Editorial Governments taking more than their share

Perhaps the most startling figure to come out of an annual review of the industry conducted for the province’s mining association is that earnings in 1988 — a total of $449 million — only generates a 14.3% after-tax return on shareholders’ investment.

That’s not a bad return, but hardly breathtaking. Considering it is the best in 10 years, it’s hardly likely to convince many investors to forego government of British Columbia bonds offering a yield of more than 12%. In fact, the average after-tax return on investment in British Columbia’s mines over the past 10-year period was just 5.3%.

All-in-all, British Columbia’s mining industry had a remarkably healthy year in 1988. Gross revenues for the 42 mining companies surveyed in the Price Waterhouse study amounted to $3.9 billion compared with $3.2 billion in 1987. Mining companies spent $3.7 million, a 17% increase over 1987 and an all-time high for the industry. That equates to about 7% of British Columbia’s gross provincial product.

On top of that, the industry paid $39 million in dividends.

There’s no doubt that the industry benefitted from higher metal prices in 1988, prices that have continued so far in 1989 with the exception of gold. But the companies themselves have taken the necessary and often difficult steps to improve productivity. It is because of those efforts that the industry was able to survive the early 1980s as well as it did in order that it may now enjoy the benefits of higher commodity prices.

One factor that is disturbing in this picture of British Columbia’s mining industry comes in a short chapter in the Price Waterhouse study titled “Payments to Governments.” According to the study, total payments to governments by mining companies in British Columbia increased by $34 mi llion to $418 million in 1988 — almost as much as the industry’s combined profits for the year. Over the past decade, payments to governments have totalled $1.9 billion, more than what the companies earned after paying taxes over the same period.

The $418-million figure includes employees’ income-tax deductions, so it is not correct to call that a cost to the companies. Nevertheless, it is the mines that generate the employment. Those individuals’ income taxes are realized directly from the value of the product being mined. It is the employee who makes the payment, but he’s only getting his pay cheque because the orebody is being exploited.

There’s no doubt that governments should benefit when the mines are making money. Government provides the infrastructure that makes developing those mines possible.

That said, the heavy hand of government can all too easily kill the goose that lays the golden eggs. British Columbia’s water rental fees are a prime example. Altogether, the provincial government collected $21 million in water rental fees during 1988. Cominco’s payments alone were $9 million in 1988 compared with $200,000 in 1980. In fact, the fee has escalated to such a level that Cominco cancelled its plans earlier this year for a $130-million expansion of its zinc refinery at Trail, B.C.

It’s fine for the provincial government to raise the money needed to provide the services we demand, but it is shortsighted for the government to take more of the profits than those who have risked their capital to create that wealth. If government grabs too much, investors are likely to settle for collecting interest on government debt rather than investing in the country’s future.

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