FINA Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Thursday, October 2, 2003

Â

1235

The Chair (Mrs. Sue Barnes (London West, Lib.))

Â

1240

The Chair

Mr. Pierre Paquette (Joliette, BQ)

The Chair

Mr. Roy Cullen (Etobicoke North, Lib.)

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1245

Â

1250

Â

1255

The Chair

Mr. Larry Bagnell (Yukon, Lib.)

·

1300

The Chair

Mr. David Chatters (Athabasca, Canadian Alliance)

The Chair

Mr. Bryon Wilfert (Parliamentary Secretary to the Minister of Finance)

·

1305

The Chair

Mr. Pierre Paquette

The Chair

·

1310

The Chair

The Chair

Mr. Pierre Paquette

The Chair

Mr. Pierre Paquette

The Chair

·

1315

The Chair

The Chair

The Chair

The Chair

The Chair

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CANADA

Standing Committee on Finance

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NUMBER 077

l

2nd SESSION

l

37th PARLIAMENT

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EVIDENCE

Thursday, October 2, 2003

[Recorded by Electronic Apparatus]

  (1235)  

[English]

    The Chair (Mrs. Sue Barnes (London West, Lib.)): Pursuant to the order of reference of Tuesday, September 30, 2003, the committee will commence the clause-by-clause study of Bill C-48, an act to amend the Income Tax Act, natural resources.

    I welcome Mr. Wilfert and finance officials to the table.

    I am advised I have received amendments that could affect clauses 1, 2, and 14. I propose to stand those aside.

    (Clauses 3 to 13 inclusive agreed to)

    (Clauses 15 to 18 inclusive agreed to)

    (On clause 14)

  (1240)  

    The Chair: Clause 14 has two amendments, one from Monsieur Paquette and one from Mr. Cullen. They are exactly the same. I received Mr. Cullen's first and then Mr. Paquette's. Mr. Paquette gave us notice that he would be doing this last night.

    We will be dealing with amendment BQ-3, which is exactly the same as Mr. Cullen's amendment. I just want to clarify that you advised the committee last night about this one.

    I will give you both an opportunity to speak on it. Since they're exactly the same, they will both be dealt with by the same vote.

    Mr. Paquette.

[Translation]

    Mr. Pierre Paquette (Joliette, BQ): I don't think we'll need to belabour this point. Yesterday, we had a lengthy discussion with the representatives of the Mining Association of Canada. I know for a fact that the Association minière du Québec share's this association's viewpoint.

    The proposed amendment, which would do away with the resources tax credit and substitute in its place a deduction for royalties, creates an inequity compared to the status quo. Industries operating in sectors where royalties are lower than those earned by the oil industry will benefit to a lesser degree if this amendment goes through.

    We heard yesterday that one way of correcting this inequity would be to increase the exploration tax credit, which the government was planning to increase to 10 per cent over a period of three years. Increasing this credit to 20 per cent, as was suggested to us yesterday, would partly correct the problem identified. We were told yesterday that increasing the credit to 20 per cent would entail an additional expenditure of $40 million. I think the federal government can afford to include this initiative in its budget. Therefore, I intend to support this amendment and I urge committee members to do likewise.

    Thank you, Madam Chair.

[English]

    The Chair: Mr. Cullen.

    Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Madam Chair.

    I'd just like to go back a bit, if I may, to the origins of this change the government is proposing. The government, in Budget 2000, reduced the corporate tax rate from 28% to 21% and left out the natural resource sectors of oil and gas and mining. That was deliberately done because those sectors have some other tax provisions, and the government intended to come back and deal with the mining and the oil and gas sectors later, which they did.

    They had a number of discussions and consultations. They finally produced a discussion paper or a policy paper and invited input. There was discussion over many months. I know, in talking to the mining association, that data was exchanged. There were models, there was back and forth, and this went on for months and months.

    Following those discussions, the government came out with a policy proposal that was basically in three major components. The first component was that the resource allowance would be phased out. The second component was that the mining royalties and the oil and gas royalties would be deductible for tax purposes. The third component was that there would be a 10% exploration tax credit.

    I think it's fair to say that when the government launched this process, the intent and the idea behind it was that the mining sector and the oil and gas sector would come out even, at worst, and at best with somewhat of a tax lift from all of this. So if we look at the various sectors, as a result of these changes, the oil and gas sector comes out quite well, and that's a good thing. If we look at the mining sector, though, there are some variable results.

    We heard from the potash sector. Clearly, the resource allowance didn't deal adequately with the amount of royalties they paid in the various provinces. For them, moving to this proposal is quite advantageous, and that's fine; that's a good thing. We also know from some of the junior mines, with the exploration credit and other measures previously--the flow-through shares and such--that they come out quite positively.

    I approached the Minister of Finance in May 2003, after the government brought out the exploration tax credit of 10%, because we have known for some time that while the 10% exploration tax credit--which was essentially put in to try to compensate on the base metals side and some of the precious metals companies--was helpful to some, a large number of base metal companies were still not getting any benefit. They were going to be negatively impacted by these tax proposals, which seemed to run counter to the intent of the government.

    Other colleagues, such as Mr. Paquette, had some early indication that the base metals and various sectors were not very intrigued by this proposal--so it wasn't just me. The problem is that there seems to be some miscommunication, at the very best, or some unwillingness perhaps by all parties to really come to grips with this problem. I'm quite surprised that there's still dialogue, debate, and discussion about who's going to be negatively impacted by this.

    I got the transcript from yesterday evening's testimony, because I'm quite surprised that there seems to be some confusion about the impact of this on a number of base metal companies in Canada.

  (1245)  

    Mr. Peeling, I think, was quite clear last night as well that we're not talking about one or two companies with fifty employees. We're talking about...I don't know what the number is, but it's maybe eight or nine major senior mining companies in Canada that employ thousands of people and that are spread right across Canada. They're not going to see any benefit from these proposals. In fact, they're going to be negatively impacted.

    I went back to the transcript from last night. Mr. Mark Ruus, although the blues identify him as manager of international taxation for the Mining Association of Canada--we clarified this last night--is actually manager of international taxation for Placer Dome.

    Regarding the package that's before us, he said:

That's right, from Placer Dome's perspective, the proposed bill as it currently stands would have a negative impact to us. Expanding the ITC would help make it more acceptable to us.

    Keep in mind that the exploration tax credit is only for exploration within Canada, so this would help the senior mining companies to do some more exploration.

What they're saying to us, Madam Chair, is that 10% doesn't do it. They've been quite clear on that. They've made a very modest proposal.

    There were other proposals they had on the table with the Department of Finance going back quite some time--to defer the elimination of the resource allowance and to accelerate the elimination of the capital tax. None of those recommendations were accepted by the department.

    In fairness, they looked at it, and I think they concluded that the acceleration of the capital tax would have to be a government-wide initiative that might or might not be evidenced in the next budget, if indeed we have a next budget in the spring of 2004.

    By deferring the elimination of the resource allowance, that would negatively impact some other sectors of the resource economy, and they thought that wouldn't be a fair way to approach this. So they came up with something that could be done very simply. It wouldn't be the best solution from their point of view, but it would be helpful, and that would be to increase the exploration tax credit from 10% to 20%--a relatively modest request that would keep some of the base metal companies whole and not in a negative position following these measures.

    I'd just like to continue on, Madam Chair, with the transcript from last night. I'll again quote from Mr. Ruus of Placer Dome. This has to do with what was disclosed or not disclosed in their quarterly report. He said:

Though the amount, I believe, was not separately disclosed in our quarterly report. In the event that Bill C-48 passed as currently proposed, we would have a negative impact which we'd have to report and likely would disclose that separately as part of our financial statements. But we have not, to my knowledge, commented that this would improve the environment to operate in.

    There was a question, Madam Chair, posed by my colleague from Stoney Creek. He said:

I thought I heard you say that you would expect members to be paying materially more federal tax as a result of these proposals. Is that correct?

    Then I presume he heard...and he said, “That's correct.” The question continued:

Is it taxes paid currently or are we talking about an earlier date in the future that you would expect to be taxable? Can someone answer that.

    I'll abbreviate the first part, but Mr. Ruus continued:

...accelerate the tax horizon...we'll be paying taxes earlier, but the absolute amount of tax over the existing life of our mines, looking forward ten years, is going to increase by a material amount even after taking into account a reduction of the large corporation tax and elimination of that. So in the initial couple of years there would not be a national cash tax impact, but over the last eight years approximately you would end up paying significantly more cash taxes over the remaining life of our mines.

I don't know if anything has to be more clear than that. I don't see the ambiguity. I think it's very clear.

    Then, to be fair, Mr. Valeri said:

You would expect in the third year you'd start to actually pay cash taxes.

    Mr. Ruus replied:

Right and it's all subject to the gold price been varying so depending on what the price of gold does obviously impacts the profitability of the operation, so we're market takers as far as the price of gold and the exchange rate or whatever costs are in Canadian dollars in Canada and as the Canadian dollar gets stronger it also impacts the profitability as well.

  (1250)  

    Yes, he did say that. But when these companies are doing their models and their forecasting, they have to make certain assumptions, as does the government in its models and forecasting. But in the reasonable models they have, they're saying this would be the impact.

    Last night I asked Mr. Peeling a very direct question about whether, regarding the impact on the base metal companies in his organization, they were actually talking about the impact of federal taxes in this package or whether they were including the impact of the capital tax phase-out, and also netting it out of the provincial taxes.

    I think we had a very clear answer on that as well, that it was inclusive of the phase-out of the capital tax, and it was not reflecting any change in the provincial taxes. So it was as a direct result of the federal taxes that this was going to negatively impact them.

    What we're left with, Madam Chair, is an amendment that would increase the exploration tax credit from 10% to 20%. The cost of this, I am told, over five years is $100 million--not an insignificant amount, but not a huge amount either.

    If we go back to the government's original objective, which was to put the mining sector in a better position, or at least keep it in the same position, and there's clearly a large part of the mining sector, the base metals, and some of the precious metal sectors that aren't going to get this benefit--in fact, they're going to be negatively impacted.

    You know, if the only thing we do as parliamentarians sitting around this table is.... If someone says, “Well, this is a government bill relating to taxes, so you can't touch it, you just leave it; this is not the prerogative of members of Parliament in a parliamentary committee,” then I say to you, why do we meet at committee? Why do we go through this charade? If we're here to do something, let's do something. Let's not go through the motions of not debating and not considering these matters carefully.

    We've heard a lot of evidence. There has been dialogue for about two years. I don't know the exact timeframe, but it's a huge timeframe--between the government, the Department of Finance, and the mining sector. I think it should be very clear by now what the impact on these companies will be. I don't accept the argument that at a committee we're just here to rubber-stamp government bills.

    At this committee, if you'll recall, last year I think it was, we deleted a clause in the Income Tax Act having to do with the inclusion rate for the capital gains on donation of marketable securities to charitable organizations. So we know we can do it if we have the will.

    What we should be doing here is dealing with an inequity. I, for one, don't want to lose this bill. This is something I find flabbergasting, saying we don't want to lose the bill. Why would we lose the bill?

    I could have written this amendment myself. You just cross out three numbers and you put in three different numbers. This is not a big deal about losing the bill. The bill then goes to the House and we vote on it at report stage. We don't have to lose the bill. There's nothing about losing the bill in this. This is about enhancing the bill. This is about listening to people when they come forward to government, rather than just....

  (1255)  

    The Department of Finance does a wonderful job. They're very competent and professional people. But are we, then, simply left with a situation that whatever the department says, we do? I don't buy that. As parliamentarians, I think we're supposed to assert our rights and our responsibilities, as elected people. I think this is a case where we could do that. At minimal cost, we could show that we're listening to people who are going to be negatively impacted in terms of jobs in your communities and mine--maybe not in mine so much because I live in Etobicoke North, but in parts of northern Canada and rural Canada where, with this 20% credit, we're going to get the senior companies exploring and at 10% we may not.

    We talk about mature mines. Well, yes, but these major and senior oil companies are not going to keep digging until they reach the last drop of ore, without doing some exploration. So the seniors need some incentive to explore and to replenish their reserves, and this lift would do that. This would be investment in Canada; this would be jobs in Canada.

    I know the government is telling you to vote against it, but I'm asking you to have the courage to support this amendment that is based on listening to some real concerns, and to be equitable and fair and to level the playing field, and to basically meet the government's objective when it started this whole exercise. The objective was not to hurt the base metal sector, but that's essentially what we'll be doing.

    I would ask colleagues to reflect on this, give it some thought and vote for this amendment.

    The Chair: I'll recognize Mr. Bagnell, then I have Mr. Chatters, and then I will go to Mr. Wilfert.

    Mr. Larry Bagnell (Yukon, Lib.): Thank you, Madam Chair.

    As I said last night, I'm a big supporter of the mining industry, and I'm going to be voting on this in what I think in our particular legislative circumstances is best for the mining industry. As I said last night, I would not be voting for any amendments today unless the opposition and the government were on side. People in this committee knew that and it appears that no one has been able to achieve getting the government and the opposition on side with any amendments.

    In this particular amendment, Mr. Cullen's and Mr. Paquette's amendment, I'm in favour of it in principle. I think it would help mining, it would help a few of the companies that may be negatively impacted by this. Under normal circumstances, if we were in a normal legislative session that had unlimited time, I would definitely be voting for it. But as I said last night, you have to understand the political and the legislative framework we're working within. It's not worth it to my mining industry, where the person I talk to is generally in favour of the concept, to throw out the baby with the bathwater, to lose the whole bill.

    I think all of us who work here know how precarious the legislative agenda is when we have a lot of bills and only so many hours left. A lot of members of Parliament think a lot of the other bills we have are much more important. The opposition and the government, both, never know what will be coming up for discussion nor what manoeuvres are going to be played. All sorts of things could happen, and this bill on the agenda is relatively minor when compared to other bills, in the minds of a lot of people.

    It is very important to me to get this bill through, because, as the facts show, in general the government will be paying out millions of dollars. This amendment is not simply changing three numbers; it's related to hundreds of millions of dollars going in a good direction, in my opinion, but the government, with or without this amendment, is paying out hundreds of millions of dollars to the mining industry, so there is a net benefit.

    I'm not sure my colleague did very good justice to his argument--as I said, I'm onside with his argument--by only picking one of the few losers in the equation when the net benefit is to mining in Canada. In particular, for the few companies that are going to lose, the activity they're undertaking, in general, is not the one we most want to reward and encourage through these changes. We want to increase exploration, and the companies that are doing new investments and the things that we, as Canadians, want to inspire are the ones who will gain by this bill. Indeed, most of the companies will gain by this.

    I would be delighted to have a pre-budget report of any future budget and any other way a change could be made to this, but I'm not willing to jeopardize the bill that's very important for the mining industry and will have a net gain for the mining industry in the very precarious legislative position we're in at this moment.

·  (1300)  

    The Chair: Thank you.

    Mr. Chatters.

    Mr. David Chatters (Athabasca, Canadian Alliance): Thank you, Madam Chair.

    It's very interesting to watch what's going on here. Quite frankly, Madam Chair, Mr. Cullen should have been over on this side so that he could have looked his own members in the eye as he was talking. You don't have to convince the opposition to support your amendment. What you have to do is convince your minister to support your amendment.

    This bill is vitally important to the mining industry, the oil and gas industry, and, as we heard, the fertilizer industry. If you people in government keep jawing forever, this thing is going to get caught in the mess that's going on in your leadership in government. Nobody's going to get the benefit that this bill can provide.

    I would only urge you to take your arguments to the minister's office and convince him. You all know that if you get enough support on this committee and make the amendment...if the minister doesn't support it when this report goes back to the House, your government will reverse the amendment back to the original. We saw that happen with three amendments on a report just the other day. Let's quit jawing at each other and get on with passing this and doing clause-by-clause, so that the industry can have the benefit.

    Thank you, Madam Chair.

    The Chair: Mr. Wilfert, did you want to add anything?

    Mr. Bryon Wilfert (Parliamentary Secretary to the Minister of Finance): Madam Chair, I don't want to say too much. I said a lot the other day, but I wanted to emphasize a couple of points.

    I respect Mr. Cullen's position. I don't agree with it, but I respect it.

    I think that if in fact his amendment is defeated, this committee has the ability, if it is the will of the committee later on, to make recommendations in a pre-budget submission to the minister, and they can do so.

    I would follow up on comments of both my colleagues, Mr. Bagnell and Mr. Chatters, about getting on with it. The fact is that this is very important to the industry. It was certainly confirmed yesterday.

    Although I was indisposed, I did read the blues. I understand very clearly that the industry was encouraged. There is broad support for this, and Mr. Peeling did not want this bill delayed.

    The fact is that I do not think Mr. Cullen's amendment and Mr. Paquette's amendments are appropriate, given the fact that the concern is that the solution is not well targeted. I think that is important.

    Even Mr. Cullen indicated in his remarks that there seems to be some confusion. I don't think his amendment will add much to unravelling that confusion. In fact, with estimates of...whether it's $100 million over five years and $35 million to $40 million every year after that, it's still significant in terms of the impact.

    The fact is that we have had extensive consultations across the country. We have met. The provinces and the industry clearly are supportive. I don't see that this amendment is an appropriate response at this time. The fact is that we are moving to make sure that this industry and other industries in this bill are in fact competitive both in the North American and international contexts.

    Madam Chair, I would urge members of the committee to defeat the amendment on the basis that the solution proposed unfortunately does not, in the scheme of things, really add much. What Mr. Cullen and Mr. Paquette are doing is essentially....

    I haven't heard anyone say that the bill will be delayed. The industry has made it clear that they don't want it delayed. I'm here to tell you that the government does not want it delayed. We want to respond both to the industry and to the provinces.

    With that, Madam Chair, I'll leave it.

·  (1305)  

    The Chair: I'd like to call the vote. The vote will be on the BQ's amendment, having full knowledge that automatically, if it carries, it will carry both. If it's defeated, it will defeat both.

[Translation]

    Mr. Pierre Paquette: Will this be a recorded vote?

[English]

    The Chair: A nominal vote. We're going to do it by a name call vote, so we'll start.

    Go ahead, Mr. Clerk.

    (Amendment negatived: nays 8; yeas 3)

·  (1310)  

    The Chair: It is defeated; therefore, both of those amendments are defeated.

    Now we will go to the clause that has not been amended.

    (Clause 14 agreed to on division)

    The Chair: Mr. Paquette, we're going to go to clause 1. I understand there was some typo that also affected clause 3 here. Could you explain that. This is important.

[Translation]

    Mr. Pierre Paquette: Madam Chair, it's a matter of consistency between these two clauses. Once we have dealt with clause 1, we'll know if clause 3 needs to be amended or not. It deals with the same matter.

    (Clause 1)

[English]

    The Chair: Did you want to explain to the committee what your BQ-1 is about?

[Translation]

    Mr. Pierre Paquette: Thank you, Madam Chair.

    As I mentioned yesterday evening, if we had adopted the amendment to clause 14 which would have corrected in part any inequity arising from Bill C-48, I would not need to move this amendment today. Since the committee's decision shows a lack of common sense, I find myself in the position of having to move this amendment. It is worth noting that we are not calling into question the proposed lowering of the taxation rate from 28 per cent to 21 per cent, as set out in clause 9. We support the proposed reduction and voted accordingly.

    However, the royalties issues and the 25 per cent resource tax credit impacts the natural resources sector in particular. My amendment is aimed at maintaining the status quo, that is at ensuring that all royalties are included in revenues and are therefore not tax deductible and that conversely, the 25 per cent tax credit be maintained on resource royalties. The purpose of this amendment is to maintain the status quo.

    Eventually, once the government has done its homework, the mining industry will be able to benefit from a reduction in the overall taxation rate on royalties. Then we'll propose an appropriate solution. Bill C-48 adversely affects stakeholders, and not merely stakeholders in Quebec. Provinces in Atlantic Canada and in the West, including Saskatchewan, will be negatively impacted. I fail to understand how we can support a bill that penalizes one sector in particular, a sector that is clearly defined at the regional level. I am not the only person who holds this view. CAmagazinepublished a study by a tax expert who demonstrated how the proposed legislation would adversely impact some sectors. Elections are just around the corner and if the current situation isn't rectified, we'll be telling the voters that the government disregarded our recommendations and that Bill C-48 penalizes a segment of Quebec's mining industry.

    The proposed formula is unacceptable to us. Yesterday, we heard from representatives of the Mining Association of Canada and of the Association minière du Québec who explained that this initiative will penalize some businesses. And all the while, the government was lauding the bill for its fairness. Therefore, Madam Chair, I wish to move this amendment.

[English]

    The Chair: I'm going to call the vote. You want a nominal vote. The clerk will call the roll for the Bloc amendment.

    (Amendment negatived: nays 10; yeas 1)

·  (1315)  

    The Chair: BQ-1 will apply to BQ-2 at that point. So that is also defeated.

    Now we have to go back with respect to clauses 1 and 2 as they are in the original Bill C-48. I'll do them together.

    (Clauses 1 and 2 agreed to on division)

    The Chair: Shall the title pass?

    Some hon. members: Agreed

    Some hon. members: On division.

    The Chair: Shall the bill carry?

    Some hon. members: Agreed.

    Some hon. members: On division.

    The Chair: Shall I report the bill as soon as possible to the House?

    Some hon. members: Agreed.

    Some hon. members: On division.

    The Chair: Thank you very much, ladies and gentlemen. We will see you next week. Notices will come later this afternoon to your offices.

    The meeting is adjourned.