Action To Promote Economic Growth

Investing In A Healthy Business Climate

Since 2003, we have implemented a full suite of initiatives to promote a business friendly investment climate in Newfoundland and Labrador. Progress is being made. Our economy is growing. Nevertheless, one major deterrent to investor and consumer confidence remains, and that is our relatively high level of personal taxation. It is clear that cutting taxes creates economic growth. I am delighted today to announce that, with the tax measures in this year’s budget, our government is transforming Newfoundland and Labrador from the province with the highest personal income tax rates in Atlantic Canada to the province with the lowest personal income tax rates in Atlantic Canada. Our offshore revenues will provide an opportunity to leave more money in the pockets of the people who earned it. In a sense, it is a dividend from our offshore resources, one that will help stimulate economic growth, and result in increased employment and higher incomes.

Never before in our history did we have the ability to address our high personal tax levels in a meaningful way. This initiative will greatly enhance our competitiveness and attractiveness and will spur consumer spending and investment that will boost our businesses and expand our economy.

Effective July 1 of this year, Personal Income Tax rates will be reduced significantly, with the third tax bracket dropping from 18.02% to 16.5%; the second tax bracket dropping from 16.16% to 13.8%; and the first tax bracket dropping from 10.57% to just 8.7%.

Also effective July 1, we are eliminating the surtax on the Personal Income Tax, which will further reduce taxes on middle and high income earners.

Thirdly, effective July 1, and annually thereafter, we will be indexing the Personal Income Tax system to inflation to ensure taxpayers do not move into higher tax brackets simply because of normal inflationary pressures that raise their salaries. Indexation will ensure that various tax credits, brackets and also the special benefits for low-income families maintain their true economic value over time.

As a fourth measure, we are heeding the advice of the province’s business community and alleviating tax pressure on smaller companies by increasing the small business threshold under the Corporate Income Tax from $300,000 to $400,000, effective for 2007.

Finally, the Retail Sales Tax rate which is applicable to the private sale of used motor vehicles will be reduced from 15% to 14% effective midnight tonight.

These five tax initiatives represent an annualized reinvestment in the Newfoundland and Labrador economy of over $154 million. By putting this money back in the hands of our province’s consumers and investors, we are promoting economic activity which will in turn generate not only new revenues but also new jobs and growth.

Our government will also immediately commence discussions with the federal government to harmonize the provincial Financial Corporations Capital Tax with the federal Part 6 tax base in order to lower compliance costs for taxpayers and do our part to provide a consistent policy across the country.

Even with today’s reductions, our rates remain high relative to Canadian standards, but the reductions are a major step in the right direction. These tax reductions will assist in building a stronger more diversified economy as we prepare for the time when we no longer have the benefit of offshore oil. We are committed to using our offshore resources, and whatever Atlantic Accord payments that have not been stripped away, to reduce debt, to provide a fairer tax burden, and to improve economic opportunity. These are all issues which are consistent with the national interest, and consistent with the principles of the Atlantic Accord.

Not only high taxes but also fees can serve as an impediment to growth. In light of the Fees Review we commissioned in last year’s budget, we are reducing or eliminating over 170 fees, an initiative that represents an annualized reinvestment in our economy of another $3.4 million.

Our Red Tape Reduction Initiative has reduced regulatory requirements by 8%.

To complement this streamlining of regulations, our Department of Government Services will be improving customer service by taking full advantage of advances in information technology and management. Fee reductions will encourage on-line usage of electronically delivered services at the Registry of Companies and Deeds and the Motor Vehicle Registration Division. Through electronic service delivery the department will also be expanding ease of access province wide to information and government programs. Budget 2007 also provides approximately $1.2 million in additional funds to improve service delivery in key areas of public health and safety administered by the Department of Government Services. These include technical positions for environmental health, environmental protection, boilers and pressure vessels, elevating devices and amusement rides, electrical programs and highway enforcement.

To better enable the province to compete for national and international business opportunities, we are creating a $25 million Business Attraction Fund within the Department of Business. This fund will provide loans and equity to global investors that establish their business operations in Newfoundland and Labrador. We will complement this investment with a $7 million non-repayable fund to address challenges faced by investors establishing in our province.

Newfoundland and Labrador has been a global trading state for centuries, but the key to truly maximizing the benefits from trade in the years to come is careful strategic planning. This year, under our Export Development Strategy, we are providing an additional $500,000 to finance critical initiatives to make local exporters more successful in securing the markets they need to grow their enterprises. These initiatives will include access to market intelligence; export readiness assessment and training services; a new pilot program for government to work with larger firms who have existing market penetration to help them grow that market or expand the diversity of products they are selling into that market; market access supports to assist clients on overseas trade missions; and export promotion assistance to sell our strengths in international markets.

Some of our ongoing initiatives have been extremely effective in helping home enterprises expand and succeed. To build on these successes, we are investing $8 million in our Small and Medium Enterprise Fund. We are also absolutely delighted with the uptake from our Regional/Sectoral Diversification Fund which, since 2005, has invested some $9.1 million in 174 rural and regional development projects worth more than $42 million. Budget 2007 provides $5 million plus $2.78 million in carryovers to allow us to continue to invest in success in rural Newfoundland and Labrador. Since November 2003, our government’s business investments have helped companies across the province create employment for over 1,900 people.

Newfoundland and Labrador appreciates the benefits that flow to all of us when our businesses succeed, and that is why we are busy cultivating a business climate where enterprises can operate competitively, industries can reach new plateaus of success, innovators can harness the power of their imagination, and entrepreneurs can realize their dreams.