Prof. Jack Mintz releases major report highly critical of Saskatchewan and New Brunswick Potash royalty regimes

REGINA, Jan. 7, 2015 /CNW/ - Saskatchewan, and by extension, Canada — is the largest producer of potash in the world, accounting for over 30 per cent of global production. Perhaps the good fortune of having an abundance of such a valuable natural resource has engendered an approach whereby tax policy has not been considered a top priority. That would at least be one explanation for the alarmingly inefficient and uncompetitive potash regime that currently exists in Saskatchewan. New Brunswick's potash-taxation regime is at least somewhat better designed than Saskatchewan's, although it hardly stands as a model of efficiency. In both cases, poorly designed policies are hindering the provinces' economic potential and, in turn, Canada's.  Put bluntly, when compared against its international peers, Saskatchewan's potash-tax regime is not only the most complex and inefficient, it is also the least competitive.

"The convoluted nature of Saskatchewan's regime benefits no one — not producers, investors, or the provincial government, which is left without any revenue certainty from its most significant natural resource. In fact, in recent years, where potash production and sales value rebounded substantially in Saskatchewan from 2009 levels, excessive tax allowances resulted in the province incurring three years of tax revenue losses from its potash production tax," said Prof. Mintz today.

"New Brunswick's potash-taxation regime is less complex than Saskatchewan's, but it is not efficient. The province recently introduced a price-sensitive royalty-rate structure that imposes a higher degree of taxation on risky projects. Greater efficiency can be achieved by using a royalty system that is mainly rent based," said Mintz.

Neither Saskatchewan nor New Brunswick needs to endure such a muddled and counter-productive approach to potash taxation. Simple solutions exist that would make both regimes far more efficient and competitive internationally. Both provinces should convert potash levies to an essentially rent-based royalty regime that ultimately taxes only revenues net of all the capital spending and operational costs. Any existing production- and sales-based ad valorem levies could be combined into a single royalty based on sales value, net of transportation and distribution costs and credited against the rent-based tax, thereby enabling, a steady revenue source for the government. Both unused capital and operational costs (deductible from the taxable rent) and sales-based royalty should be carried forward at the government's long-term bond rate.

The full report can be found at www.policyschool.ca, then click on "publications". 

SOURCE The School of Public Policy - University of Calgary

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