A University of Calgary research paper released Wednesday ranks Alberta dead last in terms of competitiveness for oil and gas.
Jack Mintz, director of The School of Public Policy, ranked oil and gas producing jurisdictions in terms of their competitiveness and the ability of their tax and royalty structures to attract investment, comparing Alberta, Saskatchewan, British Columbia, Nova Scotia, Newfoundland and Texas.
In most cases, Alberta trailed the other jurisdictions. The conventional oil and gas industry faces a higher tax and royalty burden on new investments than do other sectors of the economy, he said. Further, at higher prices per barrel of oil, Alberta’s tax and royalty regime becomes even less competitive
Mintz added that contributing significantly to Alberta’s lack of competitiveness is the current royalty regime, which creates a burden on investment that is twice as high on oil and gas compared to other sectors in the Alberta economy.
"Contrary to some public perception, the oil and gas sectors, including the oilsands, are much more highly taxed than other sectors in the Alberta economy," said Mintz in a release.
More competitive environments are found in Saskatchewan and British Columbia. The burden is higher in Saskatchewan than in British Columbia in part because the latter is harmonizing its sales tax with the federal goods and services tax (GST) and thereby removing significant taxes on business purchases of capital.
Marginal investments in oil and gas in Newfoundland and Labrador and Nova Scotia bear a very low tax and royalty burden -- in fact, they obtain a fiscal subsidy with a "negatively" measured burden -- due to both a royalty structure that provides excessive deductibility for investment costs and the federal Atlantic investment tax credit.
"In my view, that’s just too distortionary; it’s not necessary," said Mintz.
Finally, in Texas, while the tax system is quite different, it is competitively structured. The overall tax burden compares to B.C. and Saskatchewan, and is significantly more competitive than Alberta.
The paper, called "Taxing Canada’s Cash Cow: Tax and Royalty Burdens on Oil and Gas Investments," argues for significant reforms, including the abolition of the federal Atlantic investment tax credit and a restructuring of royalty systems with a single rate applied to the equivalent of rents as in the case of Alberta’s pre-2009 oilsands royalty.
