Ease Off Canadianization
Authors: Parsons Robert B. 
Published: March 2010

The plain simple sense of dollars and cents seems to be hitting home, at least as far as the Canadianization aspect of the National Energy Program is concerned. In his June 28, 1982 budget message, federal Finance Minister MacEachen acknowledged the high cost of Canadianization, alluded to some of the negative fallout of this program, and suggested that the Canadianization of the oil and gas industry could be soft peddled for the next few years without at the same time jeopardizing the possible achievement of the Canadianization goals of the NEP.

The over-all tone of Mr. MacEachen's budget, which is examined briefly in "Tax Topics" this month, was one of discipline and restraint.

Introduction

Higher personal income taxes in 1983, immediate restraints on public-sector pay, pension and transfer payments, and further modifications-but no wholesale abandonment-of his controversial November budget measures were among the highlights of Finance Minister MacEachen's budget presented to the House of Commons on June 28, 1982.

The Finance Minister was obviously caught by twin concerns over the federal government's ballooning deficit-now estimated to be just under $20 billion or almost double that predicted last November-and the continuing higher rates of inflation and wage increases in Canada over those of other major industrial countries.

Other than changes in the automatic indexing of the personal income tax ex- emptions and tax brackets, the Finance Minister introduced few new tax measures. but did release a comprehensive paper on inflation and the taxation of personal investment income proposing two new investment plans for further consideration. The first involves indexed term deposits to be issued by financial institutions, where the proceeds would be invested in new home mortgages and loans to small businesses, and only the real return-the interest in excess of the rates of inflation-would be subject to tax. The second plan involves a new registered shareholders investment plan (RSIP) for individuals investing in Canadian equity stocks, where investors would have their cost base fully indexed for inflation, but would have the assets of the plan valued at each year-end and the resulting capital gain or loss immediately includable in income.

Resource taxation

Mr. MacEachen indicated that the government is aware that international investors are concerned about the capacity of the Canadian balance of payments to absorb the pace of Canadianization in the energy sector under the National Energy Program. He stated that the government. while committed to its goal of 50% Canadian ownership by 1990, would not press the pace of Canadianization over the years immediately ahead. He referred to Energy Minister Lalonde's May 31, 1982 National Energy Program update paper, wherein Mr. Lalonde expressed satisfaction with the rate of progress toward the government's Canadianization goals. As of that date, Canadian ownership of of and gas upstream revenues had risen since 1980 by six percentage points to 34.7%, and Canadian control of the producing industry had increased by 10.8 percentage points to 33.1%.