Bill C-48 (Historical)

An Act to amend the Income Tax Act (natural resources)

Income Tax Act

[Pierre Paquette, Bloc, Joliette, QC]

Mr. Speaker, I listened carefully to the hon. member's remarks. I am a bit surprised at his conclusion that this reform is a win-win situation and that nobody will lose, when the Mining Association of Canada told the finance committee that it would be disadvantaged by this tax reform. Not by the reduction in the tax rate from 28% to 21%, obviously, but by the changes in other tax rules.

Gordon Peeling, the chairman and chief executive officer of the Mining Association of Canada, told us that if Bill C-48 were not amended, with the impact of this reform and other reforms announced by the government, like the capital tax, the effective tax rate of mining companies will increase by 3% in 2003, 7% in 2004, 10% in 2005, 19% in 2006 and 29% in 2007.

I cannot understand how the hon. member can suggest that this will be good for the mining industry. There is probably no mine in his riding.

[Paul Szabo, Liberal, Mississauga South, ON]

Mr. Speaker, I listened with interest to the member's comments on Bill C-48. I would like to remind him that the enactment includes measures to implement a deduction for crown royalties and mining taxes, to eliminate the resource allowance, to reduce the corporate tax rate applicable to resource income, and to introduce a new 10% tax credit for qualifying mineral exploration expenses.

The member agreed with the changes but had some comments about delays. He concluded that he agreed with the bill in principle, which is what we do at second reading and did at second reading.

This is third reading now. This is not the time to agree in principle. This is the time to agree with the bill, its provisions and its implementation schedule and details.

I would therefore ask the member, is there anything in this bill, not just in principle but in detail, that he has a problem with and if he has one, how would he resolve it?

[Jason Kenney, Canadian Alliance, Calgary Southeast, AB]

Mr. Speaker, I am rising to speak at third reading stage of Bill C-48, an act to amend the Income Tax Act with respect to natural resources. For several years I have fought, on behalf of my constituents, to obtain tax equity for the natural resource sector.

I represent a suburban constituency in Calgary where by far the single largest employer is the energy sector. Often the energy sector is depicted as some great bogeyman, a great polluter, that rapes the resources of the earth and gives nothing back to society.

In fact, it is an absolutely vital element of our economy, both in terms of growth and employment. If it were not for the energy sector and if it were not for the remarkable technology and ingenuity that makes up our energy industry, we would not be able to live so comfortably in this cold northern climate. We would not be able to do the many things that we take for granted, all of which depend on energy.

The oil and gas sector of our economy is directly responsible for over 60,000 jobs and indirectly creates hundreds of thousands of others. It is an industry that is too often and too easily dismissed or disregarded. When the government adopted income tax changes for corporations in its 2000 budget by reducing over time the general rate to 21%, it failed at that time to provide tax equity for the natural resource sector, which includes more than just oil and gas companies. The natural resource sector also includes mining companies and forestry companies.

I suppose the government's view at that time was that it needed to encourage the new economy in Canada and thought it ought not to provide incentives for the continued growth in the traditional industries which have historically constituted the heart of the Canadian economy, that is to say, primary industries like mining, oil and gas, and lumber. That was a huge mistake.

To this day an enormous percentage of our exports upon which this economy depends come from the oil and gas, mining and forestry sectors. Collectively, those sectors constitute the largest employers in the country. Most of the remote communities in Canada are created and sustained by the non-renewable resource sector. In a sense, our very claim to sovereignty--including many remote parts of the country in the north and from Labrador to British Columbia to the territories--is dependent upon the enormous investments made and risks taken by oil and gas, mining and forestry companies.

This is a sector that we should not dismiss as part of the old economy and a threat to the environment. To the contrary, we should applaud people who work in these sectors for the enormous technological ingenuity that they have developed and applied in the past couple of decades to make the extraction of resources increasingly efficient and environmentally friendly. We should recognize the hundreds of thousands of good paying jobs for working families that these companies helped to create.

That is why I strongly opposed the creation of a two tier tax system in the 2000 budget: one tier for most corporations and another tier for the natural resources field. Unfortunately, it took three years for the government to realize that this inequity was unjustifiable after vigorous lobbying on the part of companies in that sector. It was not until the 2003 budget that the government finally proposed to correct this fundamental wrong.

Unfortunately, it has now taken five years for the government to implement the changes proposed in the 2003 budget, and this is really my concern.

I will support this bill. I voted for it last night along with my colleagues in the official opposition, but it would be our strong preference to see these changes implemented in one fiscal year so that we could move the non-renewable resource sector taxation from 28% to 21% and adopt the exemption for provincial royalties and the credit for mining in one year.

I cannot believe that we must wait five years for the government to do that technically. It is simply stringing out the process of corporate tax equity because it wants the revenue. It wants to make the process as slow as possible so it can continue to generate more revenue from this sector which already pays an enormous tax burden.

Indeed, the ostensible fiscal cost of this tax change will be relatively modest. For the federal government, whose budget is over $160 billion, once fully implemented, this tax change represents only $260 million which, as I pointed out in my question to the hon. Parliamentary Secretary to the Minister of Finance, is a relatively modest amount of money when one considers the kind of waste that we see and the kind of misplaced priorities that we observe on the part of the federal government.

I am pleased that the bill will take into account the costs that are borne by oil and gas companies in paying provincial royalties. Originally, before this bill was introduced, before the 2003 budget the federal government was playing hardball with the oil and gas sector, saying that it will give the sector tax equity at a 21% rate, but the trade-off will be that it will take away the royalty tax credit, otherwise known as the resource allowance.

Collectively these companies pay billions of dollars in royalties to provincial governments. These royalties are an important part of provincial revenue streams. We can see that now in places like Newfoundland and Labrador, and increasingly in Nova Scotia where the provincial treasuries have been enriched by new oil and gas royalty revenues coming on stream.

It was fundamentally unfair for the government to spend three years playing cat and mouse with the energy sector saying that it will give the sector tax equity but only on the face of it, because it will take away the sector's ability to deduct from federal tax the cost of provincial royalty taxes.

I am glad to see that while the government has indeed eliminated the resource allowance here, it has offset the fiscal effect of that by creating in this bill a deduction for provincial royalties against federal taxes. That is absolutely necessary and we will be watching closely to ensure that it remains the case.

Similarly, we are pleased to see that an enriched credit has been provided for mining companies to ensure that the loss of the resource allowance will not negatively affect them. I understand that the net fiscal effect on mining companies will be positive. They will not be net losers as a consequence of losing the resource allowance while moving the rate to 21%.

In closing, we support the principle of the bill. We regret it has taken so long to arrive. We believe that the eight year delay in arriving at tax equity for the resource sector reflects a basic bias that the government has against that sector of the economy, and we regret that. It will continue to be a priority for the Canadian Alliance to press toward lower tax rates across the economy generally, including the most productive sector of the economy, that is, the major employers in the corporate sector.

[Joe Comartin, NDP, 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?

[Bryon Wilfert, Liberal, 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.

[Bryon Wilfert, Liberal, 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.

[Denis Coderre, Liberal, 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.

The Income Tax Act

[The Acting Speaker (Mr. Bélair)]

It being 5:29 p.m., the House will now proceed to the deferred recorded division on the motion at report stage of Bill C-48.

Call in the members.

(The House divided on the motion, which was agreed to on the following division:)

Income Tax Act

[Peter Stoffer, NDP, Sackville—Musquodoboit Valley—Eastern Shore, NS]

moved that Bill C-210, An Act to amend the Income Tax Act (amateur sport fees), be read the second time and referred to a committee.

Madam Speaker, it gives me great pleasure to rise again to speak to Bill C-210. Not only is the bill a way to give a little back to the taxpayers of Canada and their families, but it is also a way to save potentially millions of dollars in our health care system and possibly even in our justice system.

The reason for that is what the bill seeks to do. People who enrol in sporting activities and clubs or who have children or dependants enrolled in sporting activities and clubs have approached me and I am sure all members of the House of Commons, regardless of political affiliation, to indicate the high cost of fees throughout the country to register children in hockey, baseball or whatever the sport may be. The bill seeks to offer people an opportunity to get a tax refund.

For example, if a person registers their child in a minor hockey program for $400, the bill provides that the person could claim the $400 as a tax deduction similar to a charity donation. The same percentage of tax refund would apply.

This is one of saying to the taxpayers of Canada, “Here is a little bit back”. And if we can encourage physical participation in sport, regardless of age, we would have a much more healthy and vibrant society.

I have been involved in sports for my entire life. The sport of which I am most fond, of course, is soccer. When I started playing soccer in Richmond, British Columbia, the fee to join was $2. Nobody complained about the fee at that time. Now in Nova Scotia the fee is $90 per child. I have two kids, so it costs $180. A lot of people find that prohibitive. They simply cannot afford to put their children in this type of sport, and soccer is one of the most inexpensive sports out there in terms of equipment required.

The reality is that we should be doing all we can to encourage physical activity for our children and, for that matter, for their families, especially the parents. People would get back into shape and we would become a much healthier society.

Does the bill address the issue of those who are on social assistance and simply cannot afford the fee to begin with? No, it does not, but being in the fifth party in the House of Commons on the backbench here I think it would be very wise for me to lob this bill over to the government members and tell them to look at it, because it is something we need to debate. This is something we need to encourage. We need to encourage more families to be involved in sports and physical activity, for a lifelong adventure, because if we are involved in sports when we are young, we will be involved in physical activity for the remainder of our lives.

We know that one of the greatest crises facing the country right now is obesity in children. Probably half the children in this country are obese. The reason is that we have become a techno-society. Kids will sit in front of the television, Nintendo games or movies and do nothing but sit. Many of us are couch potatoes. In fact, many in this House of Commons could not walk up seven flights of stairs without choking to death.

We need to change that. I think the way to do it is through the tax system by offering people an opportunity to claim some of the fees back as a tax consideration. If we do that and if people are encouraged to become involved in physical activity, I am quite sure that millions of dollars could be saved in the health care system. It is amazing that we sit in the House of Commons and demand that $2 billion or even more go to the health care system. We are always talking about the nth degree. What I mean is that we put money into the health care system to care for people who are sick but we should be trying to prevent people from getting sick because they are out of shape. We should encourage them to become involved in physical activities, in community sports for example, because nothing brings this country together better than amateur sports.

I notice that the government has no problems at all in assisting Olympic athletes or hockey teams when they compete in the Olympics, but why not help the very young to get an initial start in amateur sports by allowing their parents some of their own money back through the tax system?

This would free up more funds for families and quite possibly encourage more people to become active in sports, especially in amateur sports. Who knows: the young kids we help out today may very well be our future Olympians down the road. By doing that we would be encouraging a much better society than we have today. We all know that a healthy society is a very proactive society and one that will benefit everyone in the long term in terms of our health care.

As well, studies have shown time and time again that when groups of children are involved in sports activities those activities prevent them from getting into the justice system.

How many times in my own riding and in ridings throughout the country have MPs opened basketball courts, hockey rinks or new tennis courts, something of that nature, where a community has decided there is a need for their children that must be met?

Just a few years ago in the great community of Ship Harbour, Nova Scotia, I participated in the grand opening of a basketball court for the small community. That may not seem like a big deal, but the parents in that community identified a need for their children. The government was not there to help with any funding, although the parents did get a bit of money from their local councillor. People in that community did their own fundraising. They held bake sales and other things and built a basketball court, which is used all the time by the kids in that community. It is a wonderful thing to see the kids in this small community with an area where they can go to play.

We constantly hear about kids in communities throughout the country, especially kids in rural areas, who have nothing to do. The reason? There are no recreational facilities, no coaches and none of the framework that is required for these kids to participate. If we get them at a young age, we can encourage them to be active in sports lifelong.

Many of us in the House of Commons are active in sports. Members from both sides of the House are active in sports and all kinds of events. We have the House of Commons soccer club called the Commoners. The reason for the name is that this is exactly how we play: very common. The reality is that this gets MPs from all sides of the House together in an evening of fun. In fact, I encourage everyone to come out on October 22 and watch their fabulous members of Parliament from the five parties in the House of Commons defeat, once again, the brand new, young pages who are in the House today. This game will take place on the Supreme Court lawn. We have challenged them to a friendly sporting activity. I can assure everyone, on the record, because the pages cannot speak and I can, that we will defeat them one more time and hold the cup high for the House of Commons.

This is what I am saying. Even though that was in jest and it is fun, sports are fun. Physical activity is fun. But it is also very expensive. Again, if we can alleviate a bit of the financial pressure on families throughout the country, we will be doing them a great service. Besides, that is what we are here for. We are here to encourage a better society and to cooperate. Nobody wants to be out of shape. Nobody wants to develop bad habits at a young age. We can all change.

Not you, Madam Speaker. I think you are in great shape and I know you do a lot of physical activity in la belle province. The reality is that you are a role model and others need to follow your example.

A small way to promote activity in sports is this way, through the tax system. It would not solve all our concerns, but it would be one small way of recognizing the efforts of families, those hardworking taxpayers of this country who pay a lot of money to have their children registered in sports. If only we could say to them that if they spend x number of dollars on a particular item, they would get a bit back through their taxes. I think people throughout the country would say bravo to the House of Commons for this initiative.

We all know about soccer moms and hockey dads, et cetera. We know for a fact that many of them dedicate a large part of their lives to their children's activities. Once their kids are active in sports, that is what parents do. They dedicate their all weekends and nights and everything else to ensuring that their kids get the best of both worlds in terms of joining a team and taking part in a sporting activity.

Madam Speaker, I do not know if you yourself have ever taken part in team sports but I have done so my whole life and it is absolutely wonderful. Lifelong friendships are developed. Sports can be a lifelong healthy activity. Sports make people feel better and make them healthier.

I also cannot help but notice the number of people who have joined fitness clubs to get themselves into better shape. It is wonderful. We should encourage more people to do that. I admit that I could probably lose a few pounds myself and I am working on it. However through the tax system this is a great way we could do this.

I encourage all members of the House of Commons to carefully reflect upon the bill. I know it will not provide all the answers or solve all the problems but it is a small way that we can encourage it.

I know the government has fiscal responsibilities. I know it has concerns to meet in terms of balancing the books and everything. However if it can rush a bill like Bill C-48, which would offer millions and millions of dollars in tax concessions to the mining sector of the country, although for valid reasons, such as promoting investment and creating jobs in rural and northern parts of the country, but which will cost the treasury around $260 million by the year 2007, if we can help those companies, many of which are foreign owned, then surely we can find the time as members of Parliament to say to individuals and families, especially the taxpayers in our country, that we will look at them in a more favourable light and ensure that when they put money into sporting activities, club services or whatever, that they should be able to claim a bit of that back on their taxes.

I am not asking for the full amount to be tax deductible. I am asking for a small portion which would be exactly the same as a charitable donation. If we could achieve that it would go a long way.

In my own riding I have many people who dedicate a large part of their lives coaching their children. I also take the time to coach during the summertime. People dedicate a lot of time coaching basketball, hockey, baseball, gymnastics, whatever the sport may be. They love nothing better than to show a young person a particular skill in a sport and then watch that kid move forward.

We have a lot of people in our country who are simply not part of the sporting world because they simply cannot afford it or their parents do not have the funding or the money to get them into sports. Maybe this is one way to encourage and assist them to do that. If we can leave more money in the pockets of the average Canadian, they in turn could use those funds and perhaps be able to assist the various clubs and organizations throughout the country.

I encourage my colleagues in the Alliance, the Bloc, the Conservative Party and the Liberal Party to support the motion. I know they may have particular points of view that may differ or may even be similar in some regards but I encourage them to support the bill. I know many of them are active in sports. I know the member for Medicine Hat himself is a fine athlete and I know he would want to support the bill, especially for his families.

The member for Halifax West is an outstanding soccer player for the House of Commons. We just played soccer a couple of weeks ago. He also has his children enrolled in sports. He and his wife know exactly what it is like to drive the kids here and there. He knows it is also expensive for those particular sports. I would encourage my colleague from Halifax West, my neighbour next door, to also support the bill. What a great plug that would be for him in his next householder to say to the people that he supports this wonderful initiative.

Again I encourage support throughout the House of Commons and I thank the House of Commons very much for the opportunity to bring this important issue to debate today.

The Environment

[Charles Caccia, Liberal, Davenport, ON]

Mr. Speaker, on the one hand, the Government of Canada did the right thing in ratifying the Kyoto Protocol. It has also invested nearly $3 billion since the year 2000 toward the implementation of Kyoto goals.

On the other hand, the government is proposing a bill now before the finance committee aimed at reducing taxes on the oil and gas industry, a move which makes no sense because it would stimulate and accelerate emissions of the greenhouse gases we want to reduce to achieve the Kyoto objectives.

Evidently the finance department does not know that this government's major objective is to cut greenhouse gas emissions. Bill C-48, an act to amend the Income Tax Act, should be allowed to die on the Order Paper because it is not in the public interest and because it runs counter to a key government policy.

Committees of the House

[Sue Barnes, Liberal, London West, ON]

Mr. Speaker, I have the honour to present, in both official languages, the sixth report of the Standing Committee on Finance concerning Bill C-48, an act to amend the Income Tax Act (natural resources).

The committee has considered Bill C-48 and has agreed to report it (without amendment).

Income Tax Act

[The Deputy Speaker]

The House will now proceed to the taking of the deferred division on the motion at the second reading stage of Bill C-48.

[Serge Cardin, Bloc, Sherbrooke, QC]

Mr. Speaker, it is a pleasure to speak at second reading of Bill C-48. The main purpose of this bill is to reform the taxation of industry and natural resources.

Everyone will remember the gas price saga in August. In fact, there was a very substantial increase in gas prices this summer. At the same time, we learned that the federal government was giving a lucrative gift to the oil and gas companies.

We know that, in the 2000 budget, the federal government promised to lower corporate income tax from 28% to 21%, except obviously for businesses in the natural resource sector, such as oil, gas or mining. Because, naturally, there was also a tax credit.

Were it just a question of dropping the rate from 28% to 21% and eliminating the 25% allowance, the oil and gas companies would suffer as a result of these tax reforms. However, deductions for royalties might be allowed on their expenditures.

Consider the case of Petro-Canada. In 2002, it had royalties of $277 million. If it maintains royalties at this level in 2003, it will save approximately $7.5 million.

The finance minister also estimates that it will cost close to $260 million once the reform is fully implemented.

If we take a closer look, we can see the figures that some oil companies have made public recently.

Coming back to Petro-Canada and its second quarter report for shareholders. We know that Petro-Canada announced second quarter earnings of $450 million. That includes a positive adjustment of $96 million related to changes in the Canadian tax rate.

In the meantime, on July 23, 2003, Shell Canada Limited, in its quarterly report to shareholders, announced second quarter earnings of $178 million. Earnings included a one-time benefit of $54 million from a future income tax revaluation following announced income tax changes.

Meanwhile, Esso Canada in its second quarter report to shareholders, announced that tax rate reductions enacted by the federal government and the provincial government of Alberta and settlement of various tax matters had benefited results, mainly in the resources segment, by $109 million.

The three big oil companies are declaring future incremental profits of $250 million. Most of these profits can be attributed to Bill C-48.

Let us recap. We know that with the bill, the oil industry will see its tax rate decrease significantly. However, the mining industry in Quebec more than elsewhere will be penalized by this same measure. We might have expected the government to give a tax break to industry sectors that are having difficulties, but never to one of the most profitable sectors in the economy.

The bill would reduce the statutory corporate tax rate applicable to resource income from 28% to 21%.

As I said earlier, in the February 2000 budget speech the federal government announced a 7% reduction over five years of the general corporate tax rate, except for the resources sector.

The federal government did not grant the reduction to various industrial sectors, including the resources sector, which benefited from preferential corporate tax treatment.

In reality, since the resource sector benefited from other deductions, the actual tax rate was not 28% but rather 22%, according to KPMG.

Then there is the 25% resource deduction, which will be restricted, whereas the deductions for provincial and crown royalties, as well as mining taxes, might now be considered expenditures.

At the present time, the natural resources sector benefits from a 25% tax credit. Until 1974, provincial royalties were deductible. While the provinces were raising their royalties, the federal government's revenue was dropping. This 25% deduction was initiated in the 1974 federal budget to offset the non-deductibility of royalties.

Then there is the new 10% tax credit for qualifying mineral exploration expenses, but this applies only to metals and diamonds. The oil and gas industry is not included.

As far as tax rates are concerned, the benefits to these corporations can be seen. The rate will drop from 28% in 2002 to 21% in 2007. The deductible percentage of the present 25% resource deduction, which was still 100% in 2002, will drop to zero by 2007. The deductible percentage of mining royalties and taxes, which was of course zero in 2002—having only just been implemented—will hit 100% in 2007. Finally, the new mining exploration tax credit will go from zero to 10% by 2007.

To quote an excerpt from CAmagazine, the official publication of the Institute of Chartered Accountants:

From a federal tax perspective there will be winners over the phase-in period— companies with high royalty rates, such as oil and gas producers operating in Western Canada—.

However, in such provinces as Saskatchewan, Manitoba, Quebec and the Maritimes, the elimination of the resource allowance deduction for companies that benefited from the resource allowance results in an increase in the overall effective rate.

With respect to effective tax rates, I can quote a few figures. In this context, the overall effective tax rates, taking into account federal and provincial income tax, will increase. According to financial analysts, in Manitoba, the effective tax rate for the entire natural resource sector will increase by 2.9%; in the Maritimes, it will increase by up to 3.25% and even 4%; in Quebec, it will increase by 2.25%; and in Saskatchewan, by 4.5%.

You will therefore understand that we cannot support a bill that will result—and even accounting analysts say so—in an increase in effective tax rates, if we take into account all of the measures, and not just the reduction of the tax rate to 21%, to match the other industrial sectors.

I repeat that the figures quoted here come from prestigious accounting firms as well as the Mining Association of Canada. PriceWaterhouseCoopers compared the current system with the reform proposed in Bill C-48 for two types of mines.

Excluding the phasing out of the income tax on large corporations announced for all sectors—a measure that will benefit all Canadian businesses—the reform proposed in Bill C-48 means an average tax increase from 39.9% to 42.8% for gold mines, and from 38.8% to 46.6% for copper mines.

This does not affect only Quebec, but all of Canada. However, it is well known that there are quite a few gold and copper mines in Quebec. We are sensitive to this argument, and I cannot see what we, as the representatives of Quebec's interests, would stand to gain from supporting a bill that would increase the effective tax rate for a number of natural resource sectors in Quebec and other parts of Canada.

Finally, the association also told us that steps had been taken to promote mine development in the provinces, including Quebec. In this case, we can see that the federal government is literally encroaching upon the fiscal autonomy of the provinces and Quebec.

In the long run, these measures are expected to be profitable for all sectors of the economy. In the short term, however, some sectors will win and others will lose. Among the winners will be businesses working in tar sands, petroleum and precious metals. Among the losers will be those involved in natural gas, potassium and diamonds.

Mr. Hugues Lachance, senior tax director with KPMG, says that with the first two provisions in this bill, the oil companies would be losers, as I said before.

But these are not the only changes. The petroleum industry pays substantial provincial and crown royalties. In 2007, they will be able to include 100% of these provincial royalties as expenses.

Still—and I repeat it again even though I said it before—for the mining industry, where royalties are generally small, this third provision of the bill does not lighten their tax burden very much.

The Minister of Finance estimates that, when fully implemented, the complete program will cost him $260 million in foregone taxes. A very high percentage of this tax relief will be absorbed by the oil companies.

The bill's actual impact on the petroleum and natural gas industry will be a 12% reduction in the tax rate. Once this measure has been implemented, the tax rate for oil companies will be 5% lower than in Texas. In the United States, currently, the rate is 41.1% in Alaska and 35% in Texas. In Canada the rate is now 42.1% in Alberta. With the federal government proposals, the rate will drop to 30.1%.

The Mining Association of Canada, or MAC, estimates that “when all is said and done, thedisappearance of the Resource Allowance will likely result in higher taxespaid by the mining industry, even if we are able to deduct provincial royaltiesand mining taxes.”

The MAC goes even farther and states that the federal government is undercuttingthe good work by Quebec and the provinces to make mining investmentmore attractive.

More specifically, looking at the impact on the mining industry, they are saying that the federal government is implying that the new tax structure will be simpler, that it will streamline compliance and enforcement, attract investors, improve the competitiveness of the Canadian mining industry, and foster investment, innovation, productivity, economic growth and job creation in Canada. However, the industry does not believe that the tax reform program will meet the stated goals.

The gradual reduction provisions, announced in the 2003 budget, are too complicated and will be difficult to implement.

According to the Canadian Mining Association the hardship created by the 2003 budget and Bill C-48 would require a quick solution as well as the involvement of governments at the federal, provincial—including Quebec—and territorial level.

They are saying that the proposed changes to the federal income tax have a serious impact on a number of mining activities in Canada, and result in an increase in the combined federal, provincial and territorial taxes at the expense of the net revenues of corporations.

What can we say when we look at how this reform will benefit oil companies, especially in view of the fact that over the past 30 years Canada has given $66 billion in direct subsidies to the oil, gas and coal industry. These forms of energy are directly responsible for climate change. In other words, each Quebec taxpayer gave $27,000 to the oil and gas industry.

With the oil companies racking up huge profits, what can we say about the position of the federal government that still levies 1.5 cents per litre of gas to eliminate the deficit. We are now in a surplus situation but this tax is still being collected. Will the impact of these outrageous tax savings for the oil companies be felt at the pump? It is very doubtful.

We do not have the whole picture as far as the economic data and the impact are concerned, even though some accounting firms and experts have made some assessments. The committee will have to look very closely at the benefits claimed by the government as well as the real drawbacks for the mining industry.

Business Of The House

[Don Boudria, Liberal, Minister of State and Leader of the Government in the House of Commons]

Mr. Speaker, the hon. member across is a little impatient with his future holidays. He will probably have to wait some time.

This afternoon we will continue to debate second reading of Bill C-48, the natural resources taxation bill. I understand that the bill is nearing completion.

When it is complete, we will then debate Bill C-50, the veterans' benefits bill sponsored by my colleague, the Minister of Veterans Affairs, followed by the consideration of the Senate amendments to Bill C-10B, the cruelty to animal bill.

If time is left, we would deal with third reading of Bill C-17, the public safety bill, and second reading of Bill C-46, the market fraud bill.

In the unlikely event that we do not complete all of that this afternoon, on Friday we would begin with a reference to committee before second reading of Bill C-41, the amendments and corrections bill. The opposition House leader and I have had a brief conversation about this

We would then proceed with Bill C-37, respecting improvements to Canadian Forces pension benefits.

We will then return to any bills already mentioned today in the unlikely event that some of them are not fully completed.

On Monday, we would begin with Bill C-17, the public safety bill, and then return to the list previously described.

Tuesday, September 30, and Thursday, October 2, shall both be allotted days.

Income Tax Act

[Paul Crête, Bloc, Kamouraska—Rivière-Du-Loup—Témiscouata—Les Basques, QC]

Madam Speaker, as I was preparing to speak on Bill C-48, I wondered where such a bill might have come from. In the journal of the Chartered Accountants of Canada, in an article by Neil Smith, who is a senior tax manager, core tax practice, with Ernst & Young LLP in Calgary, we read:

The release came on the heels of a significant lobbying effort by the resource sector for federal corporate tax rate reductions—

We might wonder whether the resource companies really were winners in this respect. For example, it is interesting to read extracts from oil company annual reports regarding their semi-annual performance. For example, on page 1 of Petro-Canada's second quarter report to shareholders, we read:

Petro-Canada announced today second quarter earnings from operations of $455 million, which include a positive adjustment of $96 million for Canadian income tax rate changes.

Therefore, these measures have already netted Petro-Canada $96 million in tax savings.

The shareholders' report issued by Shell Canada Limited for the second quarter states:

Shell Canada Limited announced July 23,2003, second-quarter earnings of $178 million... Earnings included a one-time benefit of $54 million from a future income tax revaluation following announced income tax changes.

Petro-Canada apparently paid $96 million less in taxes, over the first few months of the year, which is a very short period. In the case of Shell Canada, that figure is $54 million. The same goes for Esso Imperial, which reported the following:

During the second quarter of 2003, tax rate reductions enacted by the Federal government and the provincial government of Alberta and settlement of various tax matters benefited results, mainly in the resources segment, by $109 million.

So, the three largest oil companies have declared additional future profits of $250 million. This is a direct consequence of the federal government's decision to lower the taxes applicable to oil and gas companies. They are not the companies suffering the most; they are companies that made astronomical profits in early 2003 and that introduced quite significant price hikes.

In the meantime, the federal government continues to collect 1.5 cents in excise tax per litre of gas. This tax is to pay down a deficit that has not existed since 1998. So, in a few short months, the oil and gas companies have pocketed hundreds of millions of dollars. It is not clear why they need this advantage.

Meanwhile, the federal government continues to pocket money because of a tax designed to pay down a deficit that no longer exists. We are talking about $2.8 billion in five years. No wonder taxpayers think this is ridiculous. Indeed, according to chartered accountants, the bill came “on the heels of a significant lobbying effort by the resource sector for federal corporate tax rate reductions.”

In other words, this government, which prides itself on helping the less fortunate and ensuring a better distribution of wealth, is granting $250 million in tax cuts to oil companies, and at the same time telling us it cannot give the provinces the $3 billion it owes them for health. This is a big problem. It shows an unacceptable lack of professional and political ethics. We cannot allow a bill to create this kind of situation.