Editorial Common sense may yet win out

It’s sometimes difficult to separate reality from wishful thinking when it comes to judging the success of the mineral exploration industry’s campaign to save flow-through financing.

The issue itself has been a hard one to sell to the general public. The idea of giving a tax deduction to “wealthy” investors of $1.33 for every $1 invested just smacks of making the rich richer. In reality, however, that incentive has meant those so-called wealthy Canadians are putting money into Canada’s north that might otherwise have gone to Florida real estate or British Airways.

The benefits of the flow-through tax mechanism have been well documented by those who support it: it permits direct investment instead of government handouts; it avoids creating a large bureaucracy for its operation relying instead on the existing marketplace; the money is invested by Canadians in Canada; there have been virtually no “scams” involved as there were with other tax incentive programs such as the infamous Scientific Research Tax Credit.

But most of the campaigning has been unable to go beyond the preaching-to-the-converted stage. Until recently. In the past few months there seems to have been a breakthrough in reaching the decision makers — that is, in reaching Finance Minister Michael Wilson.

Wilson hasn’t changed his decision to phase out the Mineral Exploration Depletion Allowance (the mechanism that bumps up the tax deduction for Canadian mineral exploration from 100% to 133%) by 1990. In fact, while in New Brunswick recently he was pressed to declare whether he might forego that particular tax reform and he reiterated his plan to phase it out.

But the very fact that he has had to respond directly and publicly to the question is a step forward. Wilson has always been accessible and responsive to the mining industry’s concerns, but his stated intentions for the industry have never seemed to be of interest beyond the associations and lobby groups that have approached him directly. Now his intentions are gaining much wider public attention.

The Prospectors and Developers Association of Canada has been the most persistent and most vocal of the groups lobbying against the tax reform proposal because its members are those most directly affected. In the past the PDAC has not always mounted the most effective campaigns when it comes to seeking political support for its causes. In this case, however, it has mustered an impressive list of facts, figures and examples to show how effective flow-through financings have been for the industry and for regional development in some of the poorest parts of the country.

A committee of concerned citizens from mining communities across the country has also mounted a solid and reasoned campaign to save flow-through. It has taken the campaign directly to the people, not just those directly involved in mining, and made sure that they and their local politicians are aware just how much flow-through means to their communities.

That direct political pressure appears to be paying off. In Newfoundland, International Trade Minister John Crosbie has come out in support of flow-through in response to local pressure. Newfoundland is a prime example of how flow-through is able to funnel money from Toronto and Montreal into depressed areas of the country while avoiding the tinge of being a government handout.

With a senior cabinet minister onside, it appears that the pressure on Wilson is mounting not just in volume but also in kind.

And now the Mining Association of Canada is publicly urging Wilson to revise his tax reform proposal. It might seem obvious that the association would support the lobbying efforts but, in fact, the association’s support is a big boost. The association represents Canada’s biggest mining companies and virtually all of the producing mining companies. Most of these companies have little to gain by supporting flow-through as they are quickly becoming taxable and therefore would not use flow-through but keep the tax deduction themselves.

In fact, the large companies could benefit should flow-through be done away with. There would undoubtedly be a large shakeout in the exploration industry and the senior companies would likely be able to acquire some very good bargains — either properties that small exploration companies couldn’t afford to maintain or through acquisitions of entire junior companies.

The MAC says it still supports tax reform in general, but says it fears doing away with flow-through because the result would be a drastic cutback in mineral exploration which in the long run could jeopardize the availability of mineral resources for the future growth of Canada’s mining industry.

While it’s unlikely Wilson will be able to change his plans — a perceived “flip-flop” could be politically damaging — there may be some form of compromise, some way of permitting Wilson to maintain his commitment to tax reform while maintaining the benefits of flow-through.

Wishful thinking? Perhaps. But the pressure of common sense is often very compelling.