Canada’s natural resources are an advantage in a digital economy
Globe and Mail
Author: Aaron Henry
There is no shortage of hype and enthusiasm for artificial intelligence, internet of things applications and, of course, blockchain technologies; and nor should there be. These technologies bear significant social and economic promise.
While everyone clamours for insight into how these technologies will affect the future of work, another massive effect these technologies may have in store for Canada’s economy remains overlooked: how Canada’s natural resources will play a critical part in supporting that transformation.
The evolution of automation, remote working, digital currencies and services will pose significant challenges to Canada’s tax base and therefore the country’s ability to offer essential services. The ability of companies to move the revenues from their digital services from high-tax to low-tax jurisdictions has started to undermine government capacity to collect tax revenue.
By way of example, the revenues earned by digital platforms such as Amazon and Netflix services can be legally moved through “transfer pricing” mechanisms from one tax jurisdiction to another jurisdiction where the company has a national subsidiary. In 2016, these transfer mechanisms meant that Netflix and Spotify avoided $52-million and $9.4-million respectively in sales tax in Canada.
The tax regimes of all Group of Seven countries will struggle to keep up as the digital economy gathers speed, the revenue implications of digital currencies alone could prove transformative. Governments will find that paying for aging populations and for climate adaptation will be confounded by increasingly porous tax regimes. Yet, strained public services and emptying coffers does not have to be Canada’s story.
Canada’s advantage in the digital age is that as digital platforms increasingly corner the deliver of services and products, 17 per cent of Canada’s GDP is drawn from physical natural resources. I am talking about lumber, metals and minerals, and energy. Unlike digital services and products, these resources will remain subject to clear lines of jurisdiction and remain a reliable part of provincial and federal revenue.
Integrating disruptive technologies into our resource sector will improve Canadian competitiveness and increase the revenues that can be collected through employment, indirect spending, and corporate profitability. We also need to ensure our resources have a predictable and stable access to those non-OECD markets that are hungry for our energy and our metals and minerals and will increasingly be high-growth sites in the development of digital technologies and their related infrastructures.
Walking this path will mean not only improving our regulatory system to ensure we can build the infrastructure to support resource development, but it will require significant foresight to ensure our regulatory system is nimble enough to allow Canadian resource companies to take fully take advantage of incoming disruptive technologies.
In our mining sector alone, there is considerable opportunity to improve operations through autonomous vehicles, streamline operations and management of mining sites through internet of things technology, pursue electrification, and develop a modern technologically savvy work force.
Business leaders from Goldcorp and ABB and many others developing state-of-the-art technologies met last week to discuss these opportunities and the challenges to digitizing the mining sector over the next five years. This event forms part of the lead up to the #DisruptMining event taking place during the Prospectors and Developers Association of Canada conference, intended to spur innovation in the mining industry.
As other countries struggle to develop taxation systems flexible enough to match 21st-century economic transactions, there will be hard decisions between paying for climate adaptations, essential service provision, aging populations, and social safety nets fit for the future of work.
Climate change and taking care of an aging population will cost Canadians an estimated $43-billion and $107-billion annually by 2040. If Canada fails to create a regulatory environment that can support the integration of high technologies into our resource sector, we may be forced to make tough choices to meet future costs. Squeezed governments may bolster populist forces that will create unpredictable regulatory environments, conflict and generational infighting.
What sets us apart from the tumultuous path other countries will be forced to walk is that we possess the resources to manage the tax issues presented by the digital economy. Whether we capitalize on the comparative advantage our resources provide will hinge entirely on our policy choices today.