Report Describes Saskatchewan's Energy Royalty and Tax Regime as Worst in Canada - Discouraging Investment

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. The lowest fiscal burden is for offshore development in the Atlantic provinces.  However, Saskatchewan's regime is called especially uncompetitive due to a heavy tax burden and complexity.  "If Saskatchewan is serious about attracting investment in its energy sector, then an overhaul of its royalty system in in order," said Mintz.

However, the authors argue that these numbers do not tell the whole story. 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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