Can the Sergeant-at-Arms please bring in the witnesses? Thank you.

At this time, Mr. Minister, can you introduce your witnesses, please?

Thank you, Mr. Chair. I have with me from the Department of Finance, the deputy minister, Ms. Margaret Melhorn; and Mr. John Monroe. As well, we have from the Department of Justice, Mr. Mark Aitken. Thank you.

Thank you, Mr. Minister. General comments on the bill. Mr. Menicoche.

Thank you, Mr. Chair. Just with respect to Bill 20, An Act to Amend the Income Tax Act, it is a race to the bottom that concerns me. I would like to have a little bit more discussion with the Minister. I was doing some reading of the latest issue of the Fraser Forum with regard to tax rates in other jurisdictions, particularly in all of our provinces in Canada. It looks like everybody is trending downwards. Even though we are going to 11.5 to be fairly competitive and attract businesses here, they are saying that other provinces are trending even further downwards, like towards eight percent, even Alberta. I don't know if the Minister can comment on that, if he has heard of it. That is what this article was saying. If that happens, then 11.5 will be on the high end again, Mr. Chair. Does that mean we are going to lose out on potential clients and potential revenues? I was just wondering how the Minister or the ministry sees the downward spiralling of all of the income tax rates in Canada. Is this truly, 11.5 percent, the low rate today, or are other legislatures sitting as we are today and reducing their rates? Is this a true reflection? Is this a true strategy? That is probably it, Mr. Chair. Is this a good strategy to maintain as much revenue from businesses that want to claim income tax rates outside of our territory? Thank you.

Thank you, Mr. Menicoche. Mr. Minister.

Thank you, Mr. Chair. Mr. Chair, the term "race to the bottom" is something that is not necessarily a new one. Something all governments do pay attention to, the smaller jurisdictions especially, is when you look at our revenue base, to continue to try and match the large provinces would be very difficult for us, indeed. We have less flexibility in that area, but, at the same time, when we feel the immediate impacts of a less competitive environment being what we were at, we feel the immediate impact especially with the formula the way it is right now.

Waiting for the federal government to come up with a revised formula financing arrangement is something that we need to do and try to work with and ensure that they adapt or adopt the issues that we raised that would see us working in a more favourable climate.

The other comment I would make to that is that although there may be articles that would refer to a spiralling downwards of the corporate tax, adjustments are made in fairly small increments when adjustments are made. The true picture, at least at this time, when we are looking at this bill, as I stated in my opening comments, is that we are the lowest, matching with Alberta, when we look at our income and second lowest when you look at just general corporate tax rates. Quebec is the lowest overall.

Alberta has announced in the past that it would look at the possibilities of going down as low as eight percent. Right now, they are at 11.5 percent. They haven't given any timelines on that target, but it is something that we will have to keep an eye on as they are our closest neighbour to the south and have the largest impact on businesses

here in the North because of their relationship with the Northwest Territories and how things generally flow right through from the Northwest Territories into Alberta.

It is something we do have to keep track of. As stated in the opening comments, of having to adjust our rates based on our formula arrangements with Ottawa will continue to play a role in how we look at our fiscal strategies in the future. Thank you.

Thank you very much, Mr. Chairman. Can the Minister again just tell me a bit about the strategy once again? Should we find ourselves at the high end this time next year, is our strategy to then again to reduce our rates to be competitive down towards eight percent if it's trending down that way, or are there other alternatives out there that the ministry can examine, can look at other options as proposed by Mr. MacDonald? What else can we do besides chasing other jurisdictions? Are there other innovative ways of developing taxation models without chasing businesses away? Like it's even our own businesses that are moving outside our territory. Is there another way of doing this, Mr. Chair?

Thank you, Mr. Menicoche. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, there are, for sure, a number of theories about what a government can do to try and increase revenues or keep revenues, but ultimately when you do look at the equations we're faced with and the formula and the working arrangement we have with Ottawa on formula financing, our options are limited. Our change in our fiscal strategy initially was based on the relationship we had with Ottawa around formula financing and tax effort. As I stated, under previous conditions, if we tried to be competitive in a sense and drop our corporate tax rate, we would be hit with a negative adjustment on transfer payments. As one of the measurements of our comparison to other jurisdictions was what we call tax effort adjustment factor, and that played a significant role in our fiscal strategy. Now with the existing situation, we find that does not play a role anymore, its 100 percent gain or loss. In this environment and looking at an immediate impact of having funds reduced, the short-term we'd have to look at our competitiveness compared to other jurisdictions. Longer-term there may be solutions looked at, but it would take something that not just one jurisdiction can do on its own. We can bring an issue to the table and talk with other jurisdictions about corporate taxes and setting a basin, and then having the federal government agree to something like that would be very difficult. So unfortunately, in the short-term, we're faced with the regime of trying to remain competitive. If the federal government does not deal with the expert panel report in a timely fashion, this could carry on for more than one year. That's something we'd have to be prepared to look at, again, in the environment of being competitive. Thank you.

Thank you, Mr. Roland. Next I have Mr. Ramsay.

Thank you, Mr. Chairman. I've got a number of things that I wanted to talk about with Bill 20 and some bells going off. Bells have been going off in my head for awhile in regard to this bill and why we're here today to discuss it. I'm going to ask the Minister some pretty pointed questions today. I guess first of all I'd like to know why, I guess the big question for me is, if we went on the increase from 12 percent to 14 percent in 2004-2005 and the level of the grant had been fixed in federal legislation for 2004-05 and 2005-06, why did we have to wait two years for the government to wake up and realize that other provinces were lowering their rates, we weren't being competitive and why did we have to wait two years? Why wasn't this done last year? That's the big question that I have. Why didn't the Finance Minister let us know last year that we weren't competitive and that it was impacting us? Why did we have to wait two years? That's the big question, and who knows how much money it's cost us. Thank you, Mr. Chairman.

Thank you, Mr. Ramsay. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, the arrangement we have with the federal government, the formula situation we were facing, the work we were doing, we've kept Members informed of our situation. Of the corporate tax rates of our arrangement with the federal government, when the information came to us about the changes in revenue, we informed Members as soon as I got the information within a matter of days. So it is frustrating in a sense that from one regime we set up under had changed. Again, in allowing our changes to occur and having impact on the rates and working with the federal government, there's a timing factor that comes into play there, but it's not until we actually get our results back from previous year's filing and working with the federal government that we could take a look at the situation to see if, in fact, we did need the change, and we did identify the amount of revenue drop to Members. Again, it was a combination of the corporations refiling their tax, as well as a loss in actual revenue. Now that could be a number of reasons; one company, somebody is not being as profitable as they were the previous year, or of moving their profits to other jurisdictions. Thank you.

Thank you, Mr. Minister. Mr. Ramsay.

Thank you, Mr. Chairman. I guess what I'm trying to understand is the first budget that I dealt with as a Member here when we looked at increasing the rate from 12 percent to 14 percent, that was two years ago. This is the third budget, so, yes, it was two budgets ago that we did this. Now, between then and now, things have changed and the level of the grant was fixed and federal legislation for 2004-05, which would have been almost immediately on the heels of us approving this increase, I didn't think it was a good idea so I didn't approve it, but we, as a Legislature, decided to approve the increase to 14 percent. On the heels of this, the grant is fixed in federal legislation. We do nothing about it for 18 months and the only reason I think that we've actually stood up and paid attention to it is the fact that we were hit with a $30 million corporate tax hit. This happened and it woke us up. All of a sudden it hit us in the head and we realized well, geez, maybe we should do something about this. I'd like to again ask the question why nothing was done for the period of time that it was fixed in federal legislation and today? Why are we only talking about this now? That's the question I have, Mr. Chairman. Thank you.

Thank you, Mr. Ramsay. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, I guess the tax environment we operate under isn't one that changes from day to day in a sense of how filings are done and reporting times and so on. The sequence of how we did things, and the Member is right; our first budget laid out the tax changes, we went from 12 percent to 14 percent, and that was in March of '04. The formula change occurred in October of '04. Filing deadline for the 2004 taxes came on June '05, and our reporting arrangement and notice we received from the Canadian Revenue Agency was in October '05. At that point is when we began to look at our fiscal picture and made a decision that we needed to make this change. That's why now the first available opportunity at this budget session is to come and lower the tax rates to make the correction we feel is needed at this time. Thank you.

Thank you, Mr. Roland. Mr. Ramsay.

Thank you, Mr. Chairman. We had the public meeting and I mentioned this at that time. I'll mention it again. If you are forced into a situation where you have no choice, and I think the Minister has explained that, that under the formula financing arrangements with Ottawa we had no choice but to increase our corporate tax rate from 12 percent to 14 percent. The Minister has admitted that and everybody understands that; no choice. When you're in a situation where you have no choice, you have to have some way to go back and try to seek some damages from somebody for forcing you into a position that's not your own doing, and I think we can prove beyond a shadow of a doubt that the previous formula financing arrangements with Ottawa were punitive to the Northwest Territories, it harmed us, we lost $30 million, Mr. Chairman. My estimation is we'll lose probably $60 or $70 million more before the dust settles. Now is it our fault that we lost this money? No. I go back to the formula financing arrangements that we had in place that forced us to raise our rate from 12 percent to 14 percent. Why can't we demand some action from somebody, somewhere to recognize that fact? Am I the only one that's seeing it this way? I don't understand. Some days I feel like maybe I'm going crazy or something, but somebody is responsible here. Somebody has to tell me that they are going to address the fact that we were pushed into a corner. As a territory we just accept the fact that we have to pay, and that's not acceptable to me. Why do we just continue to accept that fact? Why can't we stand up and demand some answers and demand some action? This is just the start of it. Thank you, Mr. Chairman.

Thank you, Mr. Ramsay. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, the Member did say earlier he was hearing some bells, so I'm sure that's not to deal with this bill itself. But the realities are, yes, it is frustrating to be in a position where if you don't make adjustments you get penalized, and that's why we made our adjustment, is not to lose more than we were going to lose in transfer payments because we were deemed to be not having corporations and individuals pay a higher level of tax in the Northwest Territories compared to other jurisdictions. The issues come back to the fact, and I'll go back...My experience back in the 13th Assembly, when the federal government mandated reductions across the board, all provinces, territories and that force our hand at reducing budgets across the country, and we were hit in a very serious way in the Northwest Territories. Some Members would still say we're feeling some of the effects of the choices the government made in the day to try to meet its budget targets. We've made our arguments; we made our business case; we made our arguments, along with other jurisdictions and support from other jurisdictions, about the impacts of the tariff and the tax effort adjustment factor, and with the concerns mounting we had support and other jurisdictions had their concerns with equalization from the provincial end that the federal government did finally agree to re-look at the matter. They came up with an interim solution that they felt added more money to the pie and that it would give some stability to governments for budget planning. That, again, as we're pointing out now, had an impact on our corporate tax situation and we've made that adjustment. We have yet to negotiate on some of these matters and get down to the business discussion that we need to have with Finance Canada around some of these areas, but it is definitely not as easy just coming up with a business case and say there's damages, you need to reimburse us. It's a long, difficult process at times, and the increments can be measured in very small amounts.

The issue of seeking damages, I think our role at this point is to see whether the federal government will come with a new arrangement and if they will address our adequacy and, as well, have a discussion about our corporate tax situation as we have had with the previous government. Thank you.

Thank you, Mr. Minister. General comments. Next I have Ms. Lee.