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North would fare well with new tax - Dave Robinson 04/04

In an ideal world the president of your chamber of commerce would cause heart attacks in Toronto with a speech like this: “Business people want this province run like a business. We have to stop giving our assets away.
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In an ideal world the president of your chamber of commerce would cause heart attacks in Toronto with a speech like this: “Business people want this province run like a business. We have to stop giving our assets away. We have to start investing in our core business.

“That’s why we are calling on Rick Bartolucci to bring in the Northern Ontario Progress Tax. One penny for every dollar worth of metal that comes out of the ground will go to a mining industry research fund. The fund will turn our shrinking mineral wealth into a new northern economy”

Revenues and employment from mining are falling. Increasing productivity guarantees that mining will give us fewer jobs. It will also drive mineral prices lower. Lower metal prices means that our biggest asset is declining in value.

What does a smart businessperson do when his or her livelihood depends on selling off an asset that is falling in value? Good managers invest money from the shrinking business to create new products and services. That’s why the business community in Northern Ontario should be the champions of research and development and that’s why they should be begging Rick Bartolucci to tax metal extraction to pay for research.

How much would the Penny Tax bring in? The value of primary metal production for Ontario was $3.6 billion in 2002. One percent is roughly $36 million each year. If we exempt smelting operations, the revenue would fall to perhaps $27 million per year.

One percent of metal production is very modest. In fact it verges on gutless. OECD countries spent 2.2 per cent of total GDP in 1999, with Canada dragging that number down. Northern Ontario does less than its share of Canadian research. Even mining companies are cutting research spending.

The research that does go into mining now is largely focused on finding new ore or cutting jobs in production. It does the northern business community no good. The mining research tax would create jobs and support business in the future.

One hundred percent of the Progress Tax should go to mineral-related research. To make sure the benefits stay in the North, every research dollar should be spent in Northern Ontario. Sweden, Finland, and Alberta all collect money from resource extraction and they all spend on research in the region that produces the resource. It works.

For the maximum long-run effect, the money has to be locked into research. Legislation should direct half of the Progress Tax to a provincial mining research centre in Sudbury. The other half should go to projects selected by the mining industry, the metal processing industry and the mining supply and service industry. Research funded by the Progress Tax will make mining companies more profitable.

The Northern Heritage fund was a nice idea, but it scatters money in dribs and drabs all over the North. We can’t build the new northern economy by taking our beggar’s cup to a political slush fund.

The emphasis should be on how to expand value-added metal processing in the North and how to reinforce the mining supply and service industry in the North. Northern suppliers can use research on improved mining techniques to create products for export.

Northern business people should think of the mineral wealth of the region as the capital of their family business.

They should insist that their government collect one cent for every dollar worth of metal extracted to spend on creating a new northern economy built around adding value to the resource.

Northern business usually supports lower taxes for the mining industry. The strategy is suicidal.

Lower taxes on mining will not create jobs in the North. Reducing taxes just encourages faster extraction and makes sure there is no revenue to invest in developing new products and services.

Because business hates taxes, the chamber of commerce might want to call the Progress Tax a “Mineral Industry Co-operative Research Levy.”

Whatever it’s called, it is about using our resources wisely. It’s about “running the North like a real business.”

Dr. David Robinson, PhD, is an associate professor of economics at Laurentian University, and is with the Institute for Northern Research and Development. He can be reached by e-mail to drobinson@laurentian.ca.




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