Liberals strangle crypto. Maybe about something Poilievre said

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It would be interesting to hear Freelands’ response to the accusation that his government is distorting the economy by supporting the favorites and hobbling the ‘deplorables’

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Posted May 15, 2023 3 min read

Finance Minister Chrystia Freeland walks to Question Period on Parliament Hill, May 15, 2023. Photo by Sean Kilpatrick/The Canadian Press

Chrystia Freeland is surely the most diligent finance minister this country has ever had, so busy that she can spend an hour of her day on Tuesday appearing at the finance committee to talk about the budget implementation bill, but not a minute more.

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Tory MPs on the committee have recently halted work, demanding the finance minister spend a few hours answering questions on an omnibus bill they say changes 51 other laws, with Freeland declining three previous invitations.

As of 3 p.m. Monday, even the committee clerk did not know how long the minister would deign to stay. If it’s just an hour, a number of subjects won’t be subjected to his unique blend of competence, false humility, and complacency.

Consider the issue of a change to GST tax credits that will uniquely impact the cryptocurrency industry, a sector that the government has apparently decided it would rather not develop further in Canada.

Digital asset mining has become a big business globally, although it is not located in Canada. The mechanics of bitcoin mining are complicated, but what is relevant here is that it requires a lot of computing power and relatively cheap energy.

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An industry has developed in Canada supplying this computing capability and exporting it to bitcoin miners in the United States and beyond. A former hockey stick factory in Sherbrooke, Quebec. is typical of the type of location now home to companies like Bitfarm, which says it has invested $350 million in the province and employs 100 people.

Any other company exporting computing power can receive input tax credits to help it be more competitive internationally. She gets a refund of the GST she pays on her business inputs.

For reasons that supporters say reflect Ottawa’s ignorance and antipathy to digital assets, companies that allow a foreign mining company to use computing resources to mine crypto- assets will not be eligible to receive input tax credits under the Excise Tax Act amendment incorporated into the Budget Implementation Act.

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This may sound benign, but in provinces where the combined provincial and federal sales tax is 15% (including Quebec), this equates to a 15% increase in the cost of doing business. Creating a mini-regime for a sector the government does not like is a far cry from fiscal neutrality, the canonical goal of tax reform.

Proponents say the likely result will be the relocation of existing facilities to the United States, or at least to Alberta, where there is no provincial sales tax, just the 5% GST.

The government amendment buried deep in the budget implementation bill declares that digital asset mining is not a commercial activity in Canada, which it clearly is. Companies here pay millions of dollars in corporate and payroll taxes and should get the same tax credits as other IT data centers.

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The industry has plenty of other issues, not the least of which are proposals from energy providers like Hydro-Quebec to stop selling cheap electricity to cryptocurrency miners. Manitoba and British Columbia are also concerned about mining demands on their networks.

But there appears to be a political motivation to cap growth that may or may not have something to do with Pierre Poilievres’ enthusiastic endorsement of crypto and Prime Minister Justin Trudeau’s dismissal of conservative leaders seen as irresponsible.

Utilities will do whatever it takes to protect their capacity balance. Quebec currently produces surplus energy, but a new study by the Montreal Economic Institute estimates that with its current facilities, Hydro-Quebec will exhaust these surpluses by 2027.

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But the federal government should be happy that around 7% of the world’s digital mining industry is powered by renewable resources from places like Quebec and British Columbia.

Instead, it is trying to strangle at birth an industry that could prove to be a net exporter of computing power for a number of industries for years to come.

The decision to take an entire sector and impose a 15% tax on it is not entirely new. The Liberals introduced a one-time windfall levy on banks and insurers last year.

But it would be interesting to hear the finance ministers’ response to the accusation that his government is distorting the economy by backing the frontrunners and hobbling the deplorables.

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