Clause 33.

Clause 34.

Clause 35.

Bill as a whole?

Does the committee agree that Bill 8 is now ready for third reading? Bill 8 is now ready for third reading. With that, I would like to thank the Minister and his witnesses. We will take a short break.

-- Break

Mr. Chairman, I am pleased to introduce Bill 13, An Act to Amend the Income Tax Act, No. 2. This bill proposes to reduce Northwest Territories corporate income tax rates effective July 1, 2002.

If the Legislative Assembly agrees:

• • The general corporate income tax rate will be reduced from 14 percent to 12 percent, a reduction of 14 percent; and,
• • The "small business" rate, that is, the rate applicable to the first $200,000 in income of Canadian controlled private corporations, will be reduced from 5 percent to 4 percent. This represents a reduction of 20 percent in the small business tax rate.

The Northwest Territories has long maintained a very competitive tax environment with both personal and corporate tax rates among the lowest in Canada. These competitive rates have helped us attract individuals and businesses to the North. In fact, our competitive corporate tax rates have, in the last two years, resulted in several large revenue gains. As Members are aware, these corporate tax revenues have allowed this government to make important investments in programs and infrastructure that would not otherwise be possible.

Recently, however, a number of provinces and territories have announced significant reductions in their personal and corporate income tax rates. These changes have reduced the Northwest Territories' overall competitiveness. Our position relative to other jurisdictions could have negative effects on our tax base as companies look to do business where the tax climate is more favourable. Even companies currently paying tax in the NWT may re-examine their corporate structures to minimize their tax liability.

The changes in Bill 13 would result in the Northwest Territories having, along with Nunavut, the lowest corporate income tax rate on investment income, the second lowest general corporate income tax rate after Quebec, and the second lowest small business rate after New Brunswick.

I am looking forward to an early indication of Members' response to this proposed change in order to be able to confirm the effective date with the federal government, who administer the corporate income tax on our behalf. Finance Canada must be notified no later than 90 days after the effective date of any corporate tax change. Thank you, Mr. Chairman.

Thank you, Mr. Handley. I call upon the chair of the AOC committee for comments. Mr. Dent.

Thank you, Mr. Chairman. The Standing Committee on Accountability and Oversight conducted a public review of Bill 13, An Act to Amend the Income Tax Act, No. 2, on June 17, 2002. The committee would like to thank the Minister of Finance and his officials for presenting the bill.

Effective July 1, 2002 the bill would reduce the current general corporate income tax rate from the existing 14 percent to 12 percent, representing a 14 percent savings, and reduce the existing small business income tax rate from the current 5 percent to 4 percent, a savings of 20 percent.

During discussions on the bill, the committee had three major issues: the bill's impact on our formula funding, territorial corporate tax revenues, and small northern businesses.

Mr. Chairman, the committee was concerned that reductions to our corporate income tax rates may indicate that our formula funding is more than sufficient. The Minister assured the committee that he had discussed this issue with the federal government. The federal government is aware that a number of provinces and territories have already reduced, or announced reductions in, their personal and corporate income tax rates and that the Northwest Territories has proposed its own reduced rates to remain competitive.

Further, committee members were concerned that a reduction in the territorial corporate tax rates may result in a decline in our corporate tax revenues. The committee recognized that if the territorial government did not remain competitive with other jurisdictions, corporations that are able to do so would file taxes or like to do business where the tax climate is more favourable.

Finally, some committee members suggested to the Minister that the small business threshold should be increased from $200,000 to at least $300,000 similar to Alberta, Ontario, Manitoba, Saskatchewan and New Brunswick. This would allow small businesses to retain more of their earnings so they can reinvest in the territorial economy through new ventures, jobs and lower prices, thus creating a stronger, more sustainable and diversified northern economy.

The committee added that the tax rate is just part of the overall picture. The Minister replied that the government would consider the committee members' suggestion in future tax policy.

Mr. Chairman, following the committee's review, a motion was carried to report Bill 13, An Act to Amend the Income Tax Act, No. 2, to the Assembly as ready for committee of the whole. Additional comments or questions by Members may be posed as we proceed. Thank you, Mr. Chairman.

Thank you, Mr. Dent. Does the Minister wish to bring in any witnesses? Mr. Handley.

Yes, Mr. Chairman.

Does the committee agree?

Sergeant-at-Arms, escort the witnesses in please. Mr. Minister, please introduce your witnesses for the record.

Thank you, Mr. Chairman. On my right is Margaret Melhorn, deputy minister of Finance; and Patricia Gall-Smith, legislative counsel with the Department of Justice; on my left is John Monroe, director of fiscal policy for the Department of Finance.

Thank you, Mr. Handley. General comments. Mr. Krutko.

Thank you, Mr. Chairman. Mr. Chairman, in regard to Bill 13, I did raise concerns in committee on this bill. My concern is that with the existing formula financing arrangement we have with Ottawa where the federal government receives 80 percent of any corporate taxes and the revenues we generate, I think what we are doing is going to continue to improve the financial coffers in Ottawa.

I think we have to somehow maximize those corporate dollars and the taxes that are paid in the Northwest Territories so they stay in the Northwest Territories so we can reinvest in the Northwest Territories. I know that the Minister has basically stated that we are looking at our new formula financing agreement, but I would just like to ask the Minister, realistically, will we see a shift in those percentages in the next formula financing agreement? Perhaps looking at 50 percent, where we maintain 50 percent of those revenues and 50 percent flow to Ottawa, instead of the system we have right now where 80 percent of the corporate taxes generated in the North flow to Ottawa and we only keep 20 percent of that. Again, it is deducted from our formula financing agreement.

I would like to ask the Minister, realistically, is there going to be an increase in the formula financing agreement so we can keep more of these corporate taxes in the Northwest Territories?

Thank you, Mr. Krutko. Mr. Handley.

Mr. Chairman, I think we have two opportunities to improve our situation. First of all, we have begun initial discussions and the sharing of information as the first step of negotiating a new financing formula with the federal government. On that, of course, our objective is to have as good a net result as possible for our government. I do not know if we can reach 50 percent, but we will negotiate as thoroughly as we can.

Secondly, through the devolution of resource revenue sharing arrangements, negotiations that are starting now between ourselves, the federal government and the aboriginal governments through the Intergovernmental Forum is the second opportunity. Certainly our objective is to get as good a return for Northwest Territories residents as possible.

Thank you, Mr. Handley. Mr. Krutko.