premier hanson or chairman liz

Through the clouds of indistinguishable feel-good fluff spewed out by our political parties, a sharp division has emerged: mining. Liz Hanson, NDP supremo, favours higher taxes - or royalties as they are known - on placer and hardrock mining.

Through the clouds of indistinguishable feel-good fluff spewed out by our political parties, a sharp division has emerged: mining.

Liz Hanson, NDP supremo, favours higher taxes – or royalties as they are known – on placer and hardrock mining. This is on top of her commitment to fully protect the Peel Watershed, an area representing a bit less than 15 per cent of the Yukon’s surface area and (as has often been remarked by miners) the size of several European countries.

She wouldn’t say how much she would raise royalties, just that it will be “reasonable.” The details will be worked out later after public consultation.

The key point to remember is that she is calling for higher royalties on both placer and hardrock mining, even though they have very different tax schemes in place today. Placer royalties are famously fixed at 1911 rates, which today work out to 37.5 cents per ounce; not much when gold is trading around $1,800 an ounce.

Of course, royalties aren’t the only tax placer miners pay. The bumper profits they are making at $1,800 an ounce also get hit by income tax, something Hanson’s campaign materials don’t mention for some reason.

Hardrock royalties are completely different.

They are where the real money is, since placer royalties for the whole Yukon were only $19,500 last year. Even if Hanson raises placer royalties by a factor of 100 it would raise only around $2 million, not much on the Yukon’s

billion-dollar budget.

A June 2011 study by the federal Department of Natural Resources looked at the combined corporate income tax, capital tax and royalties payable by a typical hardrock mine. Looking at these taxes together is the right way to do it, since it is all money going to the government under one name or another. The study looked at the total tax take in the nine Canadian provinces or territories with major base-metal mining operations.

The Yukon actually had the highest tax take of all the Canadian jurisdictions, although lower than Mexico and some Australian states.

So Hanson is actually proposing raising a system that is already the highest in Canada.

I can’t tell whether Hanson doesn’t know the difference between placer and hardrock royalties, or if she knows our hardrock tax regime is the highest in Canada and is deliberately ignoring the facts because they interfere with a punchy political message.

Since she’s a former senior bureaucrat at DIAND, I am afraid I have to assume the latter.

The other thing the NDP is being disingenuous about is the timing of royalties. Their campaign material talks about how little we take “currently” in royalties. That, of course, is because you can’t collect hardrock royalties unless you have operating, profitable mines on Yukon government land. Minto is on Selkirk land, and other mines are just coming on stream. If Hanson means she wants to tax unprofitable mines or mines in the start-up phase, she should say so.

Having prepared this kind of business case before, I can tell you that knowing how much tax you have to pay is critical before shareholders will invest tens or hundreds of millions of dollars.

It is unclear why Hanson wasn’t specific on how high she would raise hardrock royalties.

The Natural Resources report says the Yukon’s mining royalty rate is 12 per cent (this is for the most profitable mines) and the total tax rate for mines, including corporate income tax, is 30 per cent. Does Hanson think 31 per cent is “reasonable,” or 50 per cent? Jack Layton had the courage to be specific in the last federal election, specifically promising to set the Small Business rate at nine per cent. Hanson should do the same.

Unless conspiracy theorists are right and she is happy that some extra uncertainty will discourage mining investment in the Yukon.

Besides royalties, mining investors also have to estimate their chances of getting their mining permits. Everyone knows that at the end of the YESAB process, the premier will make the final decision.

Remember that YESAB is an assessment organization. It does not decide. Decisions are made by what the jargonauts at YESAB call “Decision Bodies,” including the territorial government. YESAB’s website reminds us that “A Decision Body may accept, vary or reject a recommendation.”

So when a mining company makes an application, it matters who the premier is. If the NDP win the election, will mining applications be reviewed by a Premier Hanson who governs in the spirit of the Saskatchewan NDP premiers like Roy Romanow, who oversaw decades of uranium mining in the province?

Or will their application end up on the desk of an anti-mining Chairman Liz?

On October 11th, Yukoners will have to make a call on this.

Despite NDP claims to believe in a “strong mining industry,” the signals seem clear that they are the least friendly to the industry.

As for the other parties, the Yukon Party is famously keen on mining. The Liberals are in the middle, calling for protection of the Peel Watershed while promising not to raise royalties.

The Yukon Party and NDP are both hoping the Liberals will be reminded of the old political saying that there’s nothing in the middle of the road except yellow lines and flat squirrels.

One unintended consequence of Hanson making royalties the wedge issue between the parties is that it could turn the election into a referendum on mining. If the Yukon Party wins – especially if they win 12 or 15 seats, as some indiscreet members of the party have been saying around town – then they will consider themselves to have a solid mandate from Yukoners to grow the mining industry.

Hanson has made leadership the leitmotif of her campaign. Accountability is part of leadership, and if she loses a “referendum on mining” the buck will stop with her. Especially if she does it on a platform of raising hardrock taxes when they are already the highest in the country.

Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s adventure novels.

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