Do tax credits help Northern mining? Economists and industry disagree

The Conservative Party is promising to extend the Mineral Exploration Tax Credit for another three years, if it's re-elected, and boost the credit to 25 per cent in remote areas, including the territories and large parts of the provincial North. But does it actually lead to more exploration?

'Everybody thinks it's a magic bullet but it doesn't do anything,' economist says

Heavy haulers and excavators work in the Diavik diamond mine pit on Lac de Gras, approximately 300km northeast of Yellowknife. (Adrian Wyld/The Canadian Press)

It's been a regular feature of Conservative federal budgets since 2006: an extension, for another year, of the 15 per cent Mineral Exploration Tax Credit.

The Conservative Party is now promising to extend that credit for another three years, if it's re-elected, and boost the credit to 25 per cent in remote areas, including the territories and large parts of the provincial North.

There's just one problem, says Lindsay Tedds, an economist with the University of Victoria: it may not actually work.

"Everybody thinks it's a magic bullet but it doesn't do anything," Tedds says. "It does not increase investment to the point where you're going to have increased exploration."

Statistics would seem to bear that out. Total mineral exploration spending in Canada has dropped every year since 2011. And according to figures released this week by Statistics Canada, exploration spending was down nearly 20 per cent in the first quarter of 2015, and another 33 per cent in the second quarter.

Tedds says one of the problems is that the tax credit applies only to flow-through shares, which basically allow money-losing junior mining companies to pass on the tax credits they earn for exploration, to investors looking to cut their own tax bills.

"That's a very, very niche area that they [the Conservatives] are targeting," she says. "These investors in flow-through shares are predominantly doing this for tax planning reasons, not for investment purposes."

Credit has industry fans

But the credit has fans in the mining industry. The Conservatives' promised extension of the tax credit is exactly what was recommended in a May report co-signed by the Yukon Chamber of Mines, the N.W.T. and Nunavut Chamber of Mines, and other industry groups.

Samson Hartland, the Yukon chamber's executive director, says he's glad to see the proposal included in the Tory platform (though he stresses the chamber supports mining-friendly policies from every party).

"We're pleased that there's a recognition by one of the parties so far in this election, and certainly a welcome announcement," he says. "Every little bit helps given the increased cost and the propensity for projects to cost more in Canada's North."

But he says the federal government could do more. He points to the example of Alaska, which started a state-backed infrastructure bank to fund development projects and infrastructure. And the lack of infrastructure in the territories has long been a thorn in the mining industry's side.

"Infrastructure is certainly a topic and an issue that all parties should be considering as part of this election cycle," Hartland says.

Tedds and Hartland agree that the downturn in commodities prices are also to blame for the slowdown in exploration. That, Tedds says, is a global reality, and one the mining industry may have to simply suffer through.