DOING SOME DIGGING The “Manley” Art of Budgeting

Last week Finance Minister John Manley delivered his first (perhaps only) federal budget. And it didn't take long f...
Last week Finance Minister John Manley delivered his first (perhaps only) federal budget. And it didn't take long for opinion to divide itself. Some see it as wild, irresponsible spending masterminded by a Prime Minister desirous of a legacy that will keep voters coming back to his party. Some see it as a much-needed cash infusion for health care, environment and education; after all it's our cash the feds have been hoarding while they cut services to us poor, beleaguered taxpayers. The opposition political parties denounce the budget on principlethat's their job.

As the dust begins to settle, however, the Mining Association of Canada (MAC), is worried that the budget will deter mining investment. To quote from its press release issued the day after the budget:

"Tax changes announced in Budget 2003 by Minister Manley are likely to raise the tax burden on the mining industry at a time when countries around the world are moving in the opposite direction," stated Gordon Peeling, MAC president and CEO. "The competitiveness of Canadian mining is at stake."

Alarmist? Probably not. MAC has the expertise to evaluate not only the big ticket numbers in the budget, but also the bits that slip by most of the public.

The federal government is going to reduce the corporate income tax rate on the resource sector from 28% to 21% over five years. And the fine print says (it's on the Finance Canada web site) "Improves the taxation of resource income in Canada by reducing the corporate tax rate of the sector to 21% over the next five years while making changes to the tax structure of this key sector."

What "changes to the tax structure"?

MAC points out that the Resource Allowance has been eliminated. This was a tax measure available for over 20 years in recognition of the fact that provinces own the mineral resources and might impose royalties and mining taxes, which are non-deductible. The Resource Allowance was calculated as 25% of profits after operating costs and capital cost allowances but before the deduction of exploration, development, earned depletion, and interest expenses. It was designed so that provincial levies did not affect the level of federal income taxes payable. But no more. The net effect is that federal taxes will be calculated on higher amounts.

"When all is said and done, the disappearance of the Resource Allowance will likely result in higher taxes paid by the mining industry, even if we are able to deduct provincial royalties and mining taxes. At the very least, the federal government is undercutting the good work by many provincial jurisdictions to make mining investment more attractive," Peeling added.


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