Thank you, Madam Chair. The Standing Committee on Accountability and Oversight conducted public reviews of Bill 2, An Act to Amend the Income Tax Act, 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 would also like to thank the Minister and his staff for presenting the bill.

The committee was very concerned about the short amount of time allowed for the public to review and respond to this bill. Members appreciate that there were special circumstances in this case due to the recent territorial election which did not allow time for the usual opportunity to review and discuss draft business plans in advance for considering the budget. Further, the government is required to notify the federal Minister of National Revenue of changes to tax rates before April 15, 2004.

The committee wishes to put the government on notice that it will now allow short timeframes for public review to become the ordinary course of business for the 15th Assembly. The Minister acknowledged the concern and advised that he will endeavour to bring initiatives before the committee in a more timely manner in the future. Members expect the rest of Cabinet to adhere to the same standard.

Bill 2 proposes to raise the large corporate tax rate from 12 percent to 15 percent beginning with the 2004 tax year. Committee heard opposition to Bill 2 from Mr. David Connelly of the Yellowknife Chamber of Commerce, Mr. Mike Vaydik of the NWT and Nunavut Chamber of Mines, and Mr. Dave Tucker of the NWT Construction Association. All three presenters voiced concerns about the increase to the already high cost of doing business in the North and the impact it may have on the northern economy and businesses. The witnesses rightly pointed out that the business contributes a great deal to the North through jobs, training and spending. They also warn that the increase to the tax rate may encourage some businesses to rearrange their affairs in order to file some of the in income in other jurisdictions with lower tax rates.

In contrast, the committee heard support for Bill 2 from a representative of Alternatives North from Ms. Suzette Montrieul. 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. Ms. Montrieul pointed to a recent survey by the Centre for Research and Information on Canada that suggested most Canadians, including northerners, consider money for social programs like education and health care a higher priority than cutting taxes or reducing debt. Ms. Montrieul also pointed out that even with the increase to 14 percent, the NWT will still have the fifth-lowest large corporate tax rate in Canada. Further, unlike most other Canadian jurisdictions, the NWT does not have a tax on capital. As Ms. Montrieul stated, the NWT cannot hope to compete with its neighbour, Alberta, which is able to maintain lower tax rates as a result of the substantial oil and gas royalties it enjoys.

The committee finds it regrettable that the current fiscal situation has resulted in the government bringing this tax increase forward, however Members agree with Ms. Montrieul that maintaining social programs is the priority. The reality is that if corporate taxes remain at 12 percent, the GNWT will suffer a net loss as a result of the formula Canada uses to calculate its grant to the GNWT if the federal government does not change its approach in the next year. Members, therefore, believe that an increase is unavoidable.

Members wholeheartedly agree with Mr. Connelly, Mr. Vaydik and Mr. Tucker that the underlying issue is our formula financing agreement with Ottawa which is, as Mr. Vaydik stated, "ridiculous." All three witnesses offered their assistance in working with the GNWT to lobby Ottawa for a reasonable formula. The committee strongly encourages the government to take them up on this generous offer.

This concludes the committee's opening comments on Bill 2. Individual Members may have additional questions or comments as we proceed. Following the committee's review, a motion was carried to report Bill 2, An Act to Amend the Income Tax Act, to the Assembly as ready for Committee of the Whole. Thank you, Madam Chair.

Thank you, Mr. Hawkins. I would like to ask the Minister if he would like to bring in witnesses for consideration of this bill.

Thank you, Madam Chair. Yes, I would.

Thank you, Mr. Roland. Does the committee agree?

Thank you. I will ask the Sergeant-at-Arms to escort the witnesses to the witness table.

Mr. Minister, could you introduce your witnesses for the record?

Thank you, Madam Chair. To my immediate left is justice representative Rebecca Veinott; to my immediate right is deputy minister Margaret Melhorn; and further to my right is Mr. Gerry Gagnon, director of tax policy.

Are there any general comments on Bill 2? Mr. Allen.

Thank you, Mr. Allen. Those were general comments. I didn't hear any questions there, so I will proceed to Mr. Braden, then after Mr. Braden I have Mr. Ramsay next on the list. Mr. Braden.

Thank you, Madam Chair. I have a couple of comments and a question. I would start by saying that I'm speaking in favour of the bill. I think it's predictable, Madam Chair, that in the context of a tax bill I can't say that I'm speaking with enthusiasm, but as the Minister and his officials have explained to committee and in public forums in the last while, the circumstances around increasing the corporate tax rate is fairly straightforward. At least in part due to some of the factors outside of our control; what happens in other parts of Canada and as a consequence of the rather weird and convoluted formula financing deal with have with Ottawa, we are essentially compelled to do something in order to stem what really amounts to a net loss because of the 12 percent rate.

It has been brought to our attention that it was a couple or three years ago that we actually did the reverse here in this Assembly. I think we had a tax rate that was at 14 percent and we dropped it to 12, because circumstances at the time indicated that it was a good thing to do.

Could I ask the Members of Cabinet to take their visiting and revelry outside of the Chamber so that we can hear Mr. Braden's comments.

---Applause

Thank you. Mr. Braden, sorry to interrupt you, please continue.

Thank you, Madam Chair. So now we have other information, other circumstances, and even though it's only the space of a couple of years we are, I feel, compelled to reverse that situation and go with the 14 percent rate.

I've said it several times before and it's a message, I think, that's worth repeating. Anything that our government does to increase the cost of living or the cost of doing business in the NWT has to be considered very, very carefully. There are so many other cost drivers here that we have no control over that put the crimp on people, on their families and on their businesses, that anything like

this has to be looked at with extreme care. I think again in this case we have done so. I know in the case of a business that's going to be charged more, that may not look like a very good reason. But as one of the MLAs sitting here looking at how we are managing our overall situation, this seems a realistic thing to do.

I would like to see if I could, for the public record, bring out a bit more information that may help me comprehend this a bit better and perhaps some people in the public too. The rate that we're setting here affects the large corporate taxpayer. Could the Minister or his officials define that, especially in the context of what then is a small taxpayer or the other tax levels here? What I want to do is try to bring a little bit of light to the situation where if people are running a small business out there, what is small, are they going to be captured in this. Just where is the cut-off for enterprises in the NWT who will be affected by this? Thank you, Madam Chair.

Thank you, Mr. Braden. Mr. Roland.

Thank you, Madam Chair. The Member is right; this increase is for the large corporate taxpayer. The small corporate tax rate is unchanged, at four percent. That includes companies that have a taxable income of $250,000 for the year 2004-05. That rate is actually moving up to $300,000 in 2005-06. Thank you.

Thank you, Mr. Roland. Mr. Braden.

Thank you. So at four percent, and this is taxable income, this is not sales, this is after everything else if you have a so-called profit, and will be moving up to $300,000 at a four percent rate. How competitive is that four percent rate? I know this isn't to the bill, Madam Chair, but I would just like a bit of information. How does the NWT rack up at four percent for a small business tax rate? Thank you.

Thank you, Mr. Braden. Mr. Roland.

Thank you, Madam Chair. We are a little bit better than middle of the pack, when you take a comparison to other jurisdictions. There is one at 4.5, one at three percent, and we're at four. I think there are only actually three lower than us in the small corporate tax area. I'm corrected: two. So we're third lowest in the small corporate tax area. Thank you.

Thank you, Mr. Roland. Mr. Braden.

How many corporations do we anticipate will be captured in this as large corporate taxpayers? Thank you, Madam Chair.

Thank you, Mr. Braden. Mr. Roland.

Thank you, Madam Chair. I'll have Ms. Melhorn give you that detail.

Ms. Melhorn.