The National Post is Canada’s second largest national paper. This article was originally published in the Financial Post on March 17, 2011.
Mining companies pay just 9% in corporate taxes, while retailers fork out 23%
Here in Canada we may be lumberjacks, to paraphrase the famous Monty Python song, but we’re not OK. Or at least we may be OK in an overall sense but we’ve never been very OK about being lumberjacks. Hewing wood, drawing water and digging for ores for a living, even if it has given us a very good living, has always been a source of shame for us. Couldn’t we find something, well, harder and more demanding of cleverness in order to earn our way in the world?
Hewing, drawing and digging all seem so mindless. They’re not, of course. Done the modern way, they all involve much more brain power than brawn. But still we’re sheepish.
Which makes the results of a new study from a couple of U.S. business school researchers all the more puzzling. Douglas Shackelford of the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill and Kevin Markle at the Tuck School of Business at Dartmouth have just published a comprehensive study of the corporate taxes paid by 11,602 public corporations from 82 countries from 1988 to 2009. They trace corporate ownership structures across countries and are mainly interested in whether multinational companies can manage their affairs so their worldwide tax burden doesn’t much depend on where they locate. They find that in fact domicile does matter, which is an interesting result in this supposed age of footloose capital. But it’s their comparison of tax rates by industry that caught my eye.
The business school profs calculate that between 2005 and 2009 the average “effective tax rate” paid by Canadian mining corporations on their income before taxes was just 9%. Maybe it was a short-term thing — 2009 wasn’t a great year for anyone. But 2005-08 wasn’t so bad. Average Canadian corporate taxes in all industries were about 18% over the same five years, ranging from 23% in retail trade to 19% in construction and manufacturing, 18% in finance and 15% in transportation. But in mining the average rate was just 9%.
It’s a pattern repeated across countries. In Australia, the average effective rate was just 8% in mining; in the United States, 6%. Even in Japan, which had very high corporate tax rates overall, running around 34% on average, the tax rate in mining from 2005-09 was just 14%.
Why are taxes on mining so low?
Mining is a tough business. The minerals sought after generally aren’t found lying about on the ground. They’re usually buried deep and don’t announce their presence, so it requires great guile to get to them. But lots of other industries are tough and require remarkable skill from the people who work in them and yet we tax them fully. In fact, if an industry is so tough you can’t make money in it without a preferential tax rate, maybe it would be best to rethink your country’s reliance on it.
Another but quite the reverse argument for helping mining is that it’s an industry in which we Canadians have a comparative advantage and therefore should favour it. But that really doesn’t compute. If we have a comparative advantage in mining, and we probably do, then it shouldn’t need favours. It should be able to stand on its own. If anything, we could tax it more than we tax other industries.
Of course, the wisest policy would be to tax all industries at the same effective rate and let those that can thrive do so and those that can’t fall by the wayside. That we don’t typically follow a policy of tax neutrality is the conclusion of a continuing series of reports by Jack Mintz, of the University of Calgary and this page, and his colleague, Duanjie Chen.
For the rest of this article, please go to the National Post/Financial Post website: http://opinion.financialpost.com/2011/03/16/william-watson-miners-should-dig-deeper/