Mr. Speaker, I am delighted to stand today and speak to Bill C-48, an act to amend the Income Tax Act (natural resources).
When I heard last week that the bill would be coming forward I specifically asked to be on the speaking list because the bill will be good for my constituency and for resource extraction in Canada. As members know, the resource industry is part of our history and part of the foundation of our nation, and it certainly should be on a level playing field with other industries.
This is a very exciting bill. I was delighted that the member for Medicine Hat, who does economic analyses for the Alliance, was strongly supporting the bill. I quite enjoyed his analyses. I think it helps to show what a tremendous asset these improvements will be for Canada.
I want to speak briefly about my own constituency. As the House knows, the world's greatest gold rush in August 1896, which started the European economy, is part of our history in Yukon. It has been a resource based economy, to a large extent, for 100 years, resource based and tourism. At that time the world was in a great recession and the gold rush in Yukon actually helped pull Canada out of that recession. The resource industry has been very important in my riding's history.
If I have time left at the end of my speech, I will give a bit more of the history of my riding.
However I first want to talk about the broad overall aspects of the bill and the benefits that it would provide for the nation.
First, it certainly would help the investment climate in Canada, which I am sure we all appreciate. It would improve the international competitiveness of the resource extraction industry in Canada. A previous speaker mentioned that to some extent. It would help the development of Canada's resource base and, of course, Canada has a remarkably rich and precious resource base.
The other bases are people and the knowledge based economy. However, in concert with that, we have to continue what has always worked for us. It would be a shame if we were actually importing these resources from other countries when we are so wealthy in the first place, and not paying off the national debt but importing things we already have here if we did not set up a reasonable tax regime, which is what the bill intends to do.
The bill simplifies the taxation for the resource based oil, gas and mining. I will explain a little later how it is very complex at the moment and a little arbitrary. However the bill simplifies that, which is one of the reasons I think there is so much support for it.
We have been on a movement in the last three years to reduce taxation in Canada. In the year 2000 we reduced the corporate tax rate to help us be more competitive with the rest of the world, as outlined by the previous speaker. However at that time we did not reduce that tax on the resource based sector, that sector that is so important for my constituency and much of Canada, because they had a particular credit, which I will outline later, that did not allow the reduction in the main corporate tax base, as all the other industries in Canada had. Since that time there have been many calls from industry and Canadians to reduce that tax rate. Heeding those calls, we are proceeding with that today.
We did something else in this whole regime to improve our competitiveness. There used to be and still is partly a capital tax. That particular tax was a disincentive to business in the sense that if one owned anything, whether one made any money or not, one was taxed on it. If it were over $10 million one was taxed at .225%. That is a severe disincentive to investing in this great nation and therefore will be reduced from 2003 to 2008.
A half an hour ago I talked to people in the industry in my riding and they echoed some of what I am saying now. They wanted to make sure that anything that helps level the playing field between resource extraction, which is so important to my area in the north and the rural parts of Canada, and manufacturing is put in place, which is exactly what the bill would do. They made the point that mining, in particular, has huge upfront costs, maybe millions or even billions of dollars, for development, pre-development and exploration, that other industries do not have.
In the scheme, which I will outline in a minute, there are provisions such as the 10% tax credit on grassroots exploration and pre-production base. This only applies to base and precious metals and diamonds, so it will specifically help that aspect of the pre-development, which involves very expensive costs to this industry.
For those who are watching and who do not understand exactly what we are doing, I will try to explain it in a simple way, although it is a bit complex because there are a number of elements to the bill. I will try to outline it in a simplified way so that it is more understandable than it may be in some of documents people might have received.
In the main part of the bill we will be balancing the corporate tax for resource extraction businesses, like mining and oil and gas, to be comparable to other industries. If people live in a part of the country that has these types of industries, at the moment they are disadvantaged because in 2003 we reduced the corporate tax for businesses down to 21% but we left mining and oil and gas at 28%. Therefore, we will reduce that to level the playing field. This year it will 27%; next year it will be 26%; in 2005 it will be 25%; in 2006 it will be 23%; and in 2007 will be down to 21%, the same as the rest of industries in Canada.
Regarding the provision which I mentioned before, the reason we could not do it was because of an existing deductible, a 25% resource allowance, for mining, which helped. The problem with this deduction was it was a bit arbitrary. Other deductions came before and after that so companies would have to try to figure out their business plans when they invested to get the best deductions. It was a arbitrary because it was based upon income. That deduction did not make a lot of sense nor was there a lot of fairness to it. Therefore, we are removing that deduction to balance this off. In 2003 they will only get 90% of that; in 2005 it will be 75%; in 2005 it will be 65%; in 2006 it will be 35%; and then in 2007 that deduction will no longer exist.
There is also more good news for our industries in this respect because the industries also pay royalties to the Crown, the Crown being primarily the provinces and the territories, or they pay something similar called a mining tax. Once again this is a cost of doing business for mining and oil and gas and it can make them less competitive. Therefore, we will give them a deduction for that in the new regime. That will start out this year. As I said, everything is phased in to try to moderate the effects of this bill on industry and on Canada so there is no big disruption. The first year it will be 10%. The second year they will be allowed to deduct 25% of that; in 2005 it will be 35%; in 2006 it will be 65%; and in 2007 it will be the whole 100% of all those costs.
Finally, there is another tremendous credit for the industry. That is a 10% tax credit on grassroots exploration and pre-production base. This is only for base metals, precious metals and diamonds. Of course there are tremendous upfront costs in the beginning with no return. If we want development in Canada, someone has to invest and put down the risk of that, and this tax credit will assist that.
When we add all these complicated provisions together, most of which are in favour of the industry, what is the result for a particular mining or oil company? In general, in the vast majority of the cases, they will be better off. If they do new exploration in Canada, which is what we are trying to promote in the development of the sector in a reasonable, environmentally sensitive way, then they will be better off with these provisions.
If there is critique of this, the odd company may have made its discoveries long ago and it is carrying on with its investments at the status quo, collecting its royalties. In those situations they are less well off, but in general the Government of Canada will make a substantial contribution on balance to help this industry, which is just fine by me because it is a major industry in my riding.
The bottom line in this is a great news story for Canada. The previous speaker talked about the United States and competitiveness. I will give hon. members some sample figures to see how it helps us with our closest and main competitor in this industry.
I will give a couple of examples. Other figures are available, but these are the statutory tax rates for these corporations. The tax rate for oil and gas in Alaska is 41%, in Texas it is 35% while in Canada it is 42.1%, which makes us less competitive. Our taxes are a tad higher than Alaska and quite a bit higher than Texas. After the bill comes into effect, our taxes will be 30.1%, which is far more competitive than either of those areas.
In the mining sector the Nevada statutory rate is 35% while Canada's rate is 41.1%. Once again we are at a slight competitive disadvantage. After the bill comes into effect, ours will be 30.1%, which is a great competitive advantage for Canada. I hope we will see the results of this in the coming years.
My riding desperately needs development and in other northern parts of Canada it is sometimes very hard to find jobs for rural Canadians. They live in some of the most beautiful parts of Canada and would like to stay there. This will be a great advantage to them.
If I had time I would give hon. members a brief history of the resource extraction in my community, in my riding, which is the entire Yukon Territory, just so they would know how important this might be for my riding.
For 100 years, it has existed in the modern, European type of economic existence. Of course first nations people have been living there for thousands of years, doing quite well, preserving the environment in a great way and living responsibly off the land. In the European type of economy, which has existed for the last 100 years, there have been two industries. One of course is tourism, which explores the beauty of Yukon. It is one of the most beautiful spots in the world and I hope all hon. members will come to visit. To date the tourism industry has been weighted to the summer months, although we have some beautiful dog sled tours, skiing, hiking and events in the winter, but there are not as many tourists in the winter.
Mining has also been the greatest producer of the gross territorial product over the 100 years. We have had a wealth of mineral resources with over 50,000 claims in Yukon. Of course, they are under strict regulations to be mined responsibly with environmental sensitivity. In a way that is why I take some offence to other countries because some of them do not have the things that we accept as necessary in Canada, which may be some of the reasons why companies go there. However under this regime, they will not go to the United States because of a lack of tax competitiveness.
After the gold rush, the gold resourced in Yukon was by placer mining. This type of gold is found in the stream beds. It is fine, like sand almost. Then a few nuggets, such as on my Yukon pin, are found below the bottoms of streams, right on the bedrock level. Placer mining still exists today in British Columbia and Yukon. It is a great boon to our economy because one simply washes sand to get the gold out and it is an easily saleable commodity.
Over those years a lot of other base metals have been found. Precious metals, silver and gold, have been found. Not long after the gold rush started, a silver mine area was established near the great towns of Keno Hill, Elsa and north of Mayo. The mines have been there pretty well since the gold rush. I believe those claims are up for sale now, so if people would like to invest in a silver mine and come north, I hope they will look at those opportunities.
We also had one of the world's largest zinc mines in the great town of Faro. In fact I think it was the largest open pit lead zinc mine in the world. Unfortunately, it ran out of the highest grade part of its ore, but there have been others like Kudz Ze Kayah and other lead zinc deposits. There are a lot of undeveloped deposits still that could help lead to jobs. In turn that would provide revenues to Canada which could then be put it into health care, education and all the other things that governments need to do.
There was also a copper mine right within the city boundary of the city of Whitehorse. We just recently started a tiny hobby train, Miles Canyon railway train, to go around and show the history of the copper mines and the mining belt in the area.
We have oil and gas in the area. We have some capped gas at a place called Eagle Plains, which is up near the Arctic circle. We have no pipeline to get that out yet so there is not as much development as one might think, but we are working on that as well. Also gas in the southeast part of the Yukon near the Kotaneelee Field is already being shipped through existing pipelines. Of course, we have a forest industry in Yukon which is a resource development, but it is certainly not as big as mining.
I was outlining this not only, as my colleague said, as part of a commercial so members will all come to our beautiful part of the country to work in mining and to enjoy the spectacular tourism, but also to show how important this bill is to our people. We have the second highest unemployment rate in Canada at the moment and this type of fairness would be exceptionally helpful to our industry.
I want to close by reacting to a comment that the previous speaker made about Canada's standard of living. I do not think standard of living is totally based on a corporate tax rate. Standard of living is based on all the things that are important whether it is health care, family or community. I think most people would agree that we measure the greatness of a nation by how it deals with those most in need.
The United Nations has measured Canada for the last years as among the top several nations in the world. I do not think we have much for which to apologize. This will help our industry, an important part of our history. However in the long run what we choose in values are things that are not only environmentally sound, or part of the modern new economy, or on the leading edge of knowledge and technology. Rather we will make the choices that provide for the poor, the weak, the lonely, the hungry and for our diverse country. That way we will continue to build this great nation, and this bill will help immeasurably.