Merrithew calls for support of flow-through program “Let your

It’s up to the mining industry itself to convince federal Finance Minister Michael Wilson that flow- through share financing should be retained.

That was part of federal Mines Minister Gerald Merrithew’s message to about 150 mining representatives who gathered in Toronto last week for the sixth annual Hamilton lecture.

“I urge you to write to Minister Wilson and other members of Parliament and let your voice be heard on this issue,” Mr Merrithew said. He repeated his “strong support” of the popular tax shelter but insisted that only Mr Wilson can determine its future. Three weeks ago the finance minister announced that some of Canada’s favorite tax breaks could vanish in the February, 1987, budget as a result of federal tax reform.

Mr Merrithew explained that the objective of the tax reform is to eliminate as many special preferences as possible so that taxes for everyone can be lowered. “However, this review will, of necessity, examine provisions which are near and dear to the hearts of many (in the mining industry),” he added. “For example, the flow-through share mechanism.”

After his speech, Mr Merrithew told reporters he has written to Mr Wilson in support of flow-through. “He (Mr Wilson) is very knowledgeable about the industry. He has been very helpful to date and I just hope he will continue to be.” Tough decision

He said it won’t be easy for Mr Wilson to decide what to do with flow-through, mainly because other resource industries such as oil and gas and forestry also want tax breaks. A decision is not likely to be announced before the budget, Mr Merrithew said, adding that Mr Wilson is collecting the views of many groups for consideration in the tax review.

“Without flow-through shares, the level of (mining) exploration would be much much less and perhaps almost non-existent,” Mr Merrithew warned. “The junior companies simply don’t have the kind of profits which would enable them to go on with extensive exploration.”

He said the message which the industry should send to Mr Wilson is: “Look, if there’s one thing you can do for the regions of Canada and for this industry, it is to keep up the level of exploration.”

It has been estimated that federal and provincial governments lose between $400 million and $700 million in revenue as a result of flow-through, Mr Merrithew said. But he added that cost-benefit analyses performed by the industry show that the loss is far outweighed by the amount of revenue created. Tax breaks

Flow-through shares provide investors with considerable tax breaks for investing in junior companies which perform exploration work. The federal government allows tax writeoffs of up to 133% for every dollar invested while the Quebec government allows up to an additional 166% on top of that. In Quebec, taxpayers in the highest tax bracket can receive tax deductions of more than 90 cents on every dollar they invest in mineral exploration.

Quebec Mines Minister Raymond Savoie has said that if flow- through is scrapped at the federal level, the Quebec government would eventually follow suit (N.M. Sept 29/86).

On the issue of “free trade” between Canada and the U.S., Mr Merrithew (who is also minister of forestry) reaffirmed the federal government’s policy of improving relations with Washington. But he condemned what he called “growing protectionist sentiments” in the U.S. Canada has been unfairly penalized by the U.S., he said, citing the 15% countervailing duty recently imposed on Canadian softwood lumber exports to that country.

“Who will be next to fall victim to these protectionist tendencies? Will it be uranium? Or potash? Or steel? Or lead and zinc? We have to he hard-headed in how we deal with this situation and we need a better trading relationship, where our export industries will not be subjected to an endless parade of restrictive trade actions.” Mining could suffer

When asked whether there are any indications that Canada’s mining industry could suffer from American protectionism, Merrithew replied: “Definitely.”

“We’ve heard about this recently and it’s going on every day. Senator Peter Dominici of New Mexico, for example, has been making all sorts of grumbles about potash and uranium. (A bill proposed by Dominici in April would have restricted all foreign source uranium to 50% of the American market; it died earlier this year but is likely to be reintroduced in 1987). And there are many other congressmen who have said they want to support the mining industry only in their country and only in their particular states. So we’re going to go through a very difficult time, perhaps.”

Protectionism has never really worked in history, he said, adding that a new bilateral trade arrangement between Canada and the U.S. is much needed. “Surely we can have something better than the current situation in which we’re constantly facing countervailing duty issues,” he said. “Surely there is a better way for trading nations to deal with each other.”

To illustrate the significance of mining and forestry to the Canadian economy, Mr Merrithew said the two industries combined contribute $83.5 billion to the gross national product, or slightly more than 18%. “If this huge chunk was somehow withdrawn suddenly, our economy as we know it today would literally collapse,” he said.

The lecture was given at a meeting of the Canadian Institute of Mining and Metallurgy, at the Royal York Hotel. Photo by The Northern Miner Gerald Merrithew Canapress Photo Service Michael Wilson