Parkland Institute
Op-eds | February 22, 2012

It’s time Alberta stopped giving away its oil

Parkland Institute

The Alberta government’s new budget is laudable for its commitment to providing stability to education and health-care funding, and for its reinvestments in some areas of social services, notably increased payments to AISH recipients.

Hopefully, the government will also follow through on its intentions, as stated in the recent throne speech, to review the province’s fiscal framework. A return to progressive taxation in Alberta is overdue and would scale back the expensive tax cuts being showered on the wealthy and corporations.

Yet, such a review will inevitably fail to bring about the “foundational changes” the Redford government has also promised if the issue of oil and gas royalties is excluded.

Sadly, Alberta’s royalty regime was the invisible elephant in the room during both the throne and budget speeches.

The reasons for the government’s silence — and that, frankly, of much of the opposition — are obvious. Big Oil carries a big stick in this province, one that it wielded none too subtly upon former premier Ed Stelmach when he tried to raise rates in 2008. Albertans will soon be going to the polls and, even though the majority of Albertans (including Tory supporters) favour increasing royalty rates, no one — especially the government — wants the oil companies threatening Armageddon in the midst of an election. So, at best, we might hope that after the election, a real discussion can be held with all the cards on the table.

And such a discussion is badly needed. Critics of the budget, and not merely supporters of Alberta’s opposition parties, have been quick to point out an obvious contradiction between the government’s stated desire to rebuild Alberta’s Heritage Savings Trust Fund and Sustainability Fund by reducing its dependence upon unrenewable resource revenues to fund ongoing programs, while doing just that in stating how it will meet expenditures in the coming year (e.g., a withdrawal of $3.7 billion from the latter to cover the current year’s shortfall). That circle doesn’t square.

Contradictions happen when one doesn’t want to deal with hard facts. The fact is, the Alberta government has all but abandoned any effort to reach specified revenue targets, preferring instead to engage in a misguided quest for competitiveness through repeated reductions in royalty rates while ignoring the real, tough changes necessary to set Alberta on the right track for the coming boom.

For a solution to the problem, Premier Alison Redford need look no further than her earlier predecessor, Peter Lougheed, who took a tough love stance with the oil companies and set a bold royalty target of 35 per cent of oil revenues, amid uncertain times, to boot. Embracing such a target today would mean, based on the government’s own forecasts for production and oil prices, an additional $14 billion for Albertans over the next three years. The potential in the oilsands is even greater, where a less ambitious target of 25 per cent, to account for higher upfront costs, would bring in more than $31 billion. Altogether, that would mean a total of $45 billion in extra revenue over the next three years.

What’s past is past. We can’t entirely correct for past misdeeds, but we sure don’t need to repeat them. For too many years, successive Alberta governments have sold off Alberta’s oil at fire sale rates. In doing so, they have let the vast potential of our resource gifts slip through our fingers. Consider only the following: In 1978, Albertans received 40 per cent of revenues from the oilpatch, but by 2009, this had fallen to 10 per cent. The situation has been made worse, not better, by the emergence of the oilsands as the dominant market player.

Since 1986, less than $25 billion has gone to public coffers, while more than $285 billion worth of bitumen and synthetic crude have been produced. In 2010 alone, Albertans traded $36.6 billion worth of bitumen for less than $4 billion in royalties and land sales. In sum, Albertans have received roughly one-fifth of the value of the oil, gas and bitumen — our resources — produced in this province, and less than six per cent of that produced in the oilsands.

The oil companies are not about to return the largesse gained at our expense, but we can be smarter and tougher in how we deal with them. We can remedy the situation today and into the future, if we want to; indeed, we have a moral responsibility to future generations to do so.

If the government wants to rebuild Alberta’s Heritage Savings Trust Fund and Sustainability Fund, and ensure stable funding for programs into the future, as it has stated it wishes to do, the solution lies in getting for Albertans a larger, fairer, return on our oil.

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