On Tuesday November 20, 2012, Québec Minister of Finance and the Economy, Nicolas Marceau, surprised analysts by tabling a business friendly 2013-2014 budget for Québec. This change in approach has important consequences for international investors in Québec's resource projects.
One of the key themes of the Budget is the government's focus on private investment within Québec, recognizing that private investment - and in particular investment in Québec's natural resources - can help drive the Québec economy forward.
The emphasis on Québec's natural resources as a 'cash-cow' is partly due to the fact that Québec's mining potential is "immense", but also because the new government needs to reimburse the Provincial purse after it held off on increasing tuition fees, increasing the price of electricity, and increasing income tax for lower and middle-class families, along with a reduction in infrastructure spending.
In order to leverage the mining potential within Québec, the government has stated its intention to change the regimes and frameworks for developing non-renewable resources in an orderly and responsible manner to ensure stability in the mining sector.
Highlights of the budget include:
- a proposed review of the mining royalties system, with consultations beginning with the mining industry and other stakeholders in early 2013;
- a 10 year tax holiday in regards to corporate income tax and contributions to the Health Services Fund for investment projects of over $300 million in sectors that Québec considers strategic, including mineral processing;
- the creation of a $200 million fund to finance the development of green technologies;
- no introduction of measures to limit foreign takeovers, although Marceau said he would consider if the changes were considered "necessary" ;
- the depositing of all mining duties in the Generations Fund as of 2015-2016 to an estimated amount of $325 million per year (an increase on the previous budget which provided that 25% of mining, oil and gas royalties in excess of $200 million would be deposited in the Generations Fund as of 2014 - 2015); and
- a pledge to maintain a competitive tax system to promote private investment, however there is an additional effort being launched to discover and punish tax evasion.
Following on from the budget, the Minister of the Economy will introduce an omnibus bill into the National Assembly during the spring 2013 parliament session containing legislative amendments that aren’t of a fiscal nature. Particular points of interest include:
- a new licence regime for hydrocarbons - the Mining Act will be amended to auction licenses for onshore exploration of oil, natural gas and underground reservoirs to conform with current offshore practice.
- an increase in annual exploration licenses - the increase is to cover management and development costs of a new license and lease regime, coming into effect 2014. Exploration license fees will rise to $50/km² for the first five years of the license, and $150/ km² for the subsequent years. The lease rate will increase from $250/ km² to $350/ km² as of 2012. Increases in fees for related licenses - such as drilling - will also come into effect.
Marceau and the Québec government intend to utilize Québec's wealth of natural resources to fund cost cutting and tax breaks, but also to help drive the Québec economy forward.
Developments in the emerging markets will help fuel a global demand for natural resources and thus increasing the growth in revenue from mining royalties in Québec. As a result, the exploitation of natural resources can be a 'cash-cow' for the province.
In short, the new measures provide favourable conditions for investment in Québec for mining companies, however, although the new Québec government recognizes the potential that the exploitation of natural resources holds, companies should be aware that there is an increased alertness to tax evasion, and the government wants the best possible deal for its people to help fund political promises.