The pure prejudice of windfall taxes
by Greg McLean, M.P.
Let me challenge any rationale for a so-called ‘windfall profits’ tax – particularly as the government wants to apply to the oil and gas industry.
Canadians know that investing in our country’s resource wealth – mining, forestry, oil and gas – has its long-term challenges. Looking at long-term rates of return, investment in Canada’s oil and gas sector has lagged those of almost every other sector of the Canadian economy. The TSX Energy Index is lower than it was 10 years ago.
The government’s tilt towards taxing an industry that has suffered badly the past seven years – due to world events and regressive government policy in Canada – wherein the private sector companies that work here suffered significant losses of both earnings and labour – is the most short-term thought of any politician. Consider the capital required to sustain the oil and gas industry during a challenging time, and the dilutive equity issuances that were required. Canadian companies issued equity at levels far below the long-term value of their assets. Consider the retraction of dividend payments to Canadian shareholders. Financial action was taken so that companies would survive. Consider those that did not survive, and the effects on their employees and the shareholders who lost all their money in that period.
When we discuss ‘windfall profits’ taxes, Canadians need to understand that this is exactly the way that Canada’s oil and gas industry pays governments. Canadian oil and gas is owned by Canadians, and revenues are collected by the provinces that manage the resource on behalf of the people. Those royalty regimes are progressive. In simple terms, the higher the price received for the resource, the higher the percentage of revenues that flows to governments and taxpayers. This is not a linear relationship; it can differ from a 5% royalty when commodity prices are low, up to 40% royalty when prices are high. These provincial revenues fund the social services we all value.
When resource prices are high, up to 90% of the economic benefits are collected by provincial governments. However, our equalization system works to move that benefit amongst provinces by redistributing tax revenues. In 2014, when international resource prices were as high as they were this year, Alberta’s fiscal balance with the federal government amounted to almost $32 Billion; that’s income earned in Alberta that the federal government was able to spend in other parts of the country. That amount in 2020 was less than $15 Billion. So provincial collection of economic rents do find their way through to all Canadians.
As for reinvestment in clean technologies, the oil and gas sector contributes 70% of Canada’s clean tech private capital investment and has shown the most GHG reductions of any sector.
It seems this government prefers only public investment – where results to this point are only speculative. Our oil and gas sector is doing far better than our public sector choices. Any consideration of a supposed ‘windfall tax’ on our beleaguered and resilient resource sector would amount to pure prejudice. No one has suggested taxing the abnormal gains of the tech industry, which has prospered handsomely in proportion to other industries. The Minister of the Environment and Climate Change needs to take a real look at which investors and industry are consistently making ‘excess profits’ from Canadians; take off his narrow-minded anti-oil and gas blinders, and apply some reasonable thought to the tax-contributing sectors of the Canadian economy.