With the strength of mineral and oil prices over the past decade, much attention has been paid to the return-to-resources trend within the Canadian economy. Many factors have driven this development.
The decline of the Canadian manufacturing sector has certainly contributed – the manufacturing share of the economy has declined from around 21 per cent in the 1980s to 13 per cent today. Within this sphere, auto manufacturing levels have fallen significantly. The collapse of the information and communications technology (ICT) investment cycle in the 1990s and subsequent declines or takeovers of major Canadian ICT players further reinforced this shift.
On the positive side of the ledger, the staggering development of the Chinese manufacturing economy, among others, has driven a major global effort to find, develop, produce and transport natural resources to meet global demand – with Canada being a major beneficiary.
The acceptance of the return-to-resources phenomena within Canada has been grudging in some circles. There remains a sense in academic and policy spheres that Canada is returning to its economic origins as hewers of wood and drawers of water. The relative merits of the resource development arguments make for interesting debate, although it should be said that the high technological sophistication of Canada’s resource development cluster has never been adequately recognized by debaters.
The return-to-resources reality within Canada has brought with it an array of economic benefits and spin-offs, many of which have been highlighted in my past columns in CIM Magazine. For example, the Canadian mining industry accounted for 21 per cent of Canada’s merchandise exports in 2010, with multi-billion dollar export revenues associated with many separate commodities. The resulting benefit to suppliers – railway companies, engineering firms, equipment companies and so forth – are also significant. A second noteworthy benefit, among others, is the fact that the mining sector constitutes the largest private employer of Aboriginal Canadians, with associated benefits in jobs, training and community development. Significant mutual potential and benefit also lies ahead in this aspect of the industry.
The Mining Association of Canada (MAC) recently released its annual study of the level of payments made by the mining industry to Canadian governments. The report, prepared for MAC by ENTRANS Policy Research Group, details the direct revenues that accrue to government from the industry in the form of corporate taxes, royalties and employee income taxes. The study is available at: www.mining.ca.
Among the report highlights, the Canadian mining industry paid $8.4 billion to Canada’s federal, provincial and territorial governments in 2010. While this level is lower than the $10 billion figures of 2007 and 2008, it has increased dramatically (65 per cent) from the $5.1 billion level of 2009. In fact, the figures generally illustrate that the tax and royalty system in Canada works relatively well – generating lower revenues from the industry during economically turbulent years such as 2009 and stronger levels in growth years such as 2010.
The ENTRANS data does not include revenues associated with the fabricated metal products sector, although the federal government definition of the “mining and mineral manufacturing” industry does include this fourth segment. MAC’s view is that most activities within this segment are not closely connected to the mineral extraction or processing spheres. Nonetheless, it is worth noting that businesses in this segment generated an additional amount of $1.8 billion in revenues to governments in 2010.
The ENTRANS data also does not reflect the indirect revenues that would be associated with mineral financing, exploration, development, extraction, processing and transportation in Canada. While further study and analysis is needed in this respect, there are rough estimates suggesting that a multiplier for these indirect benefits would fall in the 2.0 to 2.5 range, which could suggest a further $20 billion in government revenues being associated with the Canadian mining cluster.
The ENTRANS report provides a measure of the royalties and similar payments accruing to each province and territory. From this data, it is evident that revenue flows are particularly important to Newfoundland and Labrador, Saskatchewan, Alberta, British Columbia and the Northwest Territories. Large mining sectors and impressive future investment plans are also seen in Ontario and Quebec. Indeed MAC has estimated that some $110 billion in mining-related projects have been proposed in Canada for development over the coming years. This sense of economic confidence augers well for Canadian governments, given the future revenue flows that would be associated with these proposed projects.
Paul Stothart is vice-president, economic affairs, at the Mining Association of Canada. He is responsible for advancing the industry’s interests regarding federal tax, trade, investment, transport and energy issues.