Ontario to Mine for More Revenue
Last weekâ€™s provincial budget promised a mining sector review â€œto ensure Ontario receives fair compensation for its non-renewable resources,â€ a proposal advanced by this blog and the United Steelworkers before appearing as a Drummond recommendation.
The relevant budget section begins with the following observation: â€œOntario has the highest value of mineral production of any province or territory in Canada.â€ Similarly, this blog had noted: â€œOntario has the most valuable mineral production of any Canadian province or territory.â€
It also noted that Ontarioâ€™s budget typically lumps the Mining Tax together with â€œOther Taxes.â€ Last weekâ€™s budget at least disclosed that â€œOntario collected approximately $140 million in mining tax in 2010â€“11.â€
That significantly exceeds the $82 million reported by the Mining Associationâ€™s own study (Table 2), which I had previously quoted. Itâ€™s also worth noting that the budgetâ€™s â€œRoyaltiesâ€ line, $145 million in 2010-11, includes the Ontario diamond royalty and some revenue from quarries. However, I am told that it mostly comprises water and stumpage fees.
A more detailed breakdown of resource revenue is still needed. (Ironically, the provincial budget featured a whole section on â€œtransparency.â€) However, the available information suggests that Ontario collected around $200 million of mineral revenue in 2010-11.
The value of minerals extracted is also rising. I had previously cited Natural Resources Canadaâ€™s 2010 figure of $8.1 billion for Ontario. Last weekâ€™s provincial budget reported a 2011 estimate of $10.7 billion. So, it might have been around $9 billion for the 2010-11 fiscal year.
In conclusion, resource companies apparently paid about $200 million to extract about $9 billion of minerals from Ontarioâ€™s mines and quarries. A 2% return is less bad than the 1% I had estimated before the budget. But as one of northern Ontarioâ€™s favourite daughters would say, â€œThat donâ€™t impress me much.â€
Bring on the review!
UPDATE (April 4): Interviewed on CityNews and BNN (video)
Are people familiar with the Henry Review from Australia? Ken Henry recommended a 40% resource rent tax, here: http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/papers/Final_Report_Part_1/chapter_6.htm.
There is no reason that the rent shouldn’t be higher; an economically rational private landowner would try to get as close to 100% as possible. I know in BC we charge just 13% and allow deductions that we shouldn’t. Quebec just reformed the deductions in their in a good way, but only put the rent up to 16%. A true resource rent tax is said to be non-distortionary or low-distortionary. Because it charges a tax only on net profit (revenue – costs), it doesn’t discourage marginal production so it could go a lot higher without discouraging investment, despite what mining companies will tell you. For instance Norway gets close to 80% of its resource rents.
Of course in Australia, the mining companies mounted a huge attack campaign against the mining tax when the Labour government tried to implement it. It resulted in the PM being replaced by his own caucus and a new mining tax put in its stead. The new tax, the mineral resource rent tax, was only 30% and allowed all kinds of deductions and cross-subsidizations which favoured the big players, like the costs of new (unprofitable) mines could be written off against the taxes owed for old (profitable mines).
Natural resources are a free gift of nature; morally and legally (in Canada) they are common property. Not getting the full price for them means that some people get rich and we have to charge damaging, distortionary taxes on jobs and trade.
Good piece as usual Erin.
$9B of our wealth – gone with very little to show for it. We all should be screaming as loud as we can to every one we can.
I’m sure if extended this picture to all of the natural resources in the country and if we honestly look as what small percentage we get in tax, royalties or jobs we’d see a similar National picture. And what if we counted all the cleanup and contamination left behind.
It seems to me that GDP diverging for GNP is not a good thing. Shouldn’t we aim to create as much Canadian income and thus spending as possible. At least until inflation results from too much money (if that is ever really possible in a stable country).
Jeff makes a great comment. Our land and what is beneath it is our public wealth. How much of that wealth is currently benefiting the public at large.
Further to Jeff Dean’s comment about Australia, mine workers there produced a hilarious 66-second video related to the campaign around the mining tax there. Sheer entertainment at http://www.youtube.com/watch?v=H4PcQfz0MfU&feature=channel
Excellent – check out work Travis fast did for Newfoundland & Labrador federation of labour on extraction rate of profit as percentage of GDP. Go get it.