House of Commons Hansard #137 of the 37th Parliament, 2nd Session. (The original version is on Parliament's site.) The word of the day was c-48.

Topics

Questions on the Order Paper
Routine Proceedings

10:20 a.m.

The Acting Speaker (Mr. Bélair)

Is that agreed?

Questions on the Order Paper
Routine Proceedings

10:20 a.m.

Some hon. members

Agreed.

Points of Order
Routine Proceedings

10:20 a.m.

Liberal

Paul Szabo Mississauga South, ON

Mr. Speaker, I rise on a point of order. Earlier during routine proceedings the chairman of the Standing Committee on Procedure and House Affairs tabled a report from the committee and then, under motions, sought concurrence for that report. I would like some clarification from the House as to whether or not the motion to concur in the report is debatable and, if so, why the Chair does not call for debate prior to asking for unanimous consent.

Points of Order
Routine Proceedings

10:20 a.m.

The Acting Speaker (Mr. Bélair)

To answer your query, in theory a motion of this kind is debatable but in practice it has not been the case for many years. I do not know if the member would like to pursue the matter with the hon. member for Peterborough in order to get the explanation he is looking for.

Points of Order
Routine Proceedings

10:20 a.m.

Liberal

Paul Szabo Mississauga South, ON

Mr. Speaker, I raised the issue and it is important. I will pursue it, possibly again with the Standing Committee on Procedure and House Affairs or others who may have some impact on the Standing Orders.

I would remind hon. members that such a report and such a concurrence motion without debate was one of the reasons why the Lord's Prayer was eliminated from the routine of this place without the knowledge of members of the House, so I will be pursuing it.

Income Tax Act
Government Orders

October 9th, 2003 / 10:25 a.m.

Bourassa
Québec

Liberal

Denis Coderre for the Deputy Prime Minister and Minister of Finance

moved that Bill C-48, an act to amend the Income Tax Act (natural resources), be read the third time and passed.

Income Tax Act
Government Orders

10:25 a.m.

Oak Ridges
Ontario

Liberal

Bryon Wilfert Parliamentary Secretary to the Minister of Finance

Mr. Speaker, the legislation before us, Bill C-48, implements a new federal income tax structure for Canada's resource sector, to be phased in over five years.

To begin, I want to give the House a sense of the overall importance of the resource sector, especially mining and oil and gas, to the Canadian economy as a generator of investment, exports and jobs for Canadians.

In 2001, for example, the sector accounted for almost 4% of Canada's GDP, with over $64 billion in exports and more than $30 billion in capital expenditures. As well, over 170,000 Canadians work in resource businesses.

The potential for future resource development exists right across the country. While the mining industry is vital to rural and northern economies, the oil and gas industry is important to both the western and Atlantic provinces and the territories.

Internationally, Canadian resource industries are large investors in innovative technology and they also play a significant role in the provision of exploration and extraction services.

Overall, the changes in Bill C-48 will be positive, both for mining and for the oil and gas industry, but before discussing them, I want to briefly review the existing sector specific tax measures.

As hon. members know, income earned in Canada from the extraction and initial processing of non-renewable resources has historically been subject to a range of targeted tax measures.

For example, certain provisions determine the timing of deductions for capital expenditures. They include Canadian exploration expenses, Canadian development expenses, Canadian oil and gas property expenses and capital cost allowances. These measures recognize the risks involved in investing in resource exploration and extraction and also play an important role in ensuring a competitive business environment.

In addition, the resource sector is able to use flowthrough shares to raise capital for resource exploration and development. Individuals investing in flowthrough shares for grassroots mineral exploration are also eligible for the 15% mineral exploration tax credit, introduced in October 2000 as a temporary measure to moderate the impact of the global downturn in exploration activity on mining communities across Canada.

Another resource specific provision is the 25% resource allowance. This provision was introduced in 1976 primarily to protect the federal income tax base from what were rapidly increasing provincial royalties and mining taxes, which had been deductible for federal tax purposes.

The resource allowance, however, is an arbitrary deduction that does not necessarily reflect the actual cost of royalties and mining taxes. Consequently, it can distort the returns from individual resource projects and the allocation of investment between projects within the resource sector and between the resource sector and other parts of the economy.

As well, the complexity of the resource allowance calculation has meant substantial compliance costs for the industry and administrative costs for government.

The economic conditions that led to the introduction of the resource allowance have changed significantly since the 1970s, leaving the original need for it less relevant. In today's economic environment, there is greater pressure on producers to be efficient and on host jurisdictions to levy royalties at competitive rates.

The government recognized that the resource sector tax regime is capable of generating even greater investment and jobs for Canadians. In designing a new tax regime for the sector, the government was guided by three main goals.

First, the tax regime must be internationally competitive, particularly in the North American market. Second, it must be transparent for firms and investors. Third, it must promote the efficient allocation of investment both within the resource sector and between sectors of the Canadian economy.

Following extensive consultations with the industry, and I underline extensive, the government announced in the 2003 budget that it intended to improve the taxation of resource income.

Subsequently, on March 3 the Minister of Finance released a technical paper on the budget proposals. These proposals were reviewed in the course of extensive consultation with the industry and with the provinces. In response to these consultations, some special transition measures were incorporated into the legislation before the House today.

I would now like to briefly review the measures in Bill C-48. The proposed new tax structure will ensure that the resource sector firms are subject to the same statutory rate of corporate income tax as firms in other sectors. It will also ensure that these firms can deduct their actual cost of production rather than an arbitrary allowance.

Let me explain a little further. The first measure in Bill C-48 would reduce the federal statutory corporate income tax rate on income earned from resource activities from 28% to 21% by 2007. This rate is often the first piece of information viewed by prospective investors. If Canada is to send a positive message to investors that it is competitive, then this uniform lower rate is indeed essential.

The second measure would eliminate the arbitrary 25% resource allowance and would provide a deduction for the actual amount of provincial and other crown royalties and mining taxes paid. This means that projects would now be treated in a more comparable fashion. This change would promote efficiency by ensuring that the investment decisions were based more consistently on the underlying economics of each project. It would also result in a simpler tax structure, streamlining tax administration and compliance.

The government has recognized the particular circumstances of the mining sector in Bill C-48 by proposing a new 10% mineral exploration tax credit and it will apply to both Canadian grassroots exploration and preproduction development exploration for diamonds, base or precious metals and industrial minerals that become base or precious metals through refining.

It is proposed that these new measures be phased in over a five year transition period. An exception is the new mineral exploration credit which will reach its full rate in only three years. The proposed implementation schedule provides a reasonable transition to an improved tax structure in a fiscally responsible manner.

In addition to the resource tax changes, Bill C-48 includes measures that promote renewable energy and energy conservation projects by improving the treatment of Canadian renewable and conservation expenses, the CRCE. These expenses are fully deductible in the year that they are incurred and can be transferred to investors under a flow-through share agreement.

As I clarified in the standing committee hearings, we are discussing federal tax changes only. To the extent that the provinces rely on the federal tax base though, if offsetting adjustments are not made, provincial income tax revenue from the resource sector may increase as a result of these changes.

The international competitiveness of Canadian firms will be maximized where provinces provide a mechanism to return to the industry any provincial revenue gain arising from the changes to the federal tax structure.

The new tax structure for the resource sector complements other measures in the 2003 budget. We discussed these measures during the debate last spring on Bill C-28, the Budget Implementation Act, 2003. That bill eliminated the federal capital tax over five years, which will strengthen the Canadian tax advantage for investment in the capital-intensive resource sector.

Together with the elimination of the federal capital tax, the new measures in the bill we are considering today will substantially reduce the effective tax rates, both for the mining and the oil and gas industries.

For oil and gas, this reverses a current disadvantage relative to the United States. For mining it will build on an existing advantage. In both cases the changes place the Canadian resource sector in a markedly improved position to attract capital for exploration and development.

Bill C-48 reflects the government's ongoing commitment to an efficient and competitive corporate income tax system which plays an important role in creating a stronger and more productive economy. The resource sector attaches considerable priority to the delivery of these proposed changes. I cannot emphasize that enough for the members.

During the finance committee hearings on Bill C-48, the industry representatives and many committee members indicated that they considered the timely delivery of the legislation to be of utmost importance to their constituents and, indeed, to many provinces such as Alberta, Saskatchewan, Nova Scotia, et cetera. Given the benefits of these changes for the resource industries and the communities on which they depend, I would encourage all hon. members to give quick and speedy passage to Bill C-48.

Income Tax Act
Government Orders

10:35 a.m.

Canadian Alliance

Jason Kenney Calgary Southeast, AB

Mr. Speaker, I have two questions. Why did it take three years for the government to finally understand the logic of tax equity? Why did it take between the budget of 2000 and the budget of 2003 for the government to finally realize one very simple principle: that we ought not to discriminate against particular sectors of the economy, in this case the energy sector? Why the delay?

Second, why will it now take five years from this point to create equity for the men and women who work in the oil and gas, mining and forestry sectors of Canada? There is an eight year gap between the general reduction in corporate taxes in 2000 and the full implementation of the changes to non-mineral resource taxation. What can possibly account for that?

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10:35 a.m.

Liberal

Bryon Wilfert Oak Ridges, ON

Mr. Speaker, I would have expected the member to get up and actually praise the fact that the government has brought in Bill C-48 and that we are now ensuring that we have a competitive tax regime for the mining and the oil and gas sector.

Clearly, we want to ensure on this side of the House that when we bring in legislation, we do it with the full support and concurrence of the major stakeholders, whether they be in the resource sector or with the provinces.

The hon. member also knows that the government has been a leader in not only eliminating the deficit and paying down the national debt, but also ensuring that we have the necessary dollars to do these things and that we do not go back into a deficit. We have had now six balanced budgets or better.

Rome was not built in a day. Obviously we are responding to the industry, to the provinces and we are doing it in what I believe is a timely fashion. We are implementing a phase-in over a five year period, again in concert with the consultations that we have had.

I would assume, the member being from the province of Alberta which is obviously very supportive of this, that we can expect his support on this legislation.

Income Tax Act
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10:35 a.m.

Canadian Alliance

Jason Kenney Calgary Southeast, AB

Mr. Speaker, that response was completely disingenuous. I have enough respect for the parliamentary secretary to know that he knows it is disingenuous to suggest that it will take the government eight years from the lowering of general corporate tax rates in 2000 to bring about full equity for the non-mineral resource sector because it wanted to consult “with the stakeholders”.

In other words, the parliamentary secretary is trying to tell us that oil and gas companies were asking the government to do this as slowly as possible, that these companies, which are responsible for hundreds of thousands of jobs in our economy, asked the government to please let them consult over three years about whether they would ever get the tax equity with other corporations and that it should please take five years after that to implement it. This is utterly ridiculous.

The other reason the member alluded to for the eight year delay in tax equity for this important sector was that it was necessary to do things in the context of fiscal responsibility. Once fully implemented the total static forgone revenue projection for this tax change will be $260 million a year. If I am not mistaken, that is about as much as the cabinet decided to spend on new jets.

Where are the priorities? If it is really about fiscal responsibility, why not cut the parties of the Minister of Canadian Heritage at Whistler and across the country? Why not put the jets on hold?

Income Tax Act
Government Orders

10:40 a.m.

Liberal

Bryon Wilfert Oak Ridges, ON

Mr. Speaker, was that a question or an editorial comment? I assume the member is supportive of the fact of a reduction from 28% to 21% by 2007. The fact is the industry came forward. The industry is obviously anxious to see the legislation go through. We do not want to wait. We need to get it through.

Obviously, if the industry can live with this five year phase-in, although as I pointed out to the member that the exception of a new mineral exploration credit will only take three years, if the provinces can live with it, then I hope the member can live with it. I certainly respect the fact that the member is concerned about the legislation. I thank him for the question.

The reality is that after the consultations, after the discussion before the Standing Committee on Finance where no amendments were proposed, if we get this through in a timely fashion, we will be able to deal with the very issues with which that member has indicated he is concern.

Income Tax Act
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10:40 a.m.

Bloc

Serge Cardin Sherbrooke, QC

Mr. Speaker, I have a question for the hon. member opposite.

When the government is considering changes of such magnitude, I presume it develops models and makes projections.

Could the hon. member tell me what these projections are? Can he confirm that all sectors in the natural resources industry, all the mines and the oil companies, will benefit from these changes? As far as the oil industry is concerned, we know for certain that a $250 million surplus will be created rather quickly.

What will the impact be on each category of mines? Will all of them benefit from these lower taxes or tax changes? Can the hon. member tell us honestly if there will be differences and what they will be?

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10:40 a.m.

Liberal

Bryon Wilfert Oak Ridges, ON

Mr. Speaker, there is nothing like asking a question when the answer is already known, and I assume the member knows the answer. Yes, overall this will have a positive impact on the industry.

There is no question that some specific individual companies may benefit more than others. The industry accepts that. The Mining Association of Canada has made it very clear that even though some may not benefit initially and others may benefit greatly, it wants to see the legislation go through. It would not be fair to tell the member that everyone will benefit on day one. Clearly, overall the vast majority will benefit significantly because of these measures.

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10:40 a.m.

NDP

Joe Comartin Windsor—St. Clair, ON

Mr. Speaker, in the process of developing the provisions of Bill C-48, did the government take into account the impact of the continued burning of fossil fuels, whether it be gas, oil or coal?

More particular, has there been any meaningful consultation by the government with environmental groups that have positioned themselves in a very clear fashion about the continued and now expanded use of incentives for the oil and gas industry and the coal industry?

Finally, in developing Bill C-48 was any consideration given to the facts that have now come out in the Conference Board report of this past weekend. That report states that of the 24 leading industrial countries in the world, Canada produces more carbon dioxide per capita from the burning of fossil fuels? We are the absolute worst country out of those 24 countries.

Have any of those factors been taken into account in coming up with these kind of subsidies for the continued subsidization of the oil and gas industry?

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10:45 a.m.

Liberal

Bryon Wilfert Oak Ridges, ON

Mr. Speaker, I am not quite sure that I understand the question. The fact is these are tax measures. I mentioned some environmental aspects, but this essentially is a tax bill. It is there to benefit provinces such as Nova Scotia and the oil and gas industry. It is to put Canada on an internationally competitive advantage with others, and in particular within the North American sector.

He specifically asked about coal burning, et cetera. That is not specifically germane to this bill. I understand the member has concerns in that regard. However, as far as the specific tax measures and if one type versus another type was taken into account, the answer is no.