One of the best things about teaching is that you actually learn more than your students do. I teach Natural Resource Economics at Laurentian University and I've learned a few strange things about Ontario's mining policy. I'd like to share a couple discoveries with my friend, Minister of Northern Development and Mines Michael Gravelle, and with his deputy minister, George Ross. In fact, I'd like to share the lessons with everyone in Northern Ontario.
The most shocking lesson came from one of Canada's leading economists, Jack Mintz. Last year Mintz and Duanjie Chen, at the University of Calgary, looked at how Canadian provinces tax the mining industry. "Ontario's system," they concluded, "is redundant, expensive and wasteful."
"Redundant, expensive and wasteful" is pretty strong language coming from the most respected tax analyst in Canada, but there is more: Ontario has the second-lowest level of provincial taxes in the mining industry. BC basically pays companies to take its resources. Ontario seems just to give the resources away.
This matters to the North. The definition of sustainable development for mining is collecting a share of your mineral wealth and investing in other productive assets. The net wealth produced by a resource is technically called resource rent. If you don't invest your mineral rents in other assets, you end up with nothing but holes in the ground. You end up poor.
"Rent" is an old idea in mineral economics. According to the classical economists, workers got wages, capitalists got profits on the capital they invested, and the owners of natural resources got rents. Rents were special because natural resources like land, mineral deposits and forests weren't created by saving. They were the "free gift of Nature." After you pay the workers and capitalists for their labour and investment, whatever is left over was produced by "nature." We still use the term "rent" for the price you pay a landowner to use his land or to live in a building on his land. The owner gets the rent.
With natural resources a share of the rents were paid to the king. The payment was naturally called a "royalty" Today it represents the Crown's share of the profits from a public resource.
Why should the king, or the province, or the little people of Ontario get a share of the rents from a mine? Because...