Alberta PST discussion

[Harry Lime]

Even with Alberta oil being worth a fraction of Norway's, and equalization taken into consideration, we are still talking about a windfall of hundreds of billions of dollars by adopting a Norway model tailored to Alberta's needs and situation. The only reason it doesn't happen is fear, most of which Norway has proven is unfounded, which is why it is frequently used as an example.

The current regime in Alberta has cost us so much money it is difficult to contemplate, and instead of admitting a mistake, they talk about thing like PST, and don't even broach the issue. At what point does it move beyond being stubborn, and become criminal? When does distracting us from this issue stop working? So far we fall for every distraction they offer.

[MarchHare]

Originally Posted by Brewmaster

Well can you explain how it works then?

Equalization is funded through federal tax dollars which are collected in every province and territory. The provincial Government of Alberta does not write a cheque each year to send to Quebec or any other have-not province. Even if you live in PEI, you still pay for the equalization program whenever you pay taxes to Ottawa. The difference is that the provincial government of PEI receives a benefit from equalization while the provincial government of Alberta does not, but no matter where in Canada you live, you pay for the program.

http://thoughtundermined.com/2012/04...isconceptions/

One of the common misconceptions is that equalization is entirely paid for by the so-called “have provinces”, notably Alberta. The keyword search activity on this blog regularly shows people searching for things such as “how much does each province pay for equalization”, “how much does province X contribute to equalization”, “province Y receives equalization money from province Z”, etc. It isn’t uncommon to see comments on blogs or online media stories calling for Alberta to “pull out” the equalization program, or about how other provinces are spending the money they get from Alberta via transfer payments from that province.

[...]

Equalization is paid by the federal government to provincial governments and does not include any sharing of provincial revenues among provincial governments. Equalization funding is paid out from the federal government’s general revenues. The general revenues are the revenues the federal government collects from a wide variety of sources including: the federal personal income tax paid by all taxpayers in the country, the federal corporate income tax paid by all businesses in the country, GST revenue, revenue from customs and duties, resource revenue from federal sources, the federal portion of gasoline, alcohol and other taxes, etc. Provinces keep all the money they raise from resources and all their other tax bases. No provincial government funds go to support equalization.

[...]

So in answer to questions such as, how much money does Alberta transfer to Quebec or how much money does Alberta pay to equalization, the answer is simply “$0.00″. No province transfers any money to any other province. Individuals and corporations transfer money to the federal government.

[...]

...no province sends a specific amount of money to Ottawa to be used ONLY for equalization. The equalization program is paid for out of the federal government’s general revenues, which are collected in (not from) each province, including those that end up receiving equalization. The general revenues are the revenues the federal government collects from a wide variety of sources including: the federal personal income tax paid by all taxpayers in the country, the federal corporate income tax paid by all businesses in the country, GST revenue, revenue from customs and duties, resource revenue from federal sources, the federal portion of gasoline, alcohol and other taxes, etc. The existence of the equalization program has no effect on how much money is transferred from individuals and businesses in any province to the federal government.

[Harry Lime]

In October of 2004, Venezuela raised their royalty rate from under 1% to 16.7%. There was much hand ringing, and threats that future production would be pulled, industry would suffer.

Seeing the success of the Venezuelan rise, the U.S. raised the royalty rate in the Gulf states to 16.67% in 2007. There was much worry about stifling the reign of free enterprise.

The States are notoriously slow to act in favour of a higher burden on any critical industry, but it took them 3 years to move on a higher royalty system once they saw it effectively utilized in another jurisdiction. And it wasn't even the best model, although that model hadn't had the history of success that we can now identify.

This page has shiny pictures and graphs. It's format is such that I can't simply post them here without looking into it further, but it's probably worth a quick look. It is in slideshow format, and explains quickly in a visual medium why people are going to be upset about this until it is taken into serious consideration.

http://changenowforgood.ca/albertas-...iew-royalties/

[CliffFletcher]

So in answer to questions such as, how much money does Alberta transfer to Quebec or how much money does Alberta pay to equalization, the answer is simply “$0.00″. No province transfers any money to any other province. Individuals and corporations transfer money to the federal government.

This needs to be broadcast to every home in Alberta as a scrolling message at the bottom of their TV every day for the next 30 days.

Equalization may be the most misunderstood and abused concept in Alberta. It's astonishing how many people get so riled about about something they are almost wholly ignorant about.

And nobody makes any effort to disabuse Albertans of their ignorance. I'm no conspiracy theorist, and I know a lot of people who work in the mainstream media. But it almost takes a deliberate campaign to keep people so ignorant for so long about something so high-profile.

[Brewmaster]

I know the Federal government collects and distributes all money associated with equalization. That doesn't change the fact that the provinces producing resources (Alberta, Saskatchewan, Newfoundland, and to a lesser extent BC) are paying more into the system and getting less out per capita than the rest of Canada. It's not a direct transfer of provincial revenue but it is a large amount of money leaving our province. I'm not even necessarily against equalization, but it needs to be considered when comparing Alberta and Norway's funds from oil and gas production.

[opendoor]

Originally Posted by Brewmaster

I know the Federal government collects and distributes all money associated with equalization. That doesn't change the fact that the provinces producing resources (Alberta, Saskatchewan, Newfoundland, and to a lesser extent BC) are paying more into the system and getting less out per capita than the rest of Canada. It's not a direct transfer of provincial revenue but it is a large amount of money leaving our province. I'm not even necessarily against equalization, but it needs to be considered when comparing Alberta and Norway's funds from oil and gas production.

Alberta taxpayers paying more in federal taxes than the province receives back is a wholly different concept than this:

Originally Posted by Brewmaster

The fact is over $16 billion in equalization were directed to Quebec, Ontario, Manitoba, New Brunswick, Nova Scotia and PEI in the 2013-2014 year. The majority of this money is coming from Alberta.

The majority of that money isn't coming from Alberta; not even close.

Yeah provinces with a higher proportion of high earners, more federally taxable economic activity, and a very high standard of living are going to benefit less from the equalization system, but that's just the nature of federalism. Complaining about equalization as vociferously as some do makes about as much sense to me as someone in Alberta complaining about paying for the Navy because they have no coastline or someone in Hawaii not wanting to pay taxes that pay for interstates.

[Flamenspiel]

Originally Posted by Harry Lime

In October of 2004, Venezuela raised their royalty rate from under 1% to 16.7%. There was much hand ringing, and threats that future production would be pulled, industry would suffer.

Seeing the success of the Venezuelan rise, the U.S. raised the royalty rate in the Gulf states to 16.67% in 2007. There was much worry about stifling the reign of free enterprise.

The States are notoriously slow to act in favour of a higher burden on any critical industry, but it took them 3 years to move on a higher royalty system once they saw it effectively utilized in another jurisdiction. And it wasn't even the best model, although that model hadn't had the history of success that we can now identify.

This page has shiny pictures and graphs. It's format is such that I can't simply post them here without looking into it further, but it's probably worth a quick look. It is in slideshow format, and explains quickly in a visual medium why people are going to be upset about this until it is taken into serious consideration.

http://changenowforgood.ca/albertas-...iew-royalties/

I agree with some of what you say but Venuzuela is a complete disaster and may collapse into a failed state. Not a good a example, they really have nothing going for them except oil.

[Harry Lime]

Originally Posted by Flamenspiel

I agree with some of what you say but Venuzuela is a complete disaster and may collapse into a failed state. Not a good a example, they really have nothing going for them except oil.

Well Venezuela was treading upon a cult of personality through Chavez for a lot of years, so the crash is that much more dynamic. I guess the point was that there wasn't the expected backlash either there or in the States, for over 3 times what we are charging to most projects.

As for the charts in the link, the one thing that really amazed me was the structure that Lougheed had in place. And he started the Heritage fund. He really was trending in the right direction in the 70s, toward a long term solution, that was never revisited.

[Handsome B. Wonderful]

Originally Posted by Harry Lime

In October of 2004, Venezuela raised their royalty rate from under 1% to 16.7%. There was much hand ringing, and threats that future production would be pulled, industry would suffer.

Wait, did you just compare Venezuela's oil production with Alberta's oil production and try to make them equivalent?

Oil production costs are lower in Venezuela, they can take the royalty hit on profits a lot easier. Cut the smaller profits to be had in Alberta, and companies will pull out a lot faster.

That's almost as dishonest as trying to compare Norway's royalties with Alberta's, neglecting to mention that oil production in Norway is dominated by Statoil, and that the majority of Statoil is owned by the Norwegian government.

[Harry Lime]

Originally Posted by Handsome B. Wonderful

Wait, did you just compare Venezuela's oil production with Alberta's oil production and try to make them equivalent?
Oil production costs are lower in Venezuela, they can take the royalty hit on profits a lot easier. Cut the smaller profits to be had in Alberta, and companies will pull out a lot faster.
That's almost as dishonest as trying to compare Norway's royalties with Alberta's, neglecting to mention that oil production in Norway is dominated by Statoil, and that the majority of Statoil is owned by the Norwegian government.

No, I didn't compare Venezuela's oil production and Alberta's at all. I referenced that Venezuela raised their royalty rate without consequence, and the gulf States followed suit three years later. The point I was trying to make was that they were hearing the same rumbling of doom that we hear now, and nothing came of it.

Also, oil companies won't pull out and abandon any profit margin, as long as there is profit. That would make no sense to do so.

The comparison to Norway is that they continually work at finding a balance between what the industry can handle and what can be drawn in royalty. Alberta doesn't even try. Norway also banks all of the profit. The amount of royalty that Alberta sees will always be far below that of Norway, but our production is of a much higher volume, and the royalty as it is now is criminally low because the definition of 'payout' isn't concrete, or sensible.

I must admit, that I tend to comment on things here in a manner that is more in line with talking at a pub vs. actually delving into issues with any academic flair. It wouldn't surprise me at all if half of what I say sounds like it's in German or something, so I hope that this clarifies a little.

[Jacks]

Originally Posted by Harry Lime

Also, oil companies won't pull out and abandon any profit margin, as long as there is profit. That would make no sense to do so.

That's not true. Oil companies have a lot of capital but it is not unlimited. If it becomes much easier to make a profit in another jurisdiction then they will move. That's not to say they would abandon Alberta but they will invest the bulk of their venture capital where they will get the highest returns.

[crazy_eoj]

Originally Posted by Harry Lime

No, I didn't compare Venezuela's oil production and Alberta's at all. I referenced that Venezuela raised their royalty rate without consequence, and the gulf States followed suit three years later. The point I was trying to make was that they were hearing the same rumbling of doom that we hear now, and nothing came of it.

Also, oil companies won't pull out and abandon any profit margin, as long as there is profit. That would make no sense to do so.

The comparison to Norway is that they continually work at finding a balance between what the industry can handle and what can be drawn in royalty. Alberta doesn't even try. Norway also banks all of the profit. The amount of royalty that Alberta sees will always be far below that of Norway, but our production is of a much higher volume, and the royalty as it is now is criminally low because the definition of 'payout' isn't concrete, or sensible.

I must admit, that I tend to comment on things here in a manner that is more in line with talking at a pub vs. actually delving into issues with any academic flair. It wouldn't surprise me at all if half of what I say sounds like it's in German or something, so I hope that this clarifies a little.

Venezuela's management of their oil industry has been an unmitigated disaster. Production consistently dropping even though the resource base is enormous. Partners outright walking away from agreements. Not to mention the entire society is on the verge of collapse because of socialist ideals gone wrong and now without funding.

Any comparison to Alberta is nearly laughable.

[GP_Matt]

It sounds like Prentice wants to go after the unions for salary cuts. I am not sure how he can if they have existing contracts. Maybe go after jobs instead of salaries to get find the cost savings.

I am not against a PST, but it would be easier to swallow if they were able to combine it with spending reductions.

[CliffFletcher]

Originally Posted by GP_Matt

I am not against a PST, but it would be easier to swallow if they were able to combine it with spending reductions.

Don't worry, if the government is serious about addressing the over-reliance on energy royalties we'll see both tax increases and spending reductions.

[Frequitude]

Originally Posted by CliffFletcher

Don't worry, if the government is serious about addressing the over-reliance on energy royalties we'll see both tax increases and spending reductions.

It's nice to see someone correctly state that we need both, as oppose to constant bickering over one versus the other.

[Harry Lime]

Originally Posted by crazy_eoj

Venezuela's management of their oil industry has been an unmitigated disaster. Production consistently dropping even though the resource base is enormous. Partners outright walking away from agreements. Not to mention the entire society is on the verge of collapse because of socialist ideals gone wrong and now without funding.

Any comparison to Alberta is nearly laughable.

Agree. That's why I wasn't comparing them to Alberta.

[GP_Matt]

Originally Posted by Frequitude

It's nice to see someone correctly state that we need both, as oppose to constant bickering over one versus the other.

I agree with both, but think order is important. It will be hard to get anything out of unions if you have already secured a big new source of funding.

I also hope that the PST comes with some strong leadership going forward. Jim Prentice could be the guy that is capable of that.

[CliffFletcher]

I think a PST is only politically viable (and maybe not even then) if it's instituted in conjunction with both spending cuts and a binding commitment to put much more of energy royalties - at least half - into the Heritage fund. Though you'd probably want a sliding scale. So at $40 a barrel zero goes into the Heritage fund, at $50 a barrel 10 per cent of royalties, etc. etc. to 60 per cent of royalties at $100 a barrel.

[Canehdianman]

Originally Posted by GP_Matt

It sounds like Prentice wants to go after the unions for salary cuts. I am not sure how he can if they have existing contracts. Maybe go after jobs instead of salaries to get find the cost savings.

I am not against a PST, but it would be easier to swallow if they were able to combine it with spending reductions.

He can legislate changes to the contract. It's a pretty aggressive strategy (and his public opinion will suffer for it), but he can do it.

[darklord700]

Originally Posted by CliffFletcher

I think a PST is only politically viable

If you looked at the recent poll, almost 75% of responders panned PST. It is not politically viable.