LETTERS TO THE EDITOR (April 20, 1992)

Canada possesses a vast mineral wealth; unfortunately, only a small percentage of this total wealth will ever be realized under the current mining framework.

Among other factors, this situation is due to a flat tax rate being applied to all mining properties. This system benefits the low-cost producers associated with larger deposits amenable to bulk-mining methods. Not all deposits were created equal and under the current mining framework many smaller mineral deposits are not realizable and therefore not ever likely to serve any benefit to society. It is clearly not a sophisticated way to manage a natural resource.

Mining activities benefit society in three ways: job creation and its associated indirect tax revenues, direct government tax revenues and foreign exchange.

On a benefit-per-unit-produced basis, foreign exchange benefits are independent of mining methods. However, benefits associated with job creation and direct tax revenues differ significantly between large and small producers.

Large-scale mines improve efficiency by taking advantage of economics of scale and thereby minimizing contributions to job creation while maximizing direct tax benefits.

Conversely, less efficient smaller mines maximize job creation benefits at the expense of direct tax contributions. It can be argued that on a per-unit-produced basis, social benefits from large and small mining operations are comparable.

To maximize social benefits, mining legislation should promote the recovery of as many deposits as possible, not only unusually large ones. To make mining higher-cost deposits economical, improved profitabilities are required. Improved mining climates could be created by exempting small mines from taxes, as was the case for Australian gold mines in the 1980s, or alternatively, a progressive tax rate could be applied against mining profits. A progressive tax makes a lot of sense when considering the complementary nature of social benefits associated with large and small mining operations.

The progressive taxation approach to mining profit is more compatible with the nature of mineral deposits and it would maximize social benefits realized by the country’s mineral resources.

With the government’s co-operation, the mining industry should be developed to exploit smaller deposits economically. The principal social benefit would be job creation and indirect tax revenues rather than direct mining tax revenues.

Geoffrey Chinn

Senneville, Que.