Adjustment in tax rates needed by coalindustry

The Coal Association of Canada has recommended major tax structure changes to ensure that the coal industry remains viable in the face of stiff international competition. Addressing a media briefing in Vancouver, Jack H. Morrish, a committee chairman for the association, noted that the industry’s return on equity dropped from 16.2% to 1.1% over the past four years and earnings as a percentage of revenues tumbled from 12.1% to 0.7%.

Mr Morrish argued that the current tax structure, with its high portion of fixed taxes, must be amended to a system “which more accurately reflects the ability, based on profitability, of the industry to contribute to government revenues.” He admitted that the 1985 B.C. provincial budget was a “welcome beginning to this process,” but pointed out that a “considerable number of the problem areas remain.”

Claiming the past four years represented a period of “dramatically declining profitability for the industry,” he noted that direct tax and royalty payments more than doubled from 1982-84. In that period, they rose to $76.5 million from $33.7 million and total payments to government in 1985, including indirect and hidden taxes, amounted to $120 million. That works out to a staggering 92% of pre-tax profits and a return of only 8% for investors, he said.

Citing the fact that 90% of the $636 million paid by B.C. coal producers in 1985 for materials, equipment and contract services came from Canadian suppliers, Mr Morrish said that policy has created and will continue to create significant numbers of jobs.

He asked B.C. Premier William Vander Zalm to recognize the financial straits of the coal industry in the province and to adjust tax rates accordingly.

The past four years have represented a period of unprecedented growth in B.C.’s coal mining industry. Four major new coal mines were brought on stream including Line Creek (Shell) and Greenhills (Westar) projects in the southeast followed by Quintette (Denison) and Teck’s Bullmoose operations in the northeastern part of the province.

Translating these projects and ongoing capital spending at existing mines into dollar terms, the association said that capital investment exceeded $3.5 billion in that period with “nearly all of this expenditure flowing to British Columbia contractors, manufacturing and suppliers.” Production nearly double

The total productive capacity of B.C’s coal industry nearly doubled over the period to 27.8 million tonnes of clean coal. Metallurgical coal sales increased to 17.7 million tonnes in 1985 from 8.1 million tonnes in 1982, representing a 119% gain. Thermal coal sales were 96% higher at 5.1 million tonnes and combined revenues for the industry now are more than $1.6 billion; and industry employment has risen by almost 30% to 6,075.

But competition in recent years has been severe with extensive new coal capacity coming on stream, particularly from Australia where mine production has increased by 32% since 1982. That alone is equal to the total capacity in B.C. Currency devaluations in South Africa and Australia and their relative strengths when compared to the Canadian dollar have seriously eroded Canada’s competitive position on international markets, says the association.