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Mining Industry Criticism of "Looking Beneath the Surface: An Assessment of the Value of Public Support for the Metal Mining Industry in Canada" — A Response from the Authors

Jamie Kneen Communications and Outreach Coordinator responsible for: strategic research, social media, and public engagement; our Africa program, environmental assessment, and uranium mining.

We have been disappointed, but not surprised, at the tone of some of the mining industry's responses to our report, Looking Beneath the Surface: An Assessment of the Value of Public Support for the Metal Mining Industry in Canada. The study, released in October 2002, examined the subsidization of the metal mining industry by Canadian governments, and the industry's contribution to the Canadian economy over the past decade.

As the authors of the paper, we have been concerned by the degree to which the mining industry has responded to the paper by taking issues that should be debated as disagreements over methodology and the interpretation of data and turning them into attacks on our integrity, motives and honesty. In our view, the basic findings of the study, based on economic and fiscal data drawn exclusively from Canadian governmental sources, are incontrovertible. We believe that the study raised valid public policy questions, in need of serious public debate, regarding the wisdom and effectiveness of current public expenditures in support of extractive metal mining in Canada as a means of promoting environmentally, socially and economically sustainable development.

Gordon Peeling, President of the Mining Association of Canada, outlined the industry's major critiques of the study in an article that appeared in the Ottawa Citizen in December 2002. As we describe in the following paragraphs, the points raised by Mr. Peeling were anticipated and addressed in the design of the original study, and as a result we see no reason to reconsider our findings.

Employment and Other Economic Contributions

In his article, Mr. Peeling repeats the industry's oft-stated claim that the mining industry employs 375,000 people, and that minerals and metals exports contribute $35 billion to Canada's economy.

As noted in our study, these figures greatly exaggerate the actual economic contribution of the extractive metal mining sector, which was the focus of our work. According to Statistics Canada, actual employment in the metal mining sector in 2000-2001 was less than 30,000, and the sector's contribution to GDP was $4.5 billion. As is acknowledged by Mr. Peeling, employment in the sector has been in long-term decline, as has its direct and indirect contribution to Canadas economy.

The differences in the figures provided by the mining industry and those contained in our study reflect different approaches to the measurement of the sector's economic contribution. Our study focused on direct employment and contributions to GDP from extractive metal mining. This focus was chosen as it is subject to direct measurement. The industry's claims regarding the sectors economic benefits, on the other hand, are based on very broad interpretations of what constitutes the metals and minerals sector. The industry's estimates include not only extractive metal mining, but also the extraction of other forms of minerals, including such things as sand and gravel, and oil sands extraction, as well as their downstream processing, and even secondary manufacturing. Including these figures would obviously increase the total amounts of economic activity attributable to the industry, but would be an inappropriate measure given our focus on extractive metal mining.

With respect to the indirect economic contributions of mining activity, in reviewing the literature on the economic impacts of the sector, we found the issue of the appropriate measurement of the indirect economic activity generated by the sector to be highly contested. There are major debates over such issues as the application of appropriate multipliers to direct contributions to determine indirect contributions, the appropriate way to account for the unstable nature of the economic benefits provided by mining, and the significance of accumulated long-term liabilities relative to benefits. These debates lead to the suggestion that mining proponents have typically overestimated the sector's indirect economic contributions.[1]

While there is no doubt that mining does generate indirect economic benefits, given that these contributions are calculated as a direct function of direct contributions, it would be reasonable to conclude that, regardless of the multipliers employed, if the sector's direct economic contributions are falling, as found in our study, then its indirect economic contributions are likely to be in decline as well.

It is also important to keep in mind that, in a sustainability context, efforts to measure more indirect economic benefits would need to be balanced by consideration of the economic value of the social and environmental costs of the industry's activities, and the value of the non-monetary forms of support provided to the sector by Canadian governments and individuals. As noted in the report, these include such things as the overriding priority given to mining activity in provincial land-use laws and planning policies, the provision of access to public water resources at no cost, and the provision at public expense of infrastructure such as roads, ports and rail lines to support mine operations. Numerous examples of these types of support were provided in Looking Beneath the Surface.

Metal Mining vs. Other Forms of Mining

Mr. Peeling complains that in focusing on metal mining we ignored other mining sub-sectors that were experiencing economic growth, such as diamond and oil sands extraction.

The study is very clear in its focus on the metal mining sector, as this is the most economically significant element of the mines and metals sector, and the most significant in terms of materials consumption and flows. Consistent with this approach, analyses were conducted to remove the supports being provided to non-metal mining activities from the estimates of total support provided in the study.

The authors were conscious of the emergence of the diamond sector, but also note that many of the same long-term economic and social issues exist with respect to diamond mining as with metal mining. We note, for example, that the projected lifetime of even the major new diamond mines being established in the north is less than twenty years, only slightly greater than current projections for most recent new metal mines of less than fifteen years.

Oil sands mining was excluded from the study due to the large differences between oil sands and metal mining operations, and in consideration of the extensive and complex system of federal and provincial supports to that sector. A separate study would be required for them to be fully understood.

Royalty Payments as a Measure of Tax Contribution

Mr. Peeling complains that the authors focused exclusively on royalty payments as a measure of the tax contributions of the mining sector, excluding corporate income tax, payroll taxes, and income taxes paid by individual employees.

This is not the case. The benefits from the industry were measured in terms of three things: employment, mineral royalty payments, and contributions to GDP. The direct GDP contribution figure includes non-royalty tax payments by mining companies.

More generally, as is carefully explained in the study, the decision not to include specific measurements of non-royalty tax payments by the mining sector was balanced by the decision not to count as subsidies the supports received by the sector that were generally available to other sectors. This includes tax expenditures of general application for such things as research and development, and supports provided through employment insurance and workers compensation programs. These are important forms of support in a sector needing to maintain a skilled workforce while subject to highly cyclical patterns of economic activity, and high levels of workplace injuries. As a result, our study actually significantly understates the total support provided to the industry through the tax system.

Timeframe for Analysis

Mr. Peeling also criticized the study for focusing on the outcomes seen over the 1994/95 and 2000/01 time period, and suggests that this timeframe was chosen to generate the worst possible portrait of the sectors economic performance.

The reasons for the 1994/95-2000/01 timeframe were clearly explained in the study. As indicated there, 1994/95 was the last year before the major restructurings and reductions of government activities — such as the program review at the federal level, and Common Sense Revolution in Ontario — began in the jurisdictions under study. As also explained, 2000/01 was the most recent year for which complete datasets were available. If anything, we would have anticipated that the choice of the 1994/95 - 2000/01 timeframe would have lead to a finding that, consistent with the overall pattern of government activity during this period, government support to the sector had declined. In fact, we were surprised to find the opposite in all jurisdictions except the Yukon.

With respect to the finding of the sector's poor performance in terms of economic benefits, we note that, notwithstanding the difficult economic cycle suffered by the mining industry, the 1994/95-2000/01 timeframe represented a period of strong overall growth in the Canadian economy, with a recorded 22% increase in total industrial contributions to GDP.

Finally, it is important to note, as outlined in the study, that although total figures were only provided for the 1994/95 and 2000/01 fiscal years, analyses of government support measures and the economic contributions of the sector in the intervening years were undertaken to ensure that the overall trends identified in the report did not reflect anomalous events in those two years.

Tax Rates on the Mining Sector

Mr. Peeling claims that the effective tax rate for the life of a mine, at 40%, is one of the highest of any industrial sector in Canada.

We note that this statement contradicts the findings of former Minister of Finances Task Force on Business Taxation, which found the effective federal corporate tax rate on the mining sector to be 6%, the lowest of all of the sectors studied.[2] Recent work by the C.D. Howe Institute found the effective tax rate on capital investment for the mining industry to be the second lowest among all of the sectors studied.[3]

The Organization for Economic Cooperation and Development (OECD) has also specifically highlighted the extent of the direct and indirect subsidies for non-renewable resource-based activities, including mining, in its two most recent economic surveys of Canada.[4]

The Role of Geological Surveys

Mr. Peeling characterized including portions of the budgets of the Geological Survey of Canada and provincial geological surveys as subsidies to the industry as specious. We are surprised by this response. The activities of the geological surveys were reviewed for the purposes of the study, and we found that their primary activities related to the conduct of surveys and other activities that support and assist non-renewable resource industries with their prospecting and exploration efforts. In fact, the industry lobbies aggressively for funding of geological survey work on its behalf.

Had we found evidence of a stronger level of activity that was not directly targeted at serving the needs of non-renewable resource industries on the part of the surveys, such as the conduct of groundwater inventories and monitoring, we would have taken a different approach to accounting for their contribution. However, as has been highlighted by the Commissioner for Environment and Sustainable Development and others, the portion of the survey's work of this nature is extremely small.[5] In contrast, the US Geological Survey undertakes extensive groundwater surveys and monitoring activities.[6] The focus of the geological surveys on service to the non-renewable resource sectors seemed particularly noteworthy given the repeated calls from federal and provincial Auditors and Environmental Commissioners,[7] and the Walkerton Inquiry[8] for a strengthening of groundwater management activities by Canadian governments.

Abandoned Mines

Mr. Peeling states that our study fails to mention that the mining legacy is a result of an earlier era of low environmental knowledge, that the mining industry supports financial assurance requirements, and that the mining industry is working on a national advisory committee on orphaned and abandoned mines.

With respect to the mining legacy, we note that the liabilities that have had to be assumed by taxpayers for the remediation of mines do not all relate to mines that operated in a distant past era of ignorance and environmental insensitivity. The Mount Nansen mine, for example, which came into production in 1996 and closed in 1998, was singled out in the Commissioner for Environment and Sustainable Development's 2002 report to Parliament as a case study in this regard.[9] Acid mine drainage has already been found at the Ekati Diamond Mine site, opened in 1998.

The authors welcome Mr. Peeling's assertions regarding the industry's support for financial assurances against the closure costs of abandoned mines. However, we also find them somewhat puzzling given the industrys aggressive efforts to weaken the mine closure regimes in the Yukon, Ontario and British Columbia in recent years, as documented in our study.

Conclusions

In conclusion, as we noted in our study, Looking Beneath the Surface was only a first step towards a full-cost accounting of the activities of the Canadian metal mining sector. As part of this first step, we believed it would be important to develop an understanding of the scope and scale of the supports provided to the industry by Canadian governments; this was the aim of the study. We also sought to develop an understanding of the trends in terms of the sectors contribution to the Canadian economy, as these contributions are always central to the industry's ongoing requests for additional support from Canadian governments. The assumptions and boundaries of the study, and their rationale, were clearly laid out in our report, and assessed by external reviewers and advisors prior to publication.

If anything, as we note in our study, we believe that Looking Beneath the Surface underestimated the total support currently provided to the metal mining industry by Canadian governments, as the governments in question were unable to provide us with estimates of the value of a number of major support programs, particularly where these programs, like recent flow-through share initiatives in British Columbia and Ontario, involved tax measures.

In our view, all of the points raised by the mining industry were already considered in the design of our report. Nothing the industry has argued to date would alter the basic findings of the report: that Canadian government support to the metal mining sector has increased substantially since 1995 and is continuing to grow, while the sectors contribution to Canada's economy declines. For these reasons, we maintain that the study raises important questions as to whether the support provided to the metal mining sector by Canadian governments represents the best use of public resources toward environmentally, socially and economically sustainable development in Canada.

We are disappointed by the industry's unwillingness to recognize the reality of the basic findings of the study, and to engage in the long-overdue public discussion on the mining industry's future role in the Canadian economy that our study has prompted.

Authors of "Looking Beneath the Surface":

Joan Kuyek, D.S.W.
National Coordinator, MiningWatch Canada
 
Mark Winfield, Ph.D.
Director, Environmental Governance, Pembina Institute
 
Amy Taylor, M.R.M.
Director, Ecological Fiscal Reform, Pembina Institute
 
Catherine Coumans, Ph.D.
Research Coordinator, Miningwatch Canada

[1] For a good summary of these issues see, T.M. Power, Department of Economics, University of Montana, The Role of Metal Mining in the Alaskan Economy (Prepared for the Southeast Alaska Conservation Council and Northern Alaska Environmental Center, February 2002)

[2] Technical Committee on Business Taxation, Report (Ottawa: Department of Finance, 1998), Tables 3.10 and 4.1.

[3] J.M. Mintz, Most Favored Nation: Building a Framework for Smart Economic Policy (Toronto: C.D. Howe Institute, 2001), Tables 22 and 23.

[4] See OECD, Economic Surveys: Canada (Paris, August 2000), pp.124-125.

[5] Commissioner for Environment and Sustainable Development, 2001 Report (Ottawa: Minister of Supply and Services, 2001), Chapter 1, Para 3.5.14c3.5.19.

[6] CESD, 2001 Report, Chapter 1, Para 3.5.19.

[7] See, for example, Environmental Commissioner of Ontario, 1994c95 Annual Report, p. 57 and subsequent annual reports; Provincial Auditor of Ontario, 1996 Annual Report, Chapter 3.09 and subsequent follow-ups; and CESD, 2001 Report, Para 3.1.33.

[8] The Hon. Dennis OConnor, Report of the Walkerton Inquiry Part Two: A Strategy for Safe Drinking Water (Toronto: Queens Printer for Ontario 2002), p. 104.

[9] Commission for Environment and Sustainable Development, 2002 Report to the House of Commons, Chapter 3, Para 3.41c3.45.