Thank you for the opportunity to present Bill 2, An Act to Amend the Income Tax Act.
Two weeks ago, in my budget address, I announced increases to personal income tax rates for higher income individuals, an increase to the corporate income tax rate for large corporations, and an increase to the payroll tax. The bill before you is necessary to implement the first these measures. Bill 2 would increase our corporate income tax rate for large corporations from 12 to 14 percent effective January 1, 2004.
This measure will be effective in 2004. Because of this, 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 this changed to be implemented, this bill needs to be passed in this sitting of the Assembly.
As I stated in the budget speech on March 17th, this measure is part of a package of revenue and spending measures necessary to meet our target of a balanced budget in 2006-07. As I announced in the Assembly last week, the federal Minister of Finance has agreed to postpone rebasing the formula financing tax effort factor for the grant by one year. This change, along with the other spending and revenue measures announced last week, will allow us to achieve a balanced budget in 2004-05.
However, this federal measure, while welcome, only postpones our deficit for one year. We still need to make the spending and revenue changes outlined in the budget in order to balance our budget by 2006-07. We still face the debt wall in two years. The tax changes I announced are still necessary.
The change in our corporate income tax rate from 12 percent to 14 percent is expected to raise $8 million in 2004-05, and similar amounts in future years. As I stated last week, when the formula financing tax effort factor is rebased, we will actually lose revenue on a net basis. An extra $12 million in revenue at the 12 percent rate would lose $12.8 million on the grant. Rebasing has only been postponed one year, until 2005-06. Unless we can develop alternatives to the current approach to tax, we must work on the assumption that rebasing will go ahead.
Some Members raised concerns about the loss of our competitive position on corporate income tax rates, and have asked what this might mean for corporate tax filings in the NWT.
However, even at a rate of 12 percent, we would be unlikely to receive any tax windfalls similar to those received in the past, since Alberta is scheduled to reduce its corporate tax rate to 11.5 percent on April 1st. We could not afford to compete with Alberta and lower our rate to 11 percent. At that tax rate, increases in our tax base would cost us even more in net revenue losses.
This measure is necessary for our long-term fiscal stability, and I strongly believe that our government's
balanced approach to tackling our fiscal challenges, that is spending reallocations and revenue initiatives was well received by the federal government, who saw we were not relying only on increased federal support, but were prepared to take measures to deal with these challenges ourselves.
Mr. Chairman, I would be pleased to answer any questions the committee has on this measure. Thank you.