Handley plans to sever tax ties

New system to provide 'more flexibility'

Kevin Wilson
Northern News Services

Yellowknife (Feb 21/01) - Finance Minister Joe Handley says people should not be alarmed by his plan to separate territorial income taxes from the federal tax system.

The change, proposed in last week's budget, will give the government "more flexibility to set our own tax regime," said the minister. It's expected to take place in 2003.

Joe Handley

Currently, NWT residents have their territorial income tax calculated as a percentage of the federal income tax paid. Under the minister's proposed system, known as "de-coupling," the GNWT department of finance will calculate an individual's territorial income tax as a percentage of income.

Handley said the measure is designed to protect the government from having the rug pulled out from it if Ottawa knocks its taxes down.

Since the territory currently bases its tax take on a percentage of Ottawa's take, the GNWT's revenues drop when Ottawa cuts taxes.

MLA Brendan Bell said he'd "like more time to study the issue," adding that he needs to know what the experience of other jurisdictions that have decoupled their tax rates has been.

Currently, nine provinces have moved towards a tax on income. Quebec has its own personal income tax system.

According to the Canada Customs and Revenue Agency, a decoupled system, known as TONI (Tax on Income), gives provinces and territories "greater flexibility in tailoring their tax systems to meet their needs and priorities."

Handley added that if Ottawa decides to "cut or increase their taxes," decoupling allows NWT to "make that decision for ourselves. It's giving us the authority."

He adds that giving the territory more power over its tax take doesn't mean that the territory will begin cranking rates up.

"I don't think we're going to do any wild or crazy things with our rates," he said.

With other jurisdictions keeping taxes low, Handley said the GNWT tax policy has to stay in line with them to remain competitive.

"If Alberta is cutting taxes and Ontario is cutting taxes," the minister said, "we'd better find a way to follow suit."