Yesterdayâ€™s strong earnings report from the Potash Corporation of Saskatchewan confirms what this blog and the NDP have been contending: even modestly increasing Saskatchewanâ€™s extremely low royalties on hugely profitable potash mines could fund substantially better provincial public services.
The Saskatchewan Party still refuses to review potash royalties. In a well-timed column, Greg Fingas developed the theme that this gift to potash companies is the provincial electionâ€™s most expensive promise.
The Sask Party issued a carefully-worded press release implying that PotashCorp invested $590 million in Saskatchewan and paid nearly $332 million to the provincial government in the third quarter of 2011. Both suggestions are misleading.
While some commentators wrote that PotashCorp reinvested $590 million in Saskatchewan, the Sask Party itself stopped short of making that claim since this figure is a worldwide total. The company reports only that â€œthe majority of the $590 million in capital expendituresâ€ were in potash rather than nitrogen or phosphate.
The Sask Party compares this figure to $700 million of potash gross margin, at least 90% of which is from Saskatchewan as opposed to New Brunswick. If two-thirds of PotashCorpâ€™s investment was in Saskatchewan potash mines, it reinvested something like 63% of its gross margin (i.e. $590*0.67/($700*0.9)), a far cry from the 84% put forward by the Sask Party. In contrast, 100% of every dollar in additional royalties would be reinvested in the province.
The Sask Party went on to claim, â€œPotashCorp paid another $332 million in potash royalties and income taxes in the third quarter â€“ the vast majority of which would have been paid in Saskatchewan.â€ This figure is the sum of â€œprovincial mining and other taxesâ€ ($53 million) and â€œincome taxesâ€ ($279 million). The $53 million is Saskatchewanâ€™s potash production tax and resource surcharge.
The $279 million is worldwide corporate income tax, more of which goes to the Canadian federal government than to provincial governments. (Note that the Sask Party wrote â€œpaid in Saskatchewanâ€ not â€œpaid to Saskatchewan.â€)
PotashCorp has confirmed that it paid only $82 million of corporate tax to the Saskatchewan government throughout 2010, less than it paid to Trinidad. Saskatchewan people should get a better return.
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