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Ontario falling behind without research levy.

Ontario may soon be the last major mining jurisdiction without a mining research levy. Our major competitor, Australia, has a wildly successful scheme. Chile, the second biggest threat to Northern Ontario, has just introduced a plan to invest from a new mining tax in developing technology. Peru, a country that depends on mining just slightly more than Canada, is considering following suit.

A research levy collects money from mining companies to spend on research the industry needs. The poster child of research levies is the Australian Coal Association Research Program (ACARP). Australian black coal producers pay five cents per tonne and spend the money on research.

In theory, the Australian coal levy is voluntary, but according to Michael Hood, the dean of the mining engineering program in Queensland, the Australian government really says "volunteer or else." If the companies don't keep paying the voluntary levy the government will go back to collecting the tax it imposed before 1992.

Government may have forced the levy on the coal industry, but senior management in the coal industry unanimously recognizes the value of the program. Why are the coal producers happy to be taxed? Before the tax was introduced they were in a classic "public goods dilemma." They knew they needed research, but each wanted the others to pay for it. If one company had invested large amounts in research, the others that were not spending could sell coal cheaper. If the research was successful, the others could copy it. They needed the government to make them all contribute.


They also like the coal levy because they get to choose the research. The levy is paid to Australian Coal Research Ltd, a company established by the industry to manage the program. Each year the company funds 60 projects chosen by coal company experts.

The industry gets more than it pays for. The research projects attract additional funds from government and other mining companies. In 2003 the $12 million contributed by coal companies leveraged over $31 million in research spending.

ACARP is a useful model for funding industry research. It is efficient, industry likes it, and it generates technologies that Australia can sell abroad. It also ensures that the Australian coal industry stays competitive, helping assure long-term employment.

If you find yourself wishing that the Ontario government were as clever as the Australian government, you are not alone. The people of Chile want their government to introduce a similar fund. In April the Chilean government announced it would introduce a three-per-cent sales tax on mining companies. This is three times the size of the research tax I proposed in last month's column. Peru is considering a similar levy.

The Chilean tax differs from the Australian Levy in two ways. First, it mixes a research levy with a mineral royalty scheme. Second, Chile is promising to use the money to promote technology, but it is not promising to do the projects that the industry wants. The Australian levy is completely controlled by the industry, but research funded by the Chilean levy is likely to be directed by government.

For Northern Ontario, at least some of the research should be aimed at expanding industries related to mining. The mining companies may not be interested in the mining supply and service industries in Northern Ontario, but the people of the North are. Mining companies have little interest in doing more processing in the North, but northern communities need the jobs.

Australia and Chile each plan to become the world's leading centre for mining research. They want to promote their mining supply and service industries. Both have a strategy to expand and co-ordinate mining research. Ontario is falling behind. We are waiting for Rick Bartolucci to make his move.

We should be watching Bartolucci very carefully. We need him to act as Minister of Northern Development and not just Minister of Mines. The mining industry would be happy to make Australia or Chile its R & D headquarters. We want Northern Ontario to be the centre of the mining world.

When David Peterson was Minister of Northern Development, he understood that it matters where research is done. Rick Bartolucci has to make sure mining research is done in the North or the North will continue to decline.

Dr. David Robinson, PhD, is an associate professor of economics at Laurentian University, and is with the Institute for Northern Research and Development.

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Title Annotation:Economically Speaking
Author:Robinson, David (American basketball player)
Publication:Northern Ontario Business
Geographic Code:1CONT
Date:May 1, 2004
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