Quote:
Originally Posted by Zarley
This example is fine and I agree with you that the change is not going to have a material impact on very many projects on a micro level. Projects that had a positive NPV previously aren't going to become uneconomic all of the sudden solely due to the corporate tax increase.
However, I think you need to be looking at this at a macro level from a capital budgeting perspective. Companies operating across multiple jurisdictions have limited capital to invest and a multitude of potential projects to invest in. The 2% (or should I say 0.3 percentage point  ) decrease in IRR in your example may not seem like a lot, but it will cause Alberta based projects to move down the pecking order on many priority lists. While the change may seem immaterial to you, it undeniably will have an impact on investment inflows to Alberta. |
Absolutely, in aggregate it will have an effect. Now is that affect material? I don't think so (although millions does sound so big).
However, I also have to view this question as a citizen of Alberta. After all, my kids attend alberta schools, when I'm sick I go to an Alberta Hospital, I drive on alberta roads and Alberta courts help protect my property rights. Is 12% a more optimal corporate tax rate than 10% was, I really don't know. But I'm pretty comfortable in thinking that the impact of the change is being blown far out of proportion.
On another note, royalty review. These are actually far more material to corporate budgeting issues than the corporate tax rate. What confuses me is that industry is failing to take advantage of these low prices to renegotiate these in an environment that will be more sympathetic to them. A royalty review now doesn't scare me (in fact the sooner the better) an NDP royalty review at $100 WTI and $5 AECO is what would really make me terrified. Industry and conservative pundits trying to delay this run the risk of having that delay bite them badly in the ass.