Money & Oil - Are Canadians Ripped Off?

[Hydraboss]

Too many Albertans (like many on this forum) believe that a government without a deficit or without a debt is a competent government. It just ain't so.

What's truly sad is that Albertans are pissing away their inheritance in the form of subsidies to small, inefficient oil & gas companies. The loss in lower royalty rates is far greater than anything Alberta pays in equalization.

Too many Canadians think because a federal government has a surplus, that it is competent government.

The loss in royalty rates is peanuts in comparison to The Great Equalization Theft Scheme. Albertans would already have their inheritance for generations looked after if we weren't supporting the rest of Canada (Ontario excepted).

Stelmach and his boys have stated the loss in royalties is from 1.4 to 2.0 billion per year. Hey Geoff, what were those equalization welfare numbers from the last couple years?

[geoffrey]

Hey Geoff, what were those equalization welfare numbers from the last couple years?

I've seen studies from $3,000-$5,000 per capita, likely more in the $4,000 range. If you add in the transfer effects of EI and Alberta's job market then it's much higher, but we'll pretend those don't exist.

We piss away about $12 billion a year to the rest of Canada that we never see back. The oil money is peanuts.

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August,

What do you mean by 'not capturing all the rents.' What the hell is that? Albertans elect a government to price our product (oil). The rent captured is what we democratically chose it to be. We are capturing all the rents we want to.

Is 100% royalty full capture, or 50% or 28.3437553%? Who knows? A balanced is needed and I think Stelmach is going to find a reasonable one.

The good news, however, is that royalties are for the most part tax deductable, so Ottawa and the equalisation pot will get alot less Alberta money if we put royalties on oil. Ideally, we'd charge no corporate tax on oil and up the royalties equally, so Ottawa would receive nothing from Alberta oil and gas, as is our constitutional perogative.

[August1991]

What do you mean by 'not capturing all the rents.' What the hell is that? Albertans elect a government to price our product (oil). The rent captured is what we democratically chose it to be. We are capturing all the rents we want to.

I'll go leftist/weird on you.

Imagine Brittney Spears makes $20 million a year. Now imagine that 40 million young girls around the world spend $1 on cosmetics in the hope they'll become the next Brittany Spears. That's waste.

IOW, Albertan oil firms spend more than a prize is worth and as a result, Alberta is a poorer place. Why? Because the Albertan government underprices royalties. Don't get me wrong. Each individual firm views/calculates the financial numbers the same way. Each firm is doing the right thing - like the young girls spending $1 to become the next Britney Speers. But overall, in a macro sense, it's a waste of resources.

Leftist posters such as Hydraboss - and no doubt the CBC - will harp on the unfairness of this. "We're giving our inheritance away." I think Lougheed (and I) have made this point too. More important however is that a resource underpriced is a resource wasted.

When the Albertan government sets royalties too low, it creates a prize and then individuals (overall) spend more to win the prize than the prize itself is worth. Countries (or provinces) who adopt such policies do not long survive - a century or two at most.

Edited October 26, 2007 by August1991

[Hydraboss]

"Leftist posters such as Hydraboss - and no doubt the CBC - "

August, this is without doubt the best post I have ever read that involved me. I'm a leftist now, huh? Priceless.

My take? Geoff started down the road....

Ensure that whatever the O&G companies are being charged (and call it whatever you like) is fully tax deductible on a federal level. Withdraw ALL provincial taxes and surcharges (so there can be no federal calculations that end in anything but $0.00). Now increase the charges that the companies pay to the Alberta government (but change the name and structure so that it is provincial only...the Alberta Thanks-A-Lot charge) to make up for, say, 100% of what they're currently paying.

Result: O&G companies pay the same to the province, pay WAY less to the feds, and Albertans end up with substantially more in the provincial coffers (pay it out however you like). Screw any government entity that isn't Albertan.

But then...that's probably just my leftist leanings.

[August1991]

August, this is without doubt the best post I have ever read that involved me. I'm a leftist now, huh? Priceless.

Was I wrong? Not really - although I'll admit that you're no Leftist (but I did get your attention).

You seem to think that Alberta loses more through equalization than through under-pricing its royalties. I have argued to the contrary.

You can see the money that leaves Alberta through equalization (and many other transfer schemes that amount to the same thing. Alberta has many taxpayers in higher tax brackets.) What you don't see is the waste caused when the Albertan government sets royalties too low and in effect creates a gold rush mentality to get the wealth now.

The costs due to low royalties are hidden and extensive. For an idea, go above in this thread to the quotes of Peter Lougheed. Hydraboss, while you rail against the Eastern Bastards who steal your two horses, you ignore the twenty horses that escape through the hole in the fence.

The world price of oil is touching $90 US per barrel or the highest in real terms it has ever reached. Alberta's royalty scheme still doesn't take this windfall into account. That's a mistake I think and it's costly both for Albertans today, Albertans in the future and Canadians in general. The Albertan government should be a good steward of this natural resource. It's failing in this duty.

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Incidentally, I see something similar in Quebec where the Quebec government does not accurately set resource rents (royalties) for access to hydro sites. As a result, Hydro-Quebec makes bad decisions and Quebec society wastes this natural advantage. At least in teh case of Quebec, it's a renewable resource but the waste is no less harmful.

Edited October 28, 2007 by August1991