NEWS RELEASE: Taxes on mining in Canada are distortionary and are costing provincial coffers; especially Ontario’s – Report by Jack Mintz and Duanjie Chen

Click here for the report: http://policyschool.ucalgary.ca/sites/default/files/research/chen-mintz-mining.pdf

CALGARY, May 30, 2013 /CNW/ – The province of Ontario ended its fiscal year with a $12 billion deficit. Ontario may be in worse fiscal shape than well-known basket cases like the state of California. One would think that a province so financially debilitated would want to avoid giving complex and unnecessary tax breaks to resource companies. Yet, a review of the mining-tax regimes across the country by Duanjie Chen and Jack Mintz of The School of Public Policy finds that Ontario’s system is redundant, expensive and wasteful.

Ontario is not the only province that needs to improve its mining-tax regime. In every province except New Brunswick, mining firms enjoy a lower marginal rate for taxes and royalties than for non-resource companies. The result has been a distortion of investment toward mining projects that might otherwise be economically inefficient. Even in major oil-producing provinces, such as Alberta, Saskatchewan and Newfoundland, mining investment benefits from larger tax incentives than oil and gas investment.

The reasons for favouring the mining of metal over the mining of oil are unclear and economically unjustifiable. According to co-author Jack Mintz, “Provincial mining-tax systems are distortionary and complex, resulting in sub-par profitability due to excessive investment in certain tax-favoured assets. Both the federal and provincial corporate income tax regimes need to be overhauled.”

The federal government has begun making changes to its tax policies to scale back preferential and irrational inducements for mining investment, but Ottawa’s efforts to modernize Canada’s mining-tax structure can only go so far, when provinces continue to rely on overly complex and distortionary tax systems. The next step for Canada’s mining-tax system requires provinces to eliminate preferential mining tax breaks. Provincial treasuries cannot afford it, and neither can the Canadian economy as a whole.

Mintz sees two steps that can be taken by provinces, “First, the special tax credit and the generous depreciation allowance for mining investment given to the mining industry should be eliminated gradually. And second, the provincial mining-tax systems should be reformed so as to create a rent-based cash-flow tax, which would strike an adequate split of the economic rent between the government and miners while fully recognizing investment risks.”

SOURCE: The School of Public Policy – University of Calgary

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