Saskatchewan's 'Incoherent' Potash Fiscal Regime Needs Revamping

CALGARY, Feb. 8, 2013 /CNW/ - A report published today by The School of Public Policy concludes that Saskatchewan's potash fiscal regime is a mess and is hurting the province's economy. Authors Jack Mintz and Duanjie Chen analyze the current regime and find it to be a hodgepodge of tax and royalty rates.

"Under the current royalty and tax regime for potash producers, the tangled thicket of royalties, taxes and credits can differ between commencement dates for production, projects of different sizes, or even projects of similar size but with different profitability; it also has potash producers generally enjoying a much lighter tax burden on marginal investments than that borne by the oil and gas industry and most other non-resource industries," the authors write. "The result is distortions and inefficiencies, resulting in subpar investment activity, which can only stand in the way of Saskatchewan reaching its full economic potential."

Mintz and Chen argue that revamping the potash fiscal regime should be done with a focus on "simplicity" and "efficiency."

To achieve these two standards, they propose a "revenue-based royalty and a rent-based tax, each of which with a single rate and an identical tax base for all tax/royalty payers." This means that government would set two rates, one royalty and one tax applied to revenue above the normal cost of capital, which would be applied across the sector.

Implementing these reforms would create long-term stability in both government revenue and investment in the sector, Mintz and Chen argue.

The report can be found at www.policyschool.ucalgary.ca/publications

SOURCE: The School of Public Policy - University of Calgary

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