A Nuclear Error: Uranium Royalty Cuts
On Thursdayâ€™s Lang & Oâ€™Leary Exchange (at 24:45 in this CBC video), I noted that while the Government of Canada just signed a deal with Kazakhstan allowing Cameco to invest more in that countryâ€™s uranium industry, the Government of Saskatchewan recently slashed its uranium royalties to encourage Cameco to invest in the province rather than in Kazakhstan.
Itâ€™s a win-win for Cameco: the federal government helps it invest abroad and the provincial government makes concessions to compete for those same investment dollars. But itâ€™s hard to see how Canadians benefit from increased nuclear capacity in central Asia and decreased royalty revenues in Saskatchewan.
In CBCâ€™s panel on economic diplomacy, I used that as an example of how Canadian business interests are not necessarily the same as Canadian economic interests. Saskatchewanâ€™s falling uranium royalties are also worth examining from a provincial perspective.
Uranium revenue was already modest. In recent years, the provincial budget has rolled it into â€œOther Non-Renewable Resources.â€ The 2013-14 budget projected that amount falling from $134.4 million last fiscal year to $99.7 million this year. Last weekâ€™s mid-year report projected a further decline to $98.0 million this year.
At budget time, provincial finance officials reportedly indicated that this annual revenue loss of $34.7 million (now $36.4 million) resulted from changes to the uranium royalty structure, rather than any anticipated change in uranium prices or revenues from other resources.
When uranium royalties were a separate budget line, all â€œOtherâ€ resources consistently yielded annual royalties of about $25 million. If that amount has not changed, we can infer that the Government of Saskatchewan is cutting uranium royalties by almost a third, from approximately $110 million to $75 million.
The uranium royalty regime in effect from 2001 until 2013 was a base payment of 5% of uranium sales plus a price-sensitive royalty of up to 15% of uranium sales, minus a partial allowance for capital costs. The new system introduced this year is the same base payment (5% of sales) plus a price-sensitive royalty of up to 15% of profits, after deducting all capital, operating and project costs.
As I pointed out a month ago in the following letter to the editor in the Saskatoon StarPhoenix, there is nothing wrong with shifting from a gross royalty on sales to a net royalty on profits, but doing so without increasing the royalty rate is a multi-million-dollar gift to uranium companies like Cameco.
Tax Decision Wise
November 4, 2013
Congratulations to Premier Brad Wall for backing away from corporate tax cuts.
Last year, the government proposed to cut the provincial corporate tax rate to 10 per cent from 12 per cent, but the commitment in the recent throne speech to â€œmaintaining a competitive tax and regulatory environmentâ€ seems to acknowledge that 12 per cent is competitive.
In the past year, provincial governments raised corporate tax rates to 11 per cent from 10 per cent in British Columbia and to 12 per cent from 10 per cent in New Brunswick. Alberta is now alone at 10 per cent. Every province east of it levies a rate between 11.5 and 16 per cent.
Wall is right to maintain corporate taxes in the same range as most other provinces rather than plunge into a race to the bottom against Alberta. Recent revelations suggest Cameco avoids tax in Saskatchewan by shifting profits not to Albertaâ€™s slightly lower rate, but to a Swiss tax haven.
Wall should push Ottawa to strengthen corporate tax enforcement. His government should also reconsider its recent gift to Cameco – allowing additional deductions against uranium royalties that it estimates will reduce annual revenues by $35 million.
Cameco and other uranium companies will now pay a royalty of up to 15 per cent on profits instead of up to 15 per cent on sales. It may be reasonable to allow companies to deduct costs, but doing so without increasing the royalty rate is simply a giveaway of provincial resources.
Erin Weir, Economist, United Steelworkers