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.