Alberta Oil Royalties To Increase 20%, a $1.4 Billion Increase

October 29th, 2007

Alberta’s Premier Ed Stelmach announced that Oil & Gas Royalties are to increase about 20% in 2009. The province is currently taking in about $10 Billion a year and with the increase it expects to take an extra $1.4 Billion each year. Every five years the royalty rates will be reviewed.

WHY???

The big question I ask is, why increase rates? If the province needed more money I could understand… BUT… Alberta is having massive surpluses each year! On top of that, it is the only province in Canada to have NO DEBT! We have no debt in Alberta and large surpluses that can be committed to increasing infrastructure and social programs… So why raise taxes???

Raising Taxes Will Hurt

They are raising the royalty tax rate because they believe Albertans want it raised and Ed Stelmach isn’t exactly a popular politician… He was pressured into raising rates or else look like a weak pansy, which he has shown he is over some other issues. This is his time to shine and show those BIG BAD OIL COMPANIES WHO’S BOSS. As a side note, the Alberta Conservative Party Election System is quite odd and you vote on your favorite candidate and a second favorite candidate… If the first tier votes are in close proximity they add up the second tier votes as well. There were two very popular candidates which had opposing views and as a result, the third rate politician named Ed Stelmach won with second tier votes.

Albertans Want Their Fair Share?

Hahaha. That makes me laugh. The main poll that was taken on the issue was a very politically skewed question that was aimed at getting a particular response… the question asked was something along the lines of “Are Albertans Getting Their Fair Share of Oil & Gas Royalties?” That’s like asking if citizens of any country are getting their fair share of the tax dollars! Who is going to answer “Yes”??

So The skewed question got the desired answer and the politicians saw it as a time to increase taxes.

So What’s Wrong With Raising Taxes On Big Bad Oil?

Many of the companies that earn money in oil and gas spend the majority of their money drilling and buying more assets. Very few oil and gas companies build up massive reserves of money… the money either goes to drill more wells, acquire other companies or to the shareholder’s (who are mostly Canadian citizens!). Every dollar taken out is one less dollar they will use to drill for more oil or buy other companies. This hurts over the long term. We won’t see any dramatic down turn in the industry because it is SO hot it will still do alright. But this increase WILL decrease the demand for oil and gas services and make many wells uneconomical and no longer financially feasible. In other words, we may not see it, but there is a cost to this increase and it will hurt more Albertans than it helps!

Also, ordinary Canadians own large parts of the oil companies… they just don’t know it as they own shares in these companies through mutual funds and pensions!

Summary

The main problem I have with the tax increase is that it is occurring during GOOD times! You shouldn’t be increasing tax on your companies when the government doesn’t need that money. It has plenty of money, more than it needs to satisfy its budget even if it continues to increase spending by double digit rates. I say leave the people alone… a bigger government isn’t what I want.

How much of this new increase is going straight to any Albertans’ pocket? Do you think the increase in royalty rates will actually help average joe get his fair share? None of that will reach our pockets. If they were to take every single penny of that and put it in our pockets, then perhaps I could understand it a bit better. But they were planning on decreasing taxes in Alberta again anyways and this new money won’t give us a bigger tax break… though they may claim it does.

Also, they were going to increase the government spending quite a bit as well. So I don’t think this extra money will be used efficiently in Health Care, Infrastructure (roads, bridges, etc) or Social Programs…. it will be even more inefficient.

Why Would A Government With Absolutely No Debt and Large Surpluses Need To Increase Taxes? It doesn’t.

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