As Canadians strive to come to terms with the terrorist attacks of Sept. 11 in New York, N.Y., our preoccupation with near-term issues such as the security of the country and safety of its citizens is understandable. At the same time, it’s critical that we improve the structure and performance of our economy to compete in a rapidly changing and increasingly competitive global market.
As price-takers in the international marketplace, we are vulnerable to the vagaries of market cycles. Today’s uncertainty has added to the serious challenges that the minerals and metals industry has been facing since the economic downturn that began with the Asian financial crisis in 1997.
The economic downturn continues to have a negative impact on consumer demand and prices, wreaking havoc on the quarterly results of Canadian mining companies.
For example, the average price of nickel in the third quarter was 34% lower than in the corresponding period of 2000. Copper is down 21% (its lowest level since 1999) and zinc prices have fallen 30%. As a result, jobs have been lost, exploration budgets curtailed, and research and development spending reduced. The next six months are critical — a recovery in metal prices will mostly depend on a recovery in the world economy.
Our industry is also facing: increased competition for capital; new financing requirements; and corporate consolidation.
For these reasons, there is a need for a more strategic fiscal policy that will enhance the competitiveness of mining and other industrial sectors.
In late October, the governor of the Bank of Canada stated that “how quickly growth will resume will depend crucially on geopolitical developments and on how soon consumer and business confidence returns to normal.”
Long-term improvements in the regulatory process would help improve consistency in terms of how legislation and regulations are applied. These changes could also streamline bureaucracy between the federal and provincial governments, as well as territorial jurisdictions.
Canada’s debt to gross domestic product ratio ranks among the highest in the industrialized world. When the minister of finance, Paul Martin, appeared before the finance committee in June 2000, he stated that “there is recognition that when you have a national debt as big as ours, the more you pay down the debt, the better it is.” We support this policy.
We also support the federal government’s acceleration of tax reductions announced in the October 2000 Economic Statement and believe that the 5-year, $100-billion tax cut program must be fulfilled.
Nonetheless, we view this as a starting point, and believe that the government should work to fulfil the second part of its commitment, that being to “look at new options for cutting taxes.”
To ensure the participation of the Canadian mining industry in the global economy, the business tax system must be internationally competitive. The federal government’s decision to provide a 7% reduction in corporate income tax rates for all sectors of the Canadian economy, except mining and other natural resource industries, is unfair, discriminatory and places us at a competitive disadvantage.
Furthermore, the natural resource industry is one of the few sectors that provide tangible economic opportunities for rural, remote, northern and aboriginal communities.
Canada’s mineral tax regime is under intense pressure from competing jurisdictions, which have quickly become more tax-competitive. The speed and extent of corporate tax reductions in other countries, combined with the growing mobility of capital in the global economy, pose a serious threat to domestic mineral development.
To help our industry compete internationally, the federal government should:
– create policies to attract investment;
– reinforce the plan for debt reduction by clarifying targets;
– extend the corporate income tax rate reduction provided to other industries to the mining industry (thereby maintaining a single rate of federal corporate tax for all sectors);
– maintain the tax provisions for the mining sector that make the system sensitive to variations in risk;
– reduce capital taxes or taxes on productivity; and
– ensure that there is a realistic plan to limit greenhouse gas emissions (before ratifying the Kyoto Protocol).
As businesses, governments and individuals work to understand the impact of Sept. 11, it is critical to remind ourselves that a competitive economy is the essence of a prosperous society. Investment in national security is clearly a priority. However, fighting off the pressures to spend, by continuing to place the highest priority on fiscally prudent policies, will make us least vulnerable to external shocks and help us focus on the long-term potential of the Canadian economy.
Participating in the global economy is a constant battle. There is no one-size-fits-all solution for its different sectors. We have many competitive advantages, including natural resources, an educated and skilled workforce, a robust telecommunications infrastructure, and proximity to the U.S. market.
All of our industrial sectors — mining, energy, technology and telecommunications — have different dynamics that must be considered in creating strong domestic industries. This is not the time to sit back and allow our industrial sectors to become globally insignificant.
— The preceding is an edited version of a paper submitted to the House of Commons Standing Committee on Industry, Science and Technology.
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