Mar. 24, 2010 - Issue #753: Zion I
Handouts to the wealthy
Royalty restructure will not create the economic stimulus Alberta needs
Alberta's worst-kept secret was made official two weeks ago by Premier Ed Stelmach and Energy Minister Ron Liepert. After months of "research" and closed-door meetings with the energy industry and the financial sector the government announced the results of their competitiveness review: lower royalties and reduced regulations.
Specifically, the government has done two things with royalties. The first is to make permanent the practice of only charging new oil and gas wells a five-percent royalty in their first year of operation. The government introduced this last year as a temporary incentive, and has now decided that this is the way it will be permanently.
The second adjustment they have made to royalties was to reduce the maximum royalty rate payable by conventional oil and natural gas producers. The top rate for conventional and unconventional gas will drop from 50 percent to 36 percent, and the top rate for conventional oil will be decreased from 50 percent to 40 percent.
The financial costs, so far, of this latest royalty giveaway will be almost $800 million in the 2012-2013 fiscal year. That's approximately half of what the government had to cut from its public programs and services this year because it claimed its shrinking revenue stream made cuts necessary. Where will the extra $800 million come from? Once again, Albertans are being forced, without input or consultation, to fund hand-outs to an industry that is already more than profitable.
It is important to note that the total cost of the current giveaway is not known yet; the announcement on March 11 only specified the low and high ends of the new royalty structure. What the rates look like in between the two extremes will not be announced until May 31, when the government releases the full new royalty curves. If there was any doubt that the structure of the curves will be even more beneficial for industry, Minister Liepert put that to rest when he told the Calgary Chamber of Commerce "We've committed to work with industry and review what are called the 'curves' and see if there are additional adjustments we should make by the 31st of May." In other words, if industry is less than happy with the new low and high ends, we'll make sure we fix it in the body of the curves.
The government has also promised to work between now and October to reduce "regulatory red tape" and "streamline application processes" for oil and gas drilling in order to make it easier and cheaper for business to invest in Alberta. A special task force has been set up to review existing regulations across departments, identify potential "efficiencies" and report back in three months. As has been the case throughout this process, the task force is made up entirely of industry and government representatives. What could environmental, labour and citizen organizations possibly have to contribute in terms of reviewing and setting up regulatory frameworks for oil and gas companies?
The government's stated reason for all of this is that if we reduce royalties and regulations for the gas and conventional oil industry, they will invest more in Alberta and we will have more jobs and economic benefits. How many more jobs? Well, according to the government's own media kits, the changes to the royalty regime will create 13 000 jobs per year across the entire economy. That might sound impressive, until you look at the recent StatsCan numbers showing that Alberta lost almost 15 000 jobs in February alone. They look even less impressive when you consider the fact that there 62 400 fewer Albertans employed in February 2010 than there were in October 2008.
Is the government right to be concerned about re-stimulating the economy? Absolutely. Is handing over hundreds of millions of dollars to the oil and gas industry the best way to do that? Absolutely not.
First off, royalties are not the only factor slowing down drilling in Alberta. The industry has also backed off because of the extra transportation costs involved in drilling here, the low international price of oil and gas, and that fact that Alberta's reserves are old and dwindling compared to other jurisdictions. Reducing royalties will not change any of those realities, and as such is not likely to bring as much investment back as government would like to think.
More importantly, however, is the fact that, according to data from the provincial government, money invested in oil and gas drilling actually generates fewer jobs across the economy per dollar invested than money invested in public services. In other words, the places with most bang for the buck in terms of job creation are the very places where this government cut more than $1.5 billion in the last budget, and the places with least bang for the buck are the places this government is investing. Again, these are the government's stats—they know this.
What this means is that all this talk of job creation and economic growth is just government spin for the fact that they needed the province's oil and gas industry to like them more than the Wild Rose Alliance. And they are prepared to forego real job creation and economic stimulus in order to achieve that. Where do you fit into this equation? Well, you're paying for this intense back-scratching through foregone revenues and reduced public services. Thank goodness the government has somebody's back. Too bad it's not yours. V
Ricardo Acuña is executive director of the Parkland Institute, a non-partisan public policy research institute based at the University of Alberta.
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