to add to it. Thank you.

Thank you, Mr. Minister. Mr. Menicoche.

Thank you very much, Mr. Chair. I am not going to support this motion only because I believe that by doing the increase the way it is suggested, that at least it maintains our ability to hang on to some of the programs and services that we do have. That is why I am in favour of it. Thank you.

Thank you, Mr. Menicoche. Ms. Lee.

Thank you, Mr. Chairman. I want to reserve my comments for last, as the mover of the motion. Thank you.

Thank you, Ms. Lee. Mrs. Groenewegen.

Thank you, Mr. Chairman. If we're going to raise the corporate tax, there is no sense doing it if it's revenue neutral for us. You might as well not bother with it. If you're going to go to the trouble of raising the tax, you might as well make it worthwhile. It's not exorbitant and it's not outrageous. Like I said before, it's going back to what we had that was an historical level a few years ago. Thank you.

Thank you, Mrs. Groenewegen. Mr. Handley.

Thank you, Mr. Chairman. I just wanted to point out for Members, especially the new Members, that this is a money bill and that Cabinet will be voting on this issue. But we have done the work on it, we feel that 14 percent is justified and it is reasonable, and that all of Cabinet will be voting against this bill. Thank you.

---Laughter

---Applause

Thank you for clarifying that, Mr. Handley. To the motion. Ms. Lee.

Thank you, Mr. Chairman. Just a short comment to close the debate. I appreciate the Members' comments. I just wanted to add that this goes back to…Having been here for five years, I guess not everybody shares my view, but I have gained a healthy dose of skepticism and cynicism in the way the information is provided to us. Mr. Chairman, I don't mean any disrespect to any of the staff or accountants. Accountants balance numbers. They make sure that what goes on the left side goes on the right side. Ministers are the ones who set the priorities, and I think under the consensus government maybe we should have Finance Ministers running and laying out their agenda at re-election time, because otherwise we get one Finance Minister on one extreme spend, spend, spend, decrease taxes…

---Laughter

…and then we get another Finance Minister using exactly the same fiscal relationship we have with Ottawa, exactly the same social problems, probably using exactly the same facts that the department staff provides and comes out with a completely different interpretation. I've been sitting here listening to the same thing, but drawing different conclusions.

We have gone through two weeks of a budget debate, and I'm telling you they gave us a box and we are giving them a box back with a rubber stamp on it. We have not been able to make one iota of change as regular Members. If we really have a consensus government, then we on this side of the House should have more say in making into a dough and not a square box where we either take it or leave it. None of the suggestions we have made in terms of saving programs or anything, none of it was addressed.

Mr. Chairman, obviously this is my motion and I will be supporting that. Thank you.

Thank you, Ms. Lee. Just to clarify, Ms. Lee's comments do not conclude the discussion on this item, so to the motion.

Question.

All those in favour? All those opposed? The motion is defeated.

---Defeated

Clause 2.

Agreed.

Clause 3.

Agreed.

To the bill as a whole.

Agreed.

Does the committee agree that Bill 2 is ready for third reading?

Agreed.

Bill 2 is now ready for third reading.

---Applause

I would like to take an opportunity thank Mr. Roland and his staff, Ms. Veinott, Ms. Melhorn, and Mr. Gagnon, for their appearance here this afternoon. Thank you for your time.

Thank you, committee. We would now like the Honourable Floyd Roland, Minister of Finance, to begin with his opening remarks on Bill 3, An Act to Amend the Income Tax Act, No. 2.

Thank you, Mr. Chairman, for the opportunity to present Bill 2, An Act to Amend the Income Tax Act, No. 2

Bill 3 would increase personal income tax rates for higher income earners, effective July 1, 2004.

Because this income tax measure will be effective in 2004, we need to advise the federal Minister of National Revenue of our new rates before April 15th of this year so that they can be administered by the Canada Revenue Agency. In order for these changes to be implemented, this bill needs to be passed in this sitting of the Assembly.

Bill 3 would increase personal income tax rates for taxpayers with taxable income over $66,492. The rate for the third bracket, covering taxable incomes between $66,492 and $108,101, will increase by one-half a percentage point, from 11.7 percent to 12.2 percent. The rate for the highest income group, those with taxable incomes over $108,101 will increase from 13.05 percent to 14.05 percent.

This change will raise about $1 million a year from the 4,600 highest income taxpayers in the Northwest Territories.

I would like to note that there is a difference between an individual’s taxable income and his or her total income. Taxable income is calculated by deducting a number of items, such as pension contributions, RRSP contributions, and the northern residents' deduction from total income. Someone with a taxable income of $66,492 would have, on average, $80,111 in total income before deductions. Someone with taxable income of $108,101 might have total income of around $124,254.

Someone with a taxable income of $68,000 will see his or her tax increase by about $7.54 a year, while someone with a taxable income of $110,000 will have an annual increase of $227.

Because this tax measure will be effective starting July 1st for source deductions, the amendment sets transitional rates for the 2004 year halfway between the old rates and the new rates. The CRA requires notification by April 15, 2004, so that payroll deduction tables can be adjusted.

Mr. Chairman, I would be pleased to answer any questions the committee has on this measure. Thank you.

Thank you, Mr. Roland. I now call on the deputy chairman of AOC, Mr. Hawkins, to make comments from the committee with regard to this bill.

Thank you, Mr. Chairman. The Standing Committee on Accountability and Oversight conducted public reviews of Bill 3, An Act to Amend the Income Tax Act, No. 2, on March 25 and 26, 2004. The committee would like to thank all the witnesses for their submissions, which were made on very short notice. The committee also thanks the Minister and his staff for presenting the bill.

As I indicated in my comments on Bill 2, the committee was very concerned about the short amount of time allowed for the public to review and respond to these tax increases.

Bill 3 proposed to raise the personal income tax rates on the two highest brackets effective July 1, 2004. The committee heard concerns about Bill 3 from both Mr. Mike Vaydik of the NWT and Nunavut Chamber of Mines, and Mr. David Tucker of the NWT Construction Association, who told committee the increase could affect their ability to recruit and retain skilled trades workers who are a highly mobile section of the labour force and in high demand across Canada.

Mr. Connelly of the Yellowknife Chamber of Commerce indicated to committee he did not have a concern with Bill 3.

The committee heard support for Bill 3 from Ms. Suzette Montrieul of Alternatives North. Similar to its position on Bill 2, Alternatives North does not believe the proposed tax increase is unreasonable and considers maintaining the GNWT's social programs to be more important than maintaining low tax rates.

The majority of committee Members find this tax increase regrettable but necessary in order to maintain the GNWT's social programs.

This concludes the committee's opening comments on Bill 3. Individual Members may have additional questions or comments as we proceed. Following the committee's review a motion was carried to report Bill 3, An Act to Amend the Income Tax Act, No. 2, to the Assembly as ready for Committee of the Whole. Thank you, Mr. Chairman.