· Sales tax harmonization is particularly beneficial for Newfoundland and Labrador.

· Newfoundland and Labrador has an export-oriented economy that depends substantially on the ability of its resource sector to compete in world markets. A harmonized value-added tax will reduce business costs and make Newfoundland and Labrador products more competitive. This will help keep and create much-needed new jobs in the province.

· The single federal-provincial sales tax represents a significant tax reduction for Newfoundland and Labrador. The province will be reducing its total sales tax intake by $105 million annually. This money will stay in Newfoundland, in the hands of businesses and consumers, and be put to work in the local economy.

· To make up for the shortfall in revenues, and to ease the transition to the new tax regime, the federal government will share adjustment costs with the provincial government. Newfoundland and Labrador will receive $348 million in adjustment assistance over four years.

· Harmonizing the GST with the existing retail sales tax will mean a drop in sales taxes from a combined 19.8 per cent rate on most items to 15 per cent, a decrease of almost five per cent. Provincial governments could save as much as $100 million a year in administrative costs, if all provinces were harmonized.

· The province’s Gross Domestic Product (GDP) is expected to grow over the next several years because of Hibernia oil and Voisey’s Bay mineral production. Under the new arrangement, oil and minerals will not be subject to provincial sales taxes; these export commodities will be even more competitive on international markets.

· Consumers will share fully in the benefits. The harmonized sales tax rate of 15 per cent will be four percentage points lower than the current · combined rate, but because of tax paid on tax in the current system, the real drop will be almost 5 percentage points

· The combined sales tax rate will be reduced in real terms by almost 5 points. Prices will also be lowered because the new system removes the tax on business inputs, i.e., the items that businesses buy in order to make their products, deliver their services, and keep their businesses running. Currently, more than 30 per cent of retail sales tax revenues are derived from tax on business inputs -- tax that is buried in the prices consumers pay.

· Lower compliance costs for business will also help to lower prices of Newfoundland products.

· The new system would include the tax in the shelf price so that consumers would know exactly what they would pay at the cash register.

· The tax would still be broken down on the sales slip. But the shelf price would be the final price.

Consumers already pay most taxes on business inputs in the form of higher prices. This occurs because payment of provincial retail sales tax on business inputs results in tax compounding, whereby tax on intermediate inputs sticks to the selling price of each participant in the production and distribution chain, effectively forcing up the price and tax paid by the final consumer. Tax compounding leads to:

· higher prices for Canadian exports, and an associated reduction in the competitiveness of Canadian products on international markets;

· reduced competitiveness between Canadian produced products and imports into the domestic market;

· distortions in price between products which use a high percentage of taxable inputs and those that do not; and

· locational distortions, as businesses seek to locate in low tax rate jurisdictions to minimize costs and selling prices.