Potash/Phosphate

The National Post is Canada’s second largest national paper.

Premier Brad Wall of Saskatchewan is now under fire for his 2015 Budget that promises a potash tax review as well as a curb on some investment incentives for the potash industry. Some are calling his bold move a “Stelmach” moment, comparing the ever-popular Saskatchewan Party’s premier to Premier Ed’s royalty review for the Alberta’s oil and gas industry in 2007-8.

‎Saskatchewan’s royalty review is far from being a comparable situation to Alberta’s. Brad Wall inherited a clumsy complicated potash royalty system devised by the NDP in 2001-2 while the Alberta royalty system was relatively well designed before Stelmach started stirring the pot.

If anything, the Stelmach government was making the system worse with proposals that increased rather than reduced distortions. Moreover, Stelmach’s play was a revenue grab while Wall has finally taken a step to clean up a messy system with the promise not to raise revenues under the review. If there is any criticism to be laid, it’s that Wall should have acted sooner.

Wall now has a unique opportunity to not only reform potash taxation but also to ensure a politically stable tax system that has the right balance between competitiveness and public revenues. The major flaws in the current Saskatchewan system are threefold.

First, the system is unfair with differential treatment of potash companies depending on whether they existed before or after 2001-2. Companies after 2002 are taxed on their volumes differently than companies operating before this time.

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The National Post is Canada’s second largest national paper.

Saskatchewan is preparing to review its byzantine potash royalty regime, and Premier Brad Wall thinks it is long overdue.

“Without the incentives that are overlaid on top of the royalty structure for brownfield and greenfield investment, we have the highest potash taxes on earth,” he said in an interview. “Higher than Russia.”

But in this week’s budget, Mr. Wall introduced one interim tax change that has already drawn a furious response from the world’s biggest fertilizer company.

Saskatchewan is stretching out the timing in which miners make deductions for expansions and maintenance spending. That has a significant impact on Potash Corp. of Saskatchewan Inc., which is wrapping up a $6-billion expansion program in the province. Potash Corp. expects budget proposals will cut its pre-tax earnings by $75-million to $100-million this year.

“Changing the rules midstream impacts the ability of our shareholders to earn a fair return on their capital and undermines Saskatchewan’s relative competitiveness,” chief executive Jochen Tilk said in an uncharacteristically harsh statement.

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The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

Saskatchewan is blessed with the world’s largest bounty of potash – and cursed with the worst tax system for capitalizing on its bounty of the naturally-occurring fertilizer. It is a regime so complex that nobody – miners, investors or governments – has a clue how to forecast the tax outlay from year to year. Even University of Calgary tax expert Jack Mintz, who has written extensively about it, calls the regime “the most complicated thing I’ve seen in my whole career.”

Finally, after much prodding, the government of Brad Wall is promising to do something. In the provincial budget tabled this week, the Premier promised “a broad review of the entire potash tax regime.” Change can’t come soon enough. Potash Corp. of Saskatchewan, the industry’s largest miner, isn’t happy, but it has a lot of nerve to complain.

Saskatchewan’s potash tax system, according to a recent paper co-written by Dr Mintz, is convoluted, inefficient and uncompetitive. There are three levels of levies, creating a “tax jungle” that leaves producers subject to marginal effective tax and royalty rates last year ranging from 0.3 per cent to 22.6 per cent. It’s a wild and ridiculous range, especially considering the rate in other potash-producing countries amounts to one number, usually in the mid-teens or low 20s.

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http://www.thestarphoenix.com/index.html

Sask. to gain, industry to lose

A change in the province’s potash royalty regime in the 2015-16 budget will net the Sask. Party government $150 million this year, Finance Minister Ken Krawetz announced Wednesday. The government also promised to revamp the province’s complex potash royalty scheme in consultation with the industry over the next year or two.

But the province’s biggest potash producer indicated the royalty change will negatively affect earnings and amounts to “changing the rules midstream.’ The budget said changes will be made to the Potash Production Tax “to defer the timing of capital deductions in order to prove an immediate and temporary increase in revenue from potash companies. The total amount of deductions producers received from their capital spending will now be utilized over a longer period of time.

“This is an interim step that will be followed by a review of the entire potash royalty and taxation regime.’ Krawetz told reporters that the government has held “ongoing consultations with the potash industry’ about the impact of the changes.

“After these smaller changes that we’ve been working on for a number of months, there will be a broader review over the next year or two. We want to ensure that the people of Saskatchewan who own the resource are rewarded at an appreciative rate,’ Krawetz said.

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