Madam Speaker, I am pleased to speak today in the debate on Bill C-48 to amend the Income Tax Act regarding natural resources. This bill will undoubtedly cause a lot of grumbling, because it also concerns the tax rate for the oil and gas industry. It is a very complex bill, but I would like to get people interested in one aspect that everyone understands and is familiar with, the oil and gas industry.
If this bill is passed, the oil and gas industry will see its tax rate drop significantly. I can already hear the reaction of people in the riding of Drummond and, I think, of people throughout Quebec and Canada, as well as of a number of associations that defend the rights of consumers and taxpayers. They will certainly not be happy to hear that there is a plan to significantly reduce the tax rate for big oil and gas companies.
The government's decision to grant oil and gas companies a significant reduction in their tax rate is unusual, to say the least. It is very special, indeed. Looking at the situation, we see that the “poor” oil and gas companies really need a significant reduction, with the astronomical profits they have made in recent months. The government even gave them an income tax credit of $250 million. In the meantime, the price of gasoline was going up at the pumps. I am sure the whole population was grumbling. And they even told us about these tremendous profits in their annual reports.
The last budget contained new provisions giving these companies $250 million in tax credits. That takes a lot of nerve when there are still 1.5 million poor children in Canada, and when the pensions of senior citizens have not been indexed—in fact, $3 billion has even been taken away from them. There is also the employment insurance fund which has been pillaged to the tune of $45 billion. Income tax rates for taxpayers are still very high, and $250 million in tax credits is being given to big oil and gas companies who are making a profit. It is incredible.
We can understand why the government is giving suffering industries a tax break. There are some major industrial sectors in Canada and Quebec that require assistance. But we cannot understand giving it to sectors turning a profit, such as the oil and gas companies with their sky-high revenues.
In his February 2000 budget, the Minister of Finance announced his intention to reduce the statutory corporate tax rate applicable to resource income. He wants to lower the rate from 28% to 21%, which constitutes a 7% reduction over five years.
If we look at the resource sector overall, taking into consideration other allowances applicable to this sector, the effective rate is not 28% but 22%. Setting the figures and percentages aside, the truth comes out. CAmagazine , the official magazine of the Canadian Institute of Chartered Accountants, recently reported,
From a federal tax perspective there will be winners over the phase-in period. The winners will be companies with high royalty rates, such as oil and gas producers operating in Western Canada.
The Bloc is not the one saying this; these people are not members of the Bloc. This is the Canadian Institute of Chartered Accountants saying that, over the phase-in period, some companies will be winners when it comes to federal tax, and that these winners will be companies such as the oil and gas producers.
The magazine goes on to state that,
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.
Ultimately, these measures will benefit all economic sectors. However, in the short term, some sectors will be winners and others losers. The winners will be the companies working in the tar sands, oil and precious metals. The losers will be companies in natural gas, potash and diamonds.
Consequently, the hon. Liberal member who preceded me should take a closer look at this issue. I know that there are diamond mines in the Yukon and that this bill, far from helping the industry he represents, will not benefit diamond mines.
Hughes Lachance, senior tax director with KPMG, says that if it were only for the first two provisions of this legislation, the oil companies would be losers. But these are not the only changes. For oil companies, the royalties they have to pay to the provinces or the crown amount to large sums of money. In 2007, they will be allowed to include in their expenses 100% of the royalties paid to the provinces. For the mining industry, where royalties are generally low, this third provision does not significantly reduce the tax burden.
The Minister of Finance estimates that, once fully implemented, the overall program will cost him $260 million in uncollected taxes. A very large portion of this tax relief will go to the oil companies.
The impact of this bill on the oil and gas industry will actually be a 12% income tax decrease. That is incredible. Let us take a look at the consequences.
According to the Mining Association of Canada:
[when] all is said and done, the disappearance of the Resource Allowance will likely result in higher taxes paid by the mining industry, even if we are able to deduct provincial royalties and mining taxes.
The association states further that the federal government is undercuttingthe good work by Quebec and the provinces to make mining investmentmore attractive. I hope that the people opposite heard this. The Bloc Quebecois is not the only one saying that Quebec's efforts are undermined, so is the Mining Association of Canada. As I indicated earlier, not many of their members are likely to be card carrying members of the Bloc.
As for the oil and gas companies, they are no worse off. Let me quote statements from the oil companies themselves:
Petro-Canada, on page 1 of its quarterly report to shareholders for the second quarter, says:
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.
Shell Canada, in its quarterly report to shareholders for the second quarter, says:
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.
Esso Imperial, in its quarterly report to shareholders for the second quarter of this year, states:
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.
In other words, the three major oil companies are announcing additional future profits of $250 million. These reductions in the future taxation of corporate profits already earned are a one time occurrence.
I would also like to discuss the mining sector in this connection. The federal government implies that the new tax structure being proposed will be simpler because it will rationalize the way it is observed and applied, encourage investors, make the Canadian mining sector more competitive, and support investment, innovation, productivity, economic growth and job creation in Canada.
The mining industry does not feel that the tax reform program is fully achieving those objectives. Spokespersons for this sector indicate that the provisions for gradual reduction announced in the 2003 budget are too complicated and will be hard to implement.
The planned 21% tax rate will apply to revenues from non-resource activities in 2004, while for resource-related activities it will run until 2007. As a result, during the period from 2003 to 2005, the difference between the resource and non-resource tax rate will be: 3% in 2002, 4% in 2003, 5% in 2004, 4% in 2005, 2% in 2006 and finally 0% in 2007.
The Mining Association of Canada believes that the difficulties arising out of the 2003 budget and Bill C-48 demand a prompt solution, involving the federal government along with the provincial and territorial governments.
The association also feels that the proposed changes to federal income tax impact heavily on numerous mining activities in Canada and will add to the combined federal, provincial and territorial tax burden on companies, thereby affecting their bottom dollar.
A simple solution, proposed by the Canadian Mining Association, which benefits producers of minerals and metals, would be to keep the resource allowance deduction while reducing the federal corporate income tax rate from 28% to 21%. This measure would eliminate the difference between the federal resource and non-resource tax rates without necessarily changing the provisions for revenues collected under the territorial and provincial tax systems.
I know that this is very difficult to follow because this is a very complex bill. It will also be very complicated to implement. This is not fair to taxpayers. Take the oil and gas industry for example; every day taxpayers have to use their cars and they see the price of gas climbing. These are often people who earn average or low incomes and who do not benefit from the same tax credits that the oil companies do. However, the oil companies play with the price of gas and eat into low-income families' budgets. Working people or parents often have to travel to their job by car and have to pay for gas, but they cannot benefit from tax credits.
Yet, companies are granted huge tax credits, like the one we saw recently. These are tax credits to the tune of $250 million. And their tax rate should be cut significantly again? There is something illogical about this bill and that is why the Bloc Quebecois is voting against it.