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Flubber
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With a view of the Rockies
Aug 2000
time: 22:21
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quote:
Sask. should continue cutting its business taxes
The Leader-Post (Regina) 19 Mar 2005
By Bruce Johnstone
Could this be the same NDP government that short weeks ago was proposing hours of work legislation that had the business community heading for the barricades?
On Friday, Premier Lorne Calvert and Industry and Resources Minister Eric Cline outlined the province's new royalty and taxation regime for enhanced oil recovery (EOR) projects.
Essentially, the province is lowering royalties and taxes on large-scale EOR projects to the same level as those used to develop EnCana's $1.1-billion carbon dioxide flood at Weyburn. It's also removing sales and fuel taxes on solvents and other substances, including CO2, injected into oil reservoirs to stimulate EOR production.
Calvert justified the incentives being offered to some of the richest corporations in Canada on the grounds that, without them, the resources would remain in the ground.
He said the value of the petroleum resources still in the ground -- estimated at 30 billion barrels of oil in place -- was roughly $1 trillion.
And, if they stayed in the ground, the resources would not be able to generate wealth to fund social programs and provide jobs for our young people.
"There can be no social progress without economic progress,'' Calvert told a news conference at the Petroleum Technology Research Centre.''
Cline added the incentives would cost the provincial treasury nothing, as the resource development would not have taken place without the changes in royalties and taxes.
While that's an arguable point, what's not debatable is the fact that Saskatchewan oil resources are plentiful and accessible, but generally difficult and therefore expensive to recover.
In fact, without technology, like CO2 injection and other EOR techniques, 85 per cent of Saskatchewan's oil reserves would remain just that -- reserves, with little or no likelihood of being produced.
"If we simply stand pat with what we're doing today, then we are literally foregoing billions of dollars of economic potential,'' Calvert said.
However, by giving a little upfront, the NDP can lever literally billions of dollars of investment in the province from the cash-rich oil and gas sector.
Not only that, but EOR projects, like CO2 injection, can also help Canada make good on its Kyoto commitments to reduce greenhouse gas emissions.
For example, Apache Canada's recently announced $95-million CO2 project at Midale will extend the life of the Midale field by 25 years, increase production by 45 million barrels of oil and permanently store 8.75 million tonnes of CO2 underground.
What's not to like?
In fact, the idea of providing tax breaks to business is so contagious that Finance Minister Harry Van Mulligen is expected to announce a major overhaul of business taxes -- the first in 40 years -- in next week's budget.
While Van Mulligen will not likely announce any immediate tax relief for business next Wednesday, any review of business taxation will reveal that Saskatchewan corporate taxes are among the highest in the country.
Any review would also find that Saskatchewan extracts more revenue from indirect taxes, such as capital, property and sales taxes, than any other jurisdiction in Canada.
Such a review would likely discover that high-tax jurisdictions, like Saskatchewan, have not been popular places to invest. According to Statistics Canada, Saskatchewan ranked 10th out of 10 provinces for capital-investment growth between 2001 to 2004 at 1.8 per cent per year.
And the review may well find that jurisdictions, like Ireland, that have dramatically lowered their business taxes have seen a dramatic increase in investment, not to mention jobs, wealth and economic activity.
One definition of insanity is doing the same thing over and over again and expecting different results.
Another definition of insanity is: doing something different (like cutting taxes in the oil and gas sector), enjoying considerable success, but not doing it in other parts of the economy.
In other words, the Calvert government needs to learn from its own experience in the oil and gas sector and apply it to the rest of the business community.
- Bruce Johnstone is the Leader-Post's financial editor.
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I think that this shows some good common sense on the part of the government. If you have an industry that would NOT exist in the current tax environment, you lose nothing by targetting a lessened tax burden to get an industry moving.
That CO2 injection may help Canada lessen emissions is an added bonus
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:21
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quote:
Originally posted by chegitz guevara
Since the fall of the USSR, "leftist" governments have had little choice but to follow the neoliberal agenda. Keynes is dead. Any attempt to deviate from capital's agenda results in capital flight, an economic downtown, and a fall from power. There is no Third way, only socialism or free market capitalism. What is happening now is that the welfare states are trying to negotiate their way (and seeing what they can hold on to) rather than simply abandoning it all at once. |
Interesting take.
So are you saying that a government should not offer tax breaks to stimulate growth in an industry that would otherwise not be developed at this time??
I just look at the Newfoundland example. The first oil project received government grants and tax breaks and pays a small royalty. The second project acheived payout in a few years and is now paying a royalty of 30% ( remember that this is in ADDITION to any taxes they pay on profits). Third and fourth projects are in the works. People criticize the first deal but it remains unlikely that there would even be an industry there if those concessions had not happened.
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:21
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Che
To follow up . ..
Its all about competitiveness-- High tax jurisdictions are unattractive.
I look at personally moving from Alberta to Newfoundland and see that I will lose about 7 to 8% more in income tax and also have to pay a VAT that is 8% higher. It makes it much harder fo newfoundland to "compete"
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:21
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quote:
Originally posted by Azazel
quote:
Not all taxes are porportional to profits. Some taxes take the form of fees that are imposed regardless of profits. |
Unless we're speaking of natural resource exploitation, I can hardly think of fees that are nothing more than chump change (property taxes are a notable exception ) |
Well the example here was natural resource exploitation. Royalties are taken by government ( in their role as owner of the resource) as a proportion of total production and its often irrelevent if the venture is profitable
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:21
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quote:
Originally posted by Azazel
quote:
So are you saying that a government should not offer tax breaks to stimulate growth in an industry that would otherwise not be developed at this time?? |
Problem is, the tax rates don't make the industry uneconomical... just makes the profit margins lower ( unless there is a price war going on). Thus, it's not the government "stimulating growth by stopping to choke poor industry", it's "government having to collect less money, because they don't have a choice" . |
I don't understand your point . . . Sure government have a choice. They can tax at one rate and accept one set of anticipated consequences or tax at another and face a different set of consequences.
They also face a third choice. Nothing is stopping government from developing some of these fields themselves except for expertise, capital and an unwillingness to take the risk. and in natural resource exploitation it is hardly ever a "sure thing"
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:21
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quote:
Originally posted by chegitz guevara
Given the current political and economic reality, I don't think they have a choice. Capital can easily extort governments to do their bidding. Before the fall of the USSR, capital would accept far less favorable terms.
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Wow loaded terms. Where is the extortion? Government has a choice and individual businesses have a choice.
quote:
Originally posted by chegitz guevara
My own position would be that if the market isn't favorable to capital, then the state should create the enterprise. Then the people of Newfoundland would be getting all the revenues, not just a portion. |
Nice theory but quite frankly the government of Newfoundland did not have the capital. Also I doubt that the government been able to risk the capital had it existed.
Its all well and good to look at these projects in the light of 57 dollar oil. But remember it was not that long ago that oil was 12 dollars. That was the environment when many of these dicisions were taken.
Lastly-- Newfoundland state enterprises are notoriously inefficient. Talk to people in the know about Newfoundland Hydro . . . The overstaffing is ludicrous but perhaps you would support a lot of people being in do-nothing jobs as it lessens unemployment
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:21
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quote:
Originally posted by Azazel
[
Why not? That sounds like the same thing that the oil company would have to do. |
Actually the oil companies run their Canadian operations from Calgary and only transfer people to Newfoundland when there is a proven project. In the meantime they have the benefit of having their people work on anything that arises regardless of geography. IN a Calgary office are people working on exploration in pretty much every continent on earth
Newfoundland state oil would necessarily need people in Newfoundland at the earliest stage as it would be politically unpalatable to base them elsewhere. Remember though at the initial stage you would have to recruit people before any exploration is done so there would have been the possibility that nothing would be found. I'm also curious about how fun it would be politically to see 10-15 early drilling failures at 30 milllion dollars a pop. After 3 or 4 , the state oil company would have been shut down as another pipe-dream
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21-03-2005 21:45
. No instead they want someone else ( the oil company) to do all the work and they simply rake off an amount... . . and they don't just take a percentage of the profits, they take a percentage off the top with no gurantee of a satisfactory return for the oil company. If a capitalist did the same thing to a worker, all the commies would be up in arms 
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