Federal-Source Revenues

In recent years, the federal government, similar to other governments in Canada, has had to deal with its deficit problem. In part, it has done so by reducing transfers to all provinces. In our case, this will mean that in 1997-98 federal transfers will account for 42.6 percent of our revenues, down from almost half in 1988-89.

In 1996-97 the two major transfer programs are:

(1) Equalization - $940 million, and,
(2) the Canadian Health and Social Transfer, or CHST - $340 million.

Equalization payments are made to the seven provinces that have below average capacity to raise revenues from their own taxes. After Equalization payments, the per capita revenues of these provinces is raised to about 93 percent of the Canadian average.

The second major federal transfer, the CHST, is a payment made to every province in support of health care, post-secondary education and social assistance. The federal budget plan calls for the CHST payment to decline for the next several years. Our CHST will fall from $340 million in 1996-97 to about $280 million in 1997-98, and will decline further by about $35 million over the next two years.

Own-Source Revenues

In 1996-97, the Provincial Government will receive $1.9 billion, 56 percent of our total revenues, from individuals and businesses in the Province. The largest sources, at over $500 million each, are retail sales tax and personal income tax, where we have some of the highest tax rates in Canada. Sales tax harmonization will reduce the sales tax rate by almost 5 percentage points. While petroleum and mining exploration and development are creating new employment and business opportunities for individuals throughout the Province, these projects will not yield substantial revenues for the Province in the next three years.

Sales Tax Harmonization

Newfoundland and Labrador, together with Nova Scotia and New Brunswick, have agreed with the federal government to implement a new Harmonized Sales Tax (HST) on April 1, 1997. The combined sales tax rate in our Province will decrease from almost 20 percent to 15 percent. This will be the largest tax reduction in the Province since 1949. The vast majority of families in all income catagories will pay less tax. The tax reduction will stimulate our economy during a difficult period. The federal government will provide transitional assistance totalling $348 million over four years, allowing us to reduce taxes without increasing our deficit. Therefore, for the transition period, harmonization will not have a negative impact on our fiscal position. Harmonization will boost economic growth and improve our financial situation over the longer term.

Our Choices

Should Government raise additional revenue to address the budgetary shortfall by

• raising existing taxes or fees, licenses and fines?
  If so, which ones should go up? By how much?
• imposing new taxes?
  If so, what kind, and at what levels?
• imposing fees/greater cost recovery for services not everyone uses, particularly services of a commercial nature?
  If so, for which services? How much should we charge? Should the fees apply to only those who have the ability to pay?