BC's Energy Royalty and Tax Regime Criticized - It's time for a Reset for Shale Gas, Argues Mintz

CALGARY, Oct. 4, 2012 /CNW/ - In a report released today by The School of Public Policy, authors Jack Mintz and Duanjie Chen offer an international and interprovincial comparison of tax and royalty systems impacting the oil industry.

"As a whole, Canada falls in the middle of the pack in terms of competitiveness and neutrality," Mintz said today. "But within Canada there is a great deal of disparity across the provinces - and that disparity matters.  The goal of a royalty system should be to balancing public revenues with investment.  In those terms, some provinces do well, others less so."

The authors compare the energy royalty regimes of Brazil, Canada, Norway, the United Kingdom and the United States. They also evaluate individual provinces (Alberta, B.C., Saskatchewan, Newfoundland & Labrador and Nova Scotia) and states (Arkansas, Colorado, Pennsylvania and Texas).  The metric used is the Marginal Effective Tax and Royalty Rate (METRR), which indicates the impact of taxes and royalties on investment.

Contrary to common perception the authors find that the fiscal burden on the energy sector is higher than that of other industrial sectors in Canada.

Within Canada, measuring conventional production, Alberta, BC and Saskatchewan actually impose the highest fiscal burdens because of revenue based royalty regimes - this discourages investment. "With a burgeoning shale gas industry emerging in BC, it's time for BC to simplify its tax and royalty regime.  Looking to the flat-rate rent based system Alberta uses for the oil sands would be a good start" says Mintz.

Mintz and Chen contend that the regime in place for the Alberta oil sands is in fact the closest to an optimal rent-based system. Although the METRR for the oil sands is quite a bit higher than it is for Nova Scotia, the regime affecting the oil sands has fewer disparities across business activities and is more in-line with the tax burdens placed on other industries within the economy.

The report can be found at www.policyschool.ucalgary.ca/publications

SOURCE: The School of Public Policy - University of Calgary

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