COMMENTARY — The resource sector and the budget

The Hon. Paul Martin, federal minister of finance, wrote the following at the invitation of Keep Mining In Canada, a national grassroots campaign designed to increase public awareness of the importance of mining in this country.

I welcome the opportunity to discuss federal resource taxation provisions introduced in the 1996 budget. These will help deliver on the Liberal government’s mining agenda. First, however, let me say that we are well on the way to securing our financial future in Canada. As a result of our last three budgets, the federal government has been meeting and exceeding its fiscal targets. We are getting our public finances in order and focusing our priorities on promoting a more efficient, productive, and growing Canadian economy — one in which jobs are a central component.

One of our objectives for restructuring government spending is to target business tax provisions. The 1995 budget announced the government’s intention to review measures affecting the resource sector. To fulfil this commitment, my colleague, the Hon. Anne McLellan, minister of natural resources, the Liberal Party’s Mining Caucus, and my officials held various discussions with the mining community and the provinces to gather valuable suggestions on a possible replacement for the resource allowance.

The measures announced in the 1996 budget are a direct result of these consultations and should help bring stability and consistency to the tax treatment of the mining and resource sectors. Specifically, modifications to the resource allowance were well-received by the mining sector because the budget clarified a number of definitions and added tightening measures that will result in greater certainty in the calculation of the resource allowance. The budget also announced changes regarding the treatment of resource losses that will take effect after 1996. Together, these changes will simplify the resource allowance and better target it to resource income.

Another important measure relates to the accelerated capital cost allowance (ACCA). Companies wanting to invest in major expansions of their facilities will be allowed access to the ACCA, even when their projects do not meet the 25% capacity expansion test. From now on, the size of the financial commitment will be just as important as the physical dimension of an expansion when establishing what is a major capital expansion for ACCA purposes. This change should encourage mining and oil sands companies to make major investments in modernization and environmental protection programs.

The budget also proposed changes to the flow-through share mechanism. While certain mining development costs will no longer be eligible for flow-through share treatment, I propose — at the request of the mining industry — to extend the existing 60-day rule to one full year. This will facilitate a more efficient use of the industry’s exploration resources and help maintain Canada as one of the world’s top targets for mineral exploration.

Overall, Canada’s mining taxation regime should remain among the most attractive in the world as a result of the 1996 budget. This should contribute to maintaining Canada’s position as the world’s largest exporter of mineral commodities.

Finally, I would like to extend my appreciation to the mining industry for their effort in making the resource allowance consultation a success. It was a good example of how we can resolve issues through government-industry co-operation. This reflects a real desire on the part of the government to understand and work with the mining industry to implement policies that are in the interest of hundreds of single-industry communities across Canada. We have listened to your concerns about the tax burden on the mining industry and will continue to look for ways to keep mining in Canada.