A former Regina NDP MP says potash companies get a needlessly light touch from Saskatchewan’s royalty rates, forfeiting potential revenues for the government.Erin Weir, who represented Regina-Lewvan from 2015 to 2019, argued for a provincial royalty rate hike in a new paper for the Johnson Shoyama Graduate School of Public Policy.“The Government of Saskatchewan has fiercely defended provincial jurisdiction over natural resources without using that authority to collect an adequate provincial return,” Weir wrote.In 2003, Saskatchewan NDP Minister of Industry and Resources Eric Cline ushered in profit tax exemptions. The 2015 Saskatchewan Party budget pledged “a review of the entire potash royalty and taxation regime” but did not follow through after protests from the industry.“Low royalties and taxes in Saskatchewan left about a billion dollars of last year’s potash windfall to Ottawa,” Weir stated.“Because provincial resource charges are deducted in calculating taxable profit, raising them would reallocate some federal revenue to Saskatchewan. Each additional dollar collected through provincial royalties or resource taxes would reduce federal corporate taxes by 15 cents, provincial corporate taxes by 12 cents and after-tax corporate profits by 73 cents.”The potash industry could have grown without generous provincial incentives, Weir argued.“One could question the necessity of the ten-year base-payment holiday for additional capacity, the resource surcharge cut from 3.6% to 3% and the $100-million royalty holiday for new mines. These measures rolled out just as potash price jumps provided far stronger incentives,” he wrote.Weir’s central complaint is that wide scope, write-offs and rates of the profit tax leave most of the companies’ earnings tax-free.“Restoring the profit tax to cover all tonnes is the simplest and most important improvement the Government of Saskatchewan could make to its potash royalty and tax system,” Weir wrote.“Since 2003, it has allowed companies to write off 120% of new potash investment in calculating the profit tax. As a result, they paid almost no profit tax in the early 2010s. K+S reports suggest it has paid very little profit tax. BHP is unlikely to pay profit tax for several years as it writes off the Jansen investment.”Weir said a 100% write off for capital investment “is not controversial” but 120% is because “the extra 20% distorts investment decisions at public expense.”University of Calgary academics Duanjie Chen and Jack Mintz argued if the revenue-based royalty were creditable against the rent tax, a 70% rate could maintain the same investment incentive as the current fiscal regime. Weir argued this approach would have collected $7 billion of last year’s $10-billion windfall.“It is not obvious why Saskatchewan should worry about somewhat lower royalties and taxes in places like New Mexico, Israel and Jordan that produce far less potash. It seems unlikely that western companies like Nutrien, Mosaic, K+S or BHP would invest in the other major potash producers: Russia and Belarus. As the world leader in potash reserves and output, Saskatchewan can charge more for this resource,” Weir said.“Even if Saskatchewan policymakers are worried about competition from other potash jurisdictions, there is clearly room to charge more than 35%. It is unclear why multibillion-dollar potash companies need a reduced 15% rate on their first $77 of profit per tonne.”Weir called for the province to follow through with its once-pledged comprehensive review, then concluded with four recommendations.Simplify the Crown royalty, resource surcharge and base payment to guarantee a minimum return from potash extracted;Broaden the profit tax to cover all tonnes of potash produced;Limit write-offs to 100% of the amount a company invests; andIncrease the potash profit tax rate to collect a fair share of ongoing resource rents and future windfalls for the people of Saskatchewan.Weir, who has three degrees, won medals for the highest graduating averages in Economics at the University of Regina and in Public Administration at Queen’s University. He worked in the federal public service with the Treasury Board Secretariat, the Department of Finance and the Privy Council Office. He also worked for the Canadian Labour Congress and as senior economist with the International Trade Union Confederation.
A former Regina NDP MP says potash companies get a needlessly light touch from Saskatchewan’s royalty rates, forfeiting potential revenues for the government.Erin Weir, who represented Regina-Lewvan from 2015 to 2019, argued for a provincial royalty rate hike in a new paper for the Johnson Shoyama Graduate School of Public Policy.“The Government of Saskatchewan has fiercely defended provincial jurisdiction over natural resources without using that authority to collect an adequate provincial return,” Weir wrote.In 2003, Saskatchewan NDP Minister of Industry and Resources Eric Cline ushered in profit tax exemptions. The 2015 Saskatchewan Party budget pledged “a review of the entire potash royalty and taxation regime” but did not follow through after protests from the industry.“Low royalties and taxes in Saskatchewan left about a billion dollars of last year’s potash windfall to Ottawa,” Weir stated.“Because provincial resource charges are deducted in calculating taxable profit, raising them would reallocate some federal revenue to Saskatchewan. Each additional dollar collected through provincial royalties or resource taxes would reduce federal corporate taxes by 15 cents, provincial corporate taxes by 12 cents and after-tax corporate profits by 73 cents.”The potash industry could have grown without generous provincial incentives, Weir argued.“One could question the necessity of the ten-year base-payment holiday for additional capacity, the resource surcharge cut from 3.6% to 3% and the $100-million royalty holiday for new mines. These measures rolled out just as potash price jumps provided far stronger incentives,” he wrote.Weir’s central complaint is that wide scope, write-offs and rates of the profit tax leave most of the companies’ earnings tax-free.“Restoring the profit tax to cover all tonnes is the simplest and most important improvement the Government of Saskatchewan could make to its potash royalty and tax system,” Weir wrote.“Since 2003, it has allowed companies to write off 120% of new potash investment in calculating the profit tax. As a result, they paid almost no profit tax in the early 2010s. K+S reports suggest it has paid very little profit tax. BHP is unlikely to pay profit tax for several years as it writes off the Jansen investment.”Weir said a 100% write off for capital investment “is not controversial” but 120% is because “the extra 20% distorts investment decisions at public expense.”University of Calgary academics Duanjie Chen and Jack Mintz argued if the revenue-based royalty were creditable against the rent tax, a 70% rate could maintain the same investment incentive as the current fiscal regime. Weir argued this approach would have collected $7 billion of last year’s $10-billion windfall.“It is not obvious why Saskatchewan should worry about somewhat lower royalties and taxes in places like New Mexico, Israel and Jordan that produce far less potash. It seems unlikely that western companies like Nutrien, Mosaic, K+S or BHP would invest in the other major potash producers: Russia and Belarus. As the world leader in potash reserves and output, Saskatchewan can charge more for this resource,” Weir said.“Even if Saskatchewan policymakers are worried about competition from other potash jurisdictions, there is clearly room to charge more than 35%. It is unclear why multibillion-dollar potash companies need a reduced 15% rate on their first $77 of profit per tonne.”Weir called for the province to follow through with its once-pledged comprehensive review, then concluded with four recommendations.Simplify the Crown royalty, resource surcharge and base payment to guarantee a minimum return from potash extracted;Broaden the profit tax to cover all tonnes of potash produced;Limit write-offs to 100% of the amount a company invests; andIncrease the potash profit tax rate to collect a fair share of ongoing resource rents and future windfalls for the people of Saskatchewan.Weir, who has three degrees, won medals for the highest graduating averages in Economics at the University of Regina and in Public Administration at Queen’s University. He worked in the federal public service with the Treasury Board Secretariat, the Department of Finance and the Privy Council Office. He also worked for the Canadian Labour Congress and as senior economist with the International Trade Union Confederation.
