Mr. Speaker, first I would like to congratulate the member for Calgary Southeast on his frankness and also on his good command of the French language.
I am pleased to speak to Bill C-48 because the government is now trying to bring the House to adopt legislation that we feel is not fair for the majority of our natural resources industries, especially in the mining area.
I appreciate the fact that it is quite a technical bill, but it seems to me that if we take a close look at it, it soon becomes obvious that it needs to be amended. Unfortunately, the Liberals did not want to listen to reason in the finance committee.
In fact, in the mining sector, it is not only Quebec that is hurt by Bill C-48, but also Ontario, Manitoba and the Atlantic provinces. It is very hard for me to understand that hon. members representing ridings in Ontario, Manitoba and the Atlantic provinces are not examining this bill to see how it will hurt the mines in their ridings, their regions or their provinces, just because it is rather technical. This is a bill that can be improved; I will return to that later. Passage of Bill C-48 will lead eventually to some mines being closed and jobs being lost. Perhaps some communities will break up because a mine is often the only reason for a community's existence.
As we know, Bill C-48 restructures taxes in the natural resources sector. The argument put forward by the Liberal government—and even by the Canadian Alliance, I have noticed—is that Bill C-48 restores equity between the natural resources sector and other sectors of the economy. Thanks to the former finance minister and future prime minister, the other sectors have enjoyed a tax reduction in the 2000 budget, which lowered the tax rate from 28 to 21% over five years.
And that is the positive aspect of Bill C-48. Now the natural resources sector, like all the other sectors, will benefit from the same reduction, although somewhat later. On that score, I agree completely with the hon. member who preceded me. Thus, Bill C-48 would lower tax rates from 28% to 21% over five years.
The reform of corporate tax structures in the natural resources industry was delayed because it is a special kind of taxation. There is not just the rate of tax on profits. There are also a number of taxes imposed through royalties, for example. That was why the ex-minister of finance and future prime minister delayed the tax reform for natural resources.
They tell us they held consultations. But this consultation must have been, like so many others done by this government, more public relations than true consultation. Thus, we find ourselves with a bill that is totally unfair and unacceptable to a certain number of businesses in the natural resources sector.
Bill C-48 cuts the tax rate from 28% to 21%. As I mentioned, this is the good part of the bill, and the Liberals and the government refer to it repeatedly. But there are three other measures in Bill C-48. We must consider the net effect of this reform, not just one part of this bill.
I want to talk about the three other measures. Other than the tax rate on profits dropping from 28% to 21%, the bill will phase in a deduction for provincial royalties, related to the use of non-renewable resources. This is a new deduction. However, and this is the third measure, the current 25% resource allowance will be eliminated.
The allowance allows natural resource companies to deduct 25% of their profits, on the extraction portion of their activities, prior to paying income tax. This 25% tax credit on resources would be dropped and they would instead be able to deduct provincial royalties.
The fourth measure is a new tax credit for qualifying pre-production mining expenditures, applicable solely to diamond mining and base metal mining.
So, as I mentioned, we cannot talk only about the first part of the reform, to reduce the tax rate from 28% to 21% over five years. The net effect of all four measures must be taken into consideration.
However, according to the Mining Association of Canada, supported by the Quebec Mining Association Inc., Bill C-48 will increase the effective tax rate of many mining companies. I am not saying that the entire industry will suffer as a result of Bill C-48, but the effective tax rate of a large segment of this sector will increase under the proposed reform in Bill C-48.
Mature mines will be harder hit simply because these mines typically pay relatively low royalties in comparison to what other natural resource sectors pay, particularly oil and gas companies.
This is easily understood. There has been competition between the provinces, as well as between Canada and other countries, which has led the provincial governments to reduce their taxes or royalties. As a result, this sector pays lower royalties to use non-renewable resources, and will not benefit from Bill C-48. However, oil and gas companies and the like will benefit greatly.
I can readily understand the member for Calgary Southeast saying, “There are oil and gas companies in my area, and they will benefit from this, so I am not looking any further than that”. But I think that, if we really want this House to represent all of the interests of Canada and Quebec, we must consider the big picture.
Because the oil and gas companies pay a lot of royalties, they will benefit from Bill C-48, while a number of the mining companies, particularly the mature mines, will be disadvantaged by this reform.
Proof of this was given by the Minister of Finance himself, when department officials and the parliamentary secretary appeared before the Standing Committee on Finance. We were told that in all the reform was going to cost the public purse $250 million once it was fully operational.
I have some doubts about that figure. I asked them to tell us the calculation method used for that evaluation, and I am still waiting for the answer.
If we start with the assumption that this figure is accurate, then 80% of that $250 million in tax cuts will, according to the finance department witnesses, go to the oil and gas companies. Imagine. The finance minister himself says that his reform will benefit the oil and gas companies first and foremost, and a mere 20% will go to all the rest of the natural resource companies combined. This is unacceptable.
According to the assessment made by Gordon Peeling, President and CEO of the Mining Association of Canada, overall, with Bill C-48, the mining sector as a whole will benefit from a tax cut of $10 million of that $250 million, or 1/25th of the entire natural resources sector tax reductions. In connection with that $10 million figure, there will be some losers and some winners.
Consequently, this reform is unfair. One of the negative effects of the proposed reform is that by replacing tax credits for resources with royalties instead, income tax rates will increase in several provinces for base metals and for some gold mining operations in particular, which are concentrated in northern Quebec and northern Ontario. It is hard to understand why Ontario MPs would support this bill without hesitation.
Manitoba and the Atlantic provinces will also be disadvantaged by this reform. I am not the only one who thinks so, and it is not just the Mining Association of Canada saying this. In the September 2003 issue of CAmagazine , there is an article by Neil Smith entitled “Energy Update”, and I quote:
All these provinces use federal taxable income as the starting point for the computation of provincial income and allow a deduction for the greater of provincial Crown royalties or resource allowance. For each of these provinces the loss of the resource allowance increases the effective rate as follows: Saskatchewan, 4.5%; Manitoba, 2.9%; Quebec, 2.25%; and Maritime provinces, 3.25% to 4%.
Association epresentatives from the association generally told us that the tax rates would increase by 3% in 2003, 7% in 2004, 10% in 2005, 19% in 2006 and 29% in 2007. And we are being asked to believe that this bill is fair to all natural resource sectors and all the regions in Canada. That is utterly untrue. Quebec and other provinces, in particular, will be disadvantaged.
The federal government will say that the provinces only have to adjust and lower their tax rates. But they should not lower their royalties, because they would put their companies at a disadvantage.
The Mining Association of Canada also said that even if tax rates were changed to take into account the reform proposed in Bill C-48, tax rates would still go up on an average by 2% in 2004, 2% in 2005, 4% in 2006 and 6% in 2007. That would make us less competitive than mining countries where the tax system is much more favourable.
Generally, across Canada, Bill C-48 will result in an effective tax rate increase from 40% to 43%, whereas in China, as you know, the tax rate on mining is quite low, I would even say symbolic. The tax rate dropped from 43% to 34% in Brazil, from 35% to 30% in South Africa, and from 29% to 25% in Finland.
So the government is telling us that by increasing the effective tax rate, especially on the base metal sector, we will increase the competitiveness of our natural resource industry. That is totally unacceptable.
To rectify such unfairness and economic nonsense, I put forward a simple amendment in the Standing Committee on Finance. It was of course rejected by the Liberals out of pure partisanship. I had the support of my Canadian Alliance colleague and I thank him for that.
My suggestion was a phased-in increase in the tax credit for pre-production mining expenditures from 10% to 20%—the fourth part of the reform—over a three year period. That would help reduce the negative impact of Bill C-48 I just talked about at some length, especially in Northern Ontario and Northern Quebec, where base metals are put at a disadvantage by Bill C-48. This would stimulate exploration and might put an end to the current downward trend with regard to our metal reserves. I will quote a few statistics in this regard.
From 1977 to 2001, Canadian copper reserves decreased by 61%; nickel reserves decreased by 44%; lead reserves decreased by 89%; zinc reserves decreased by 71%; and silver reserves decreased by 59%.
With a tax credit for the preparation of mining operations, we could offset the negative effects of Bill C-48 and redress the current drift toward the depletion of our reserves of minable metals.
This could help our regions. Mines are rarely found in the middle of an urban centre; normally, mines are located in outlying areas. Raising the tax credit for qualifying mineral exploration expenses would provide a stimulus to our regions.
The cost of that additional provision in Bill C-48 is estimated at $40 million. Given the surpluses accumulated by the federal government over the last few years, I think that $40 million is a very reasonable price to pay for ensuring equity in such a key sector as natural resources, and particularly the mining industry. Replacing one figure replaced in the legislation would have led to real reform. We proposed 20% instead of 10%, but the Liberals voted against that.
I cannot understand how the member for Témiscamingue, a recent newcomer to the House, can remain silent in the face of something so detrimental to the Témiscamingue. I cannot understand why the member for Abitibi—Baie-James—Nunavik, who is normally so talkative, does not protest against legislation that will be so harmful to the Abitibi mines.
If they are silent, it has to be because they are just yes-men who follow the party line. If they looked after their constituents' interests, they would put the necessary pressure on the government to amend Bill C-48 so that it does not hurt the mining sector, as the Mining Association of Canada and the Quebec Mining Association said it would.
Of course we know that this government heavily favours the oil and gas industry, and this is especially true of the former finance minister and future prime minister. One just has to look, for example, at the total amount of subsidies that this industry has received for its development over the last 30 or 40 years. We are talking here about $66 billion, whereas the hydroelectricity industry in Quebec received nothing, or practically nothing, for its development.
One just has to look also at the preferred status given to the oil and gas industry by the current Prime Minister's office in the form of guarantees with regard to the Kyoto agreement.
However, it is difficult to understand why members would not come to the defence of their communities, their mining industries and their workers. But I am not totally surprised because, since I have had the honour of being appointed to the position of finance critic by the leader of the Bloc Quebecois, there have been many cases where, unfortunately, common sense did not prevail.
In that context, I will remind members of the issue of the GST for school boards. A decision had been made by the courts, but it was reversed here through an act of Parliament. This was a first in Canadian parliamentary history. Quebec school boards were deprived of $8 million, and Ontario school boards were deprived of $10 million.
The fiscal imbalance has put the provinces in dire straits. Nine provinces out of ten will post a deficit next year, while the federal government will continue to rack up surpluses. The Minister of Finance tells us that these surpluses will not be as large, but even though they may not be as large as what the minister had hidden, they will still be very real.
We know that, from 1994 to 2001, this government cut $24 billion from the Canada social transfer, including $8.7 billion for Quebec alone. One third of these cuts were made at the expense of Quebec and the people of Quebec, while we account for only 25% of the Canadian population.
Take the excise tax of 1.5¢ per litre, for example. It was introduced by the former finance minister and future prime minister to fight the deficit. We have been deficit free since 1997, but the tax remains. This is money the government is taking out of the pockets of taxpayers, money that could be used for other purposes.
Let us consider how the government is handling the tax haven issue. It finds nothing wrong with these jurisdictions being used by citizens to avoid paying taxes in Canada. It is therefore not likely in the short term that Bill C-48 will be amended.
We will be voting against the bill at third reading, while hoping that this place will come to its senses as the election nears. Personally, for the well-being of our mining industry in Quebec, Ontario, Atlantic Canada and Manitoba, I hope that the government will change course on this issue, that it will use common sense and make one tiny little change to Bill C-48, raising the tax credit for preparatory activities for mining. We do hope the situation can be corrected.
However, as I said, in the current context, we cannot, in all conscience, support a bill that is fundamentally unfair, even though we agree with some of its provisions, such as the reduction in corporate tax from 28% to 21%.
Let me conclude by reiterating the hope that, on the side of the ruling party, on the Liberal side, members will speak out to have this situation corrected. As I said, it would be very easy. We could have a tax reform in the natural resource sector, one that would be really fair to all natural resource industries in all regions of Canada and Quebec.