At this rare moment in history when Alberta’s provincial government actually seems prepared to concede for the first time in memory there is a revenue side as well as a spending side to its periodic budgeting difficulties, we also need to ask why we seem to be giving away our oil and natural gas.
That is, despite the useful discussion Premier Jim Prentice has unexpectedly encouraged about adoption of a sales tax and a progressive income tax, we also need to consider how much we should charge corporations to extract non-renewable resources that belong to all of us.
Because as of right now, it appears to be nothing!
As the price per barrel of oil has dropped, forcing the government to ratchet down its short- and mid-term royalty revenue predictions, mainstream media tended to concentrate on the size of the 2015 budget deficit forecast as a result, and the time over which Alberta could expect to run deficits.
Prentice was widely quoted saying this has resulted in “the most serious fiscal circumstance we’ve seen in a generation in this province,” as he and his new Wildrose caucus colleagues seemed to prepare us for another application of the Shock Doctrine in the form of “necessary” cuts to public spending.
“Things have turned so dramatically that we’ve gone from a $1.5-billion surplus in November to what looks like a $500-million deficit based on today’s projections,” Prentice told the Canadian Press last week. As if that weren’t alarming enough, he said in the same story, this deficit situation could persist until 2018.
As is now almost universally known throughout the province, oil has been trading below $50 USD per barrel for a week, and the prognostications about prices remaining low are almost universally gloomy, notwithstanding a market rally yesterday.
So Prentice told reporters during a conference call yesterday that while he still doesn’t support a sales tax or other tax increases, it is time for Albertans who do to make their case: “Now is the time for them to speak their mind.”
Well, OK, I’m sure they will.
But dig a little deeper into the January 8 CP story and you’ll come across an interesting comment by Prentice. “If oil prices persist at sub-$50 per barrel, we essentially have no oil revenue, and it opens up a revenue hole in Alberta’s finances that approaches $10 billion,” he stated.
Let’s repeat that, slowly: “If oil prices persist at sub-$50 per barrel, we essentially have no oil revenue …”
Seriously? Does this mean we’re about to start giving away Alberta’s petroleum resources?
Or, more to the point, since the people who are taking away Alberta’s resources will be leaving behind a mess for our children and grandchildren to clean up, does this mean we are actually planning to pay them to take our valuable oil out of the ground?
Memories are short in mainstream media, but oil has been in the $50 range before, and not that long ago. Most recently, from highs well above $100 before the bubble burst in 2008, West Texas Intermediate plunged, bottoming out at just over $30 per barrel in December 2008.
In 2003, oil averaged $49.82 per barrel (in 2014 dollars) and natural gas was $8.57 per thousand cubic feet, according to the Parkland Institute.
Excluding production from bitumen sands, Alberta then produced more than $61 billion worth of oil and gas, yet received more than $10 billion in royalties. (Note the similarity to size of the budget hole Prentice is warning us about.) Alberta also produced more than $15 billion in bitumen but received only $369 million in royalties.
There were royalty cuts in 2008, 2009 and 2010. As a result, the Parkland Institute predicted in a 2012 update to its calculations, the government would forego another $55 billion over the next three years.
If PC premier Peter Lougheed’s 1970s target of capturing 35 per cent of the revenue from oil and gas had prevailed until 2010, Parkland noted, “Alberta would have collected an extra $195 billion in revenue. … Even by just capturing 25 per cent of tar sands revenues, we would have received an extra $33 billion” between 2000 and 2012.
But thanks to horizontal drilling and bitumen extraction royalty holidays, conventional oil activity is nowadays often paying only 5 per cent, and in many cases bitumen extraction is still fetching as little as 1 per cent.
“That is all money that has gone directly from serving the public interest to serving the bottom lines of huge oil and gas corporations,” the institute argued in a 2012 press release.
Since then, judging from Prentice’s recent statement, we are now about to progress to receiving nothing at all!
Of course, getting nothing for our oil may be an entirely satisfactory situation as far as Prentice’s Progressive Conservative-Wildrose Coalition is concerned.
The government’s only goal may be to be to maximize activity by the drilling industry and put money in the pockets of shareholders, many of them outside the country. What budget improvements we realize from that would come through the so-called “flat tax,” which places the burden of running the province on middle- and lower-income Albertans.
Unlike almost every other government on the planet, the Prentice government makes no effort to maximize returns from resources to citizens.
The CP story sums up the government’s response to situation like this: “The premier said they are now looking at a combination of three options: reducing expenditures, increasing revenue, and dipping into the $5-billion contingency fund. He said they’ll use the contingency fund to cover off this year’s deficit but otherwise everything is on the table.”
Well, perhaps everything really is on the table now, and, if so, good for Prentice for going that far. Albertans certainly need to adopt measures to respond to inevitable volatility in the oil market that include a return to a progressive income tax and possibly even adoption of a sales tax like every other Canadian province.
Even the Prentice Government now concedes the widely acknowledged fact Alberta would capture almost $12 billion more in revenue simply by adjusting taxes to match the second-lowest provincial tax jurisdiction in Canada.
But that reality notwithstanding, surely we should not just be giving away the people’s non-renewable resources!
As a friend of mine puts it, the latest drop in oil prices has revealed that “the tide is out and Alberta is naked from the waist down…” It is not an edifying sight.
This post also appears on David Climenhaga’s blog, AlbertaPolitics.ca.