The Rural Municipalities of Alberta — the organization representing Alberta’s rural counties and municipal districts — has announced it’s facing what it calls a “massive increase” in unpaid taxes owed to small rural governments by oil and gas companies.

The amount owed in taxes has more than doubled since last year, to $173 million, according to a recent survey of Rural Municipalities of Alberta members.

This loss of revenue, the Rural Municipalities of Alberta said in a press release, means “many rural municipalities will struggle to remain viable.”

You might be wondering why, and how, oil and gas companies can simply not pay their taxes. After all, the local government will certainly make sure to collect your property tax. And we’re all well aware that the Canada Revenue Agency is keeping tabs on our income tax. 

But the situation is a little different with the taxes owed by oil and gas companies to the small communities they operate in.

Read on.

What kinds of taxes are oil and gas companies supposed to pay to rural communities?

Oil and gas companies are supposed to pay property taxes, not unlike home and landowners, when they install oil and gas infrastructure. 

These taxes are assessed based on a model set by the provincial government — and there are rumblings that this model could soon be “updated” (more on that later).

Why aren’t these companies paying?

Though rural municipalities have long voiced empathy for oil and gas companies facing low energy prices, they are increasingly alleging that companies are choosing not to pay their municipal taxes because the companies know there are few consequences.

According to the Rural Municipalities of Alberta, companies are increasingly “unable or unwilling to pay.” 

The Canadian Association of Petroleum Producers has previously suggested that rural municipalities “place a disproportionate fiscal burden on industrial property.”

Ron Govenlock, mayor of Woodlands County, told The Narwhal last fall that it’s not reasonable to think that property taxes are the reason companies are struggling.

“There’s a multitude of factors that go into any business in terms of its operational cost,” he said. “So to suggest that it’s the tax burden — that’s been consistent for the past 20 years — that is now going to be targeted as the reason that their profit margin is tighter?” 

“I don’t buy that.”

Oilfield rentals in Fox Creek, Alta. Photo: Amber Bracken / The Narwhal

So, what happens if companies don’t pay these taxes?

Not a whole lot, when it comes to enforcement. 

According to the Rural Municipalities of Alberta, local governments “have no ability to take action to recover owed taxes on this type of infrastructure.”

With other types of tax debts, whether from individuals or businesses, counties may seize assets or post them for sale.

The situation gets even trickier if a company declares bankruptcy. 

Counties “have little recourse to recover unpaid taxes from companies that have declared bankruptcy,” according to the Rural Municipalities of Alberta, as they are near the bottom of the list of creditors who would receive any leftover funds following insolvency.

How much does this matter to these communities?

A lot. In some cases, rural municipalities rely on tax revenue from oil and gas companies for more than 90 per cent of their annual budgets. 

An investigation by The Narwhal last fall found that in at least 20 counties, local governments were relying on these payments for more than half of tax revenue.

Losing that cash flow has led counties to consider cutting back on road maintenance, property tax hikes for residents and hiring freezes. 

Others dipped into emergency funds to bridge what they hoped was a temporary shortfall.

‘Only reason we exist’: why an energy transition is hard to fathom in parts of Alberta

Has this happened before?

When the Rural Municipalities of Alberta announced last year that communities across the province were facing an $81-million shortfall in unpaid taxes from oil and gas companies, they labelled it “unprecedented” and noted it was “worsening at an alarming pace.”

Govenlock told The Narwhal last year that the sudden drop in income left his county “blind-sided.”

What’s the provincial government doing about this?

Last summer, the provincial government announced a program that would seek to cut the taxes paid by some gas producers, under their shallow gas relief program.

That program meant eligible companies received a 35 per cent cut on local taxes on shallow gas wells and pipelines for the 2019 tax year.

In turn, local governments received less tax revenue, so the provincial government promised to reduce the amount of another tax, the education tax, that rural municipalities have to pay by the amount forfeited in gas tax. 

When it announced the program, the provincial government estimated it would indirectly foot the bill for $20 million in taxes for eligible shallow gas companies. 

The program was estimated to only be applicable to about 15 counties, of the approximately 60 spread across the province. An estimated 70,000 wells and pipelines are eligible under the shallow gas relief program.

A campground where workers live year round in Fox Creek, Alta. on July 24, 2018. Photo: Amber Bracken / The Narwhal

Why shallow gas wells?

“Shallow gas” includes conventional wells, and associated pipelines, that are not drilled deep beneath the surface like many fracked sites. 

According to the Government of Alberta, shallow gas wells are “defined as wells less than 1,500 metres in depth, producing only gas … [and draw] from formations that are younger than 98.5 million years.” 

“There’s many of these wells but they don’t produce a lot,” Tristan Goodman, president and CEO of the Explorers and Producers Association of Canada, told the Calgary Herald last summer.

At the same time, natural gas prices have been low for some time.

“Some days we are almost giving this product away for free,” associate natural gas minister Dale Nally said last summer. Government officials have said they are concerned shallow gas producers are paying too much in property taxes.

Not everyone agrees, including Rural Municipalities of Alberta president Al Kemmere, who said in a press release that the “taxation model for shallow gas infrastructure is not the cause of” the industry’s challenges.

Did the shallow gas relief program solve the problem?

Not according to the Rural Municipalities of Alberta, which said in a press release that the government’s program “is not solving the problem of unpaid taxes and industry struggles, but is rather providing many companies with 35 per cent forgiveness on their taxes while the rest remain unpaid.”

That program didn’t sit well with the local government officials The Narwhal spoke to last fall, either.

Bruce Beattie, the reeve of Mountain View, told The Narwhal it didn’t seem fair to give a tax break to some companies while still expecting local governments to maintain the same services.

Under the shallow gas relief program, he said, “everyone else will pay and the shallow gas guys won’t. They’ll get the services but they’ll be paying less.”

The Fox Creek Greenview Multiplex in Fox Creek, Alta, is sponsored in part by Shell. The Fox Creek Greenview Multiplex in Fox Creek, Alta, is sponsored in part by Shell. Funds from industry taxes are also relied upon to provide services to the public in many rural municipalities in Alberta, creating a string of social consequences if companies do not pay their bills. Photo: Amber Bracken / The Narwhal

Is the provincial government continuing its support for municipalities?

Nope.

Despite the fact that the Rural Municipalities of Alberta found that some municipalities attributed up to 98 per cent of unpaid taxes to the shallow gas industry, the provincial government is not continuing its credits for the shallow gas relief program in 2020.

In 2020, according to the Rural Municipalities of Alberta, “municipalities will no longer receive a corresponding credit, and instead must absorb the 35 per cent loss in assessment on these properties.”

What’s next?

There are indications the Government of Alberta is looking to “update” the way property taxes are assessed for oil and gas companies.

The current assessment model, according to a government publication, “does not reflect the circumstances faced by many shallow gas producers with older, lower productivity assets.”

Essentially, the government appears concerned that companies are being taxed too much, in an environment where they’re reaping less profits from their wells.

This, the government says, “has required the province take action.”

This has led to speculation the government will move to reduce the amount of property tax owed to local governments — at least on some types of wells — meaning counties could find themselves struggling even more.  

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Norway’s sovereign wealth fund just hit a grand total of US $1 trillion dollars.

Just in case you’re wondering, 12 zeroes looks like this: $1,000,000,000,000

The number is 2.5 times Norway’s annual GDP and serves as the largest sovereign wealth fund in the world. It has also somewhat predictably triggered a new round of consternation among Albertans, mourning the state of their own fund currently worth a measly $17.2 billion.

But Andrew Leach, associate professor at the University of Alberta’s business school and chair of the province’s completed Climate Change Advisory Panel, said it’s important to read past the headlines when it comes to the Norway vs. Alberta comparison.

“If I said ‘wouldn’t it be great if Alberta had a trillion dollar sovereign fund?’ You’d say ‘yeah absolutely.’ But the better question is would it have been worth the tradeoffs that would have had to been made at the time to accumulate that fund,” Leach said in an interview.

Yet we’re still faced with the reality that Norway — a country with roughly the same population size as Alberta — now has a savings fund roughly 60 times the size of Alberta’s.

What the heck is up?

Alberta Would Have Over $163 Billion Had it Gone Norway’s Way

In 2015, the Calgary Chamber of Commerce calculated that Alberta’s sovereign wealth fund would be worth $40.9 billion if it followed Alaska’s model of taxation and $163.7 billion in the case of Norway.

That same year, Mitchell Anderson of The Tyee calculated much of that difference has to do with a difference in collected royalties.

“Norway realized revenues of $87.69 per barrel in 2013. Alaska managed $38.54. And Alberta? Just $4.38 — one-twentieth what our Norwegian cousins managed to rake in,” Anderson wrote.

But it comes down to more than how royalties are collected and has to do with funds being saved or spent.

Every dollar that’s invested in a sovereign wealth fund is a dollar that can’t be spent on healthcare, education, social services or infrastructure projects — all things Alberta funds through oil revenues.

Simply put, Alberta’s savings are so low because the province choses to spend the money on iminent, rather than future, needs.

“It’s not like there was money that was only available to Alberta had they decided to save it,” Leach said.

But surely Norway had social and infrastructure costs too? So why didn’t the Scandinavian paradise end up in a situation similar to Alberta?

There are a few ways of answering this question.

Norway Favours Publicly Managed Investments. Alaska, Dividends

First, there’s the Norwegian way.

The Government Pension Fund Global was established in 1990, partially based on Alberta’s example.

Since then, Norway has diverted a full 100 per cent of resource revenue into the fund — a number especially significant since the rebound of global oil prices in the late 1990s, and since taxation rates on oil production in Norway are considerably high.

Norway has a 51 per cent tax on petroleum-related income, on top of the 27 per cent income tax. That amounts to a whopping 78 per cent total tax rate.

Compare that to Alberta’s incredibly complex royalty framework, which varies based on product (conventional oil, unconventional oil or gas), per-barrel price and stage of production.

In the case of oilsands production, Alberta takes around 10 per cent of gross revenue via royalties, and administers a 12 per cent provincial corporate income tax.

Norway’s rules are very strict about actual use of the money by the government. Until recently, only four per cent of the fund could be withdrawn per year — effectively skimming off the interest without touching the principal. It’s since been cut to three per cent.

Such a restriction helps ensure savings for future generations in an era of decarbonization while also preventing an overheating of the economy due to a sudden spiking in government spending.

Some 65 per cent of investments are in equities, with the remainder residing in real estate and fixed income. There’s actually an ongoing concern in Norway that having so much money in the volatile stock market could lead to financial catastrophe if there’s a repeat of 2008 (that’s a key reason why the diversified fund is invested in some 9,000 companies).

In addition, there are ethical guidelines that prevent investments in industries such as coal, nuclear weapons and tobacco. Canadian companies including Barrick Gold and the Potash Corporation of Saskatchewan have been blacklisted from investments.

Main holdings include Royal Dutch Shell, Apple, Nestle and Microsoft.

Then there’s the Alaska example. Every year, the Alaska Permanent Fund — established in 1976 via a referendum — disperses cheques to each resident without a recent criminal record. The dividend usually amounts to between $1,000 and $2,000 per person.

Norway: doing things better than you since…forever. Photo: mariusz kluznia via Flickr

Alberta Operates With a ‘De-Facto Dividend System’

One might assume that Alberta tends towards the Norway model, despite the low amount in the province’s actual reserve.

But Alberta’s system is actually more like a “de-facto dividend system” via reduced taxes according to Geoff Salomons, PhD candidate at the University of Alberta focusing on intergenerational natural resource wealth governance.

“But people don’t realize it,” Salomons said.

In other words, instead of saving money in a Norway-like publicly managed fund, Alberta has chosen to buffer the gap between low taxes and high spending levels with oil and gas revenues.

Using oil revenues to fill provincial coffers lies at the root of what is known as the “Alberta advantage” — perpetually low income, corporate and sales taxes.

But those advantages come at high cost and with a high risk: the province is beholden to the historically volatile price of crude oil.

Price crashes throughout the decades, most recently in 2014, have resulted in huge deficits for Alberta.

Between 2014 and 2015 Alberta collected $8.9 billion in royalties. That fell to $2.8 billion 2015 to 2016. Over the last year the province added $10.3 billion to its deficit, with a provincial debt of over $33 billion.*

Alberta could choose to increase sales taxes to alleviate the reliance on natural resource revenues, as Saskatchewan recently did, but a political distaste for taxes makes that unlikely.

Salomons suggested the current system has actually resulted in a ‘baked-in’ subsidy that primarily favours high-income earners.

That’s because rich Albertans haven’t had to pay as much in income taxes over the years as they would in a less oil-rich jurisdiction. Since both the province’s previous flat tax framework and marginal tax rate system exempted very low-income earners, the poorest segment of society didn’t receive any benefit from the oil subsidies.

“The more you pay in taxes, the more you benefit, essentially,” Salomons said in an interview.

“When you start thinking about it in those terms, it’s a system that actually exacerbates inequality.”

Workers tend to an abandoned oil well in Alberta, May 18, 2017. Photo: Chris Schwarz, Government of Alberta via the Premier of Alberta’s Flickr

Expectations of Oil Price Decline Shaped Alberta’s Spending

A key distinction between Norway and Alberta is fundamental assumptions about when oil and gas revenues will actually begin to decline.

Leach said that offshore oil and gas resources in Norway have always been viewed as ones with relatively short-term life and value, leading to an expectation that future Norwegians will have fewer resources than current Norwegians.

That contrasts with Alberta’s vision of developing oil and gas resources, especially the oilsands, over the period of many decades.

However, when the Alberta Heritage Trust Fund was founded in the early 1970s by then-premier Peter Lougheed, there was an expectation that conventional oil resources would be depleted within a decade.

The expectation helped justify Alberta’s push to spend money now, rather than later, helping to suppress tax rates and attract new business. Almost all the investments in the Alberta Heritage Savings Trust Fund were made prior to the mid-1980s.

Leach said, “I don’t look at my students today and say ‘you should really save your money now for the times in the future when you have a job.’ ”

“It completely doesn’t make sense.”

Alberta Approach Subject to Boom and Bust

The Alberta approach doesn’t specify what is happening with revenue: residents don’t receive a specific amount of money in the form of a cheque like in Alaska, or long-term public savings like in Norway.

Instead, money is channeled into the province’s general revenue, effectively made invisible to the public until a major price drop and subsequent deficit occurs.

“The challenge is that makes government highly dependent on the fluctuations of the resource wealth coming in,” Salomons said.

“That’s the story of Alberta’s fiscal policy over the past 50 years: the boom and bust of the oil prices and what that’s done for our fiscal position.”

There’s also the issue of a boom and bust population.

Many Norwegians are multi-generational, with families having lengthy commitments the country. Conversely, Alberta often works to attract people who stay short-term for the work.

That creates a spend-now kind of ethos.

As Leach puts it: “You expect Peter Lougheed or early Klein to say Albertans should make some sacrifices today to save for some redheaded kid in Ontario, the son of two people from New Brunswick, who’s going to move here in 2006?”

Savings Don’t Sell In Austerity Situations

While Norway has the freedom to revisit its investment policy and Alaska can alter the amount of money it distributes to residents, Alberta’s left with little wiggle room.

Alberta’s finance minister Joe Ceci has previously stated “with the drop in oil prices, it will take some time for our government to reverse the damage” the Alberta’s Heritage Fund.

“We are committed to appropriately investing resource revenues for future generations and are working on a fiscal plan to that end,” he said.

The province’s short-term Contingency Account — previously known as the Sustainability Fund — has been significantly depleted in recent years due to the provincial deficit.

But here’s the thing: even if oil prices do bounce back, Leach isn’t sure that reinvesting in the Heritage Fund will necessarily be the best approach.

“If oil goes back to $70 or $80 a barrel and say we’re still going to make all the big cuts that people are talking about — education and healthcare and all those things — and put that money in a savings fund that’s going to invest in infrastructure in say New Zealand…I don’t know that people are going to be thrilled about that,” he said.

* This article has been updated to reflect to the fact that Alberta’s debt, not deficit, is $33 billion.

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The recommendation of an Alberta review panel not to raise royalty rates paid by oil and gas companies to the province is an economic disaster and represents a capitulation to Big Oil and its financial backers, say a variety of critics.

Released last Friday, a five-month review into the royalty system argued that low global oil prices had placed Alberta in an existential quandary and that no increases should be considered in royalty rates.

Royalty rates are not costs or taxes, but a price a company must pay to the owner for the right to develop the resource.

For 35 years, the former Tory government of Alberta consistently lowered royalty rates to among the lowest in the world. At the same time it saved almost nothing for future generations.

But the long-delayed review, commissioned by the new NDP government in 2015 as the result of an election promise, concluded that the “current share of value Albertans receive from our resources is generally appropriate.”

The review added that Albertans should stop focusing “on questions of ‘are the rates right,'” and look more “on what changes need to be made to our royalty framework to position Alberta and our energy industry to address the challenges of a very different environment and outlook for the future.”

The review then recommended maintaining current royalty rates for wells drilled before 2017 and setting a generic rate — five per cent — for all new oil and gas wells drilled after 2017, a policy equivalent to grading and selling all cuts of beef as hamburger.

Such a policy, if adopted, would lower Alberta’s royalties by another billion dollars a year, estimated Jim Roy, an Edmonton-based royalty consultant and a former senior advisor on royalty policy for Alberta Energy.

The new generic rate will reduce the current 30 per cent royalty rates for high-valued products such as propane and butane to five per cent.

Alberta’s total royalty revenues from hydrocarbons in fiscal year 2015/16 were approximately $2.8 billion — a mammoth decrease from modest highs of $10 billion or more during the boom years.

Investor, not owner friendly: expert

Roy said the government’s review is completely off base and doesn’t address the real issues.

“We have low prices now. Why encourage more production and more investment which will only bring oil prices lower?” asked Roy.

Given that the global oil glut has largely been caused by overproduction by Canadian bitumen miners and U.S. oil shale frackers, Alberta should increase royalties to decrease production and thereby eliminate inefficient and high-cost energy extractors, Roy said.

Since 1998, oil sands production has soared from nearly 800,000 barrels a day to more than 2.3 million barrels a day, largely due to cheap credit, low royalties and other government incentives and subsidies.

Hydraulic fracturing and horizontal drilling in the province has also been driven by a three-year royalty moratorium imposed in 2009. That royalty holiday guarantees companies high returns up front and little for the owner of the resource until the well is exhausted.

Fracked wells typically experience 60 to 80 per cent depletion rates after three years of operation.

The review takes the perspective of an investor, not the perspective of an owner, charged Roy. “In order to optimize returns to Albertans, the government needs to think like an owner,” added the royalty expert.

Two of the review panel’s key members — Dave Mowat, president of the Alberta Treasury Branch and Peter Tertzakian, managing director of Arc Financial Corp — both work for firms that invest billions in the oil patch.

The panel’s analysis, according to Roy, “ignores the effect of increased production of Alberta bitumen on either the local price of bitumen or the world price of oil. The plan appears to be to increase Alberta production at the maximum possible rate despite low prices… This strategy may help American consumers, but does not help Alberta owners.”

Roy’s analysis, reported in The Tyee last year, found that the province’s last royalty review in 2007 actually shorted the province more than $12 billion in royalties during a time of high oil prices.

Former premier Ed Stelmach promised Albertans that the new formulas for calculating royalties would increase Alberta’s “fair share” of hydrocarbon profits by $2 billion a year, beginning in 2009.

But that didn’t happen. Instead of increasing royalties by $2 billion a year, Alberta’s “fair share” plummeted due to bad forecasting and major flaws in how the province collects natural gas and bitumen royalties, Roy said.

As a result the province, which has recorded annual deficits of billions, has failed to collect $12 billion in royalties over the last five years, he said. The new review failed to correct those problems, Roy added.

In 2010, an industry-drafted, behind-closed-doors “Competitiveness Review” further eviscerated recommended increases and made rates lower than they were before the 2007 during a period of high oil prices.

‘Shockingly bad,’ says researcher

Regan Boychuk, an independent researcher who sat on one of the review’s advisory expert panels, called the review’s conclusions “shockingly bad.”

“The review simply rearranges the chairs on the deck of the Titanic and locks in all the bad decisions and Tory giveaways of the past,” he said.

One critic interviewed by The Tyee also said that raising royalties wouldn’t affect economic activity because the worldwide average government take is already about 60 per cent.

In Alberta, the share has plummeted from a 40 per cent high during the Peter Lougheed years to less than four per cent today.

Increasing very low royalties in fiscal systems that have a low overall government take will not have any significant impact on the competitive position of such resources, said analysts.

Low royalties ‘a foot on the accelerator’

Barry Rodgers, a former high-ranking Alberta civil servant in the Department of Energy and a fiscal systems expert, noted the review barely mentions that the former Tory government consistently failed to save revenue (except under Lougheed), collect its fair share as mandated by the government policy, or report to citizens in a transparent and open manner on royalty issues.

Instead the Tories consistently lowered royalties during periods of price volatility, resulting in a downward trend for royalties over the last 35 years.

These low prices, which guaranteed companies easy returns regardless of their performance, actively contributed to over production, reduced competitiveness and encouraged little or no innovation. Low royalties also overheated the economy.

According to Rodgers, the current royalty review got off to a bad start by assuming that Alberta’s royalty system worked well and just needed some fine-tuning.

But the province’s royalty system is broken, he argued, and has been causing serious damage by subsidizing uneconomic activity. The report even notes that 27 oil sands projects, which inefficiently inject steam into the ground to melt bitumen, may never reach payout “due to excessive cost overruns.”

The new review also repeats mistakes of past royalty reviews, which repeatedly responded to earlier price collapses by lowering royalties, Rodgers said.

These low royalties, in turn, stabilized economic activity but became dismal failures when commodity prices began to rise again. Oil remains the world’s most volatile commodity.

“The lower royalties then acted like a foot on the accelerator,” explained Rodgers, “at a time when prices were already high enough to attract the levels of investment needed.”

In the process, low royalties served as a hyper growth policy that aggressively pushed into existence large, long-lived projects “that are difficult to stop and start in response to commodity price fluctuations.”

The province’s chronic low royalties also caused another problem, he said: as a declining royalty share became significant enough, it caused the public to “distrust in the resource management system.”

In other words, low royalties made it impossible for the government to earn extra revenue when prices were high and deprived the owners of the resource their fair share.

The only way for Alberta to break this disastrous royalty pattern is to slow down development, said Rodgers, as well as curtail extreme projects that need royalty relief by increasing royalties in a system that saves wealth in trust for future generations.

Alberta’s royalty policy, said Rodgers, is not consistent with the fundamental resource and environmental management notion of “In-Trust.”

That notion, long abandoned by the Tory party, reflects the principle “that current generations have a moral obligation to not leave future generations worse off.”

Missing comparisons

Although the review claimed that Alberta’s royalty rates are comparable to other jurisdictions, it failed to compare Alberta to the jurisdictions that matter most such as Saudi Arabia or Venezuela. The review, for example, makes but one mention of Norway.

Boychuk also said that the review failed to provide true comparisons that took a critical look at real government pricing around the world.

To gauge the appropriateness of bitumen royalty rates, for example, the review hired Wood Mackenzie, a firm that advises oil and gas companies.

It based its conclusions that current rates were adequate on the imaginary performance of a 35,000-barrel-a-day steam plant operation that might extract bitumen by 2022, Boychuk said.

“That’s not a comparison to real rates that are currently employed by other countries. Wood Mackenzie offered no meaningful comparison with other countries such as Venezuela or Saudi Arabia,” said Boychuk.

According to research by Rodgers, for example, Norway charges resource developers 78 per cent of the net income from oil and gas production while Alberta charges 50 per cent for conventional oil and 37 per cent for natural gas.

The report, however, avoided such comparisons other than noting that British Columbia has the lowest royalties for natural gas and that Saskatchewan managed its hydrocarbons to generate economic activity as opposed to wealth for the resource owners.

Gil McGowan, leader of the Alberta Federation of Labour and a long-time champion of royalty reform, rebuked the NDP government of Premier Rachel Notley for supporting the review.

“Some people say the NDP have come face to face with reality. I say what happened can best be described as the government being captured by industry,” McGowan told Calgary Sun columnist Rick Bell.

“I honestly think the government has made a profound political mistake,” he said. “We don’t believe progressive governments have to become conservative to deal effectively with economic issues or to succeed politically. That’s a fallacy.”

In its submission to the royalty review panel, the Fort McMurray First Nation called for modestly higher bitumen royalties and warned the Notley government not to listen to advice offered by financial institutions such as those represented by some members of the review panel.

“The financial institutions that constitute the capital markets obtain their revenues by providing services to savers and borrowers. Large projects such as in the oil sands, and the companies that invest in them, are valuable revenue sources and attractive clients to these institutions. The inclinations of these institutions will always be to want to see more attractive investment opportunities, from which they will benefit by providing them with financial services. They are not likely to provide unbiased, objective views on matters such as royalties.”

In another submission, the economist Mark Anielski reported how the province would have benefited if it had kept Lougheed’s approach to a robust and healthy royalty regime.

“Had Alberta maintained a 30 per cent royalty rate on the share of the value of the oil and gas produced between 1971 to 2014, Albertans would have generated $471.4 billion in oil and gas royalties. Had 50 per cent of these royalties been invested in the Alberta Heritage Savings and Trust Fund with annual average return of five per cent per annum we would now have an investment account worth over $481 billion.”

The current savings fund holds less than $20 billion.

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Albertans are more politically progressive than assumed, according to findings collected by Ottawa’s Abacus Data and published in a recent report titled “The Quiet Majority.”

Commissioned by Progress Alberta — a brand new left-leaning, non-partisan organization based in Edmonton — the poll discovered that 59 per cent of Albertans self-describe as “progressive” and tend to vastly overestimate the percentage of other Albertans who self-describe as conservatives.

“We had a hunch that Albertans were a little more progressive than the perception out there, but the results were pretty incredible, to be frank,” says Duncan Kinney, founder of Progress Alberta. “Really, what surprised me the most was just how much Albertans overestimate how conservative other Albertans are.”

To be fair, the definition of “progressive” seems fairly nebulous: some 72 per cent of people who voted for the Alberta NDP in May harnessed the label to describe their political affiliations, but 47 per cent of those who backed the far-right Wildrose Party also used it.

In addition, while a combined 57 per cent of people polled had a “positive” or “neutral” impression of Premier Rachel Notley, some 38 per cent of people had a “negative” impression of her, making her by far the most negatively perceived politician in Alberta (the second-most disliked politician was moustached leader of the Progressive Conservatives, Ric McIver, who attracted “negative” impressions 19 per cent of the time).

The polling data, collected from 1,000 Albertans in an online survey between December 2 and 7, featured a margin of error of +/- 3.1 per cent at 19 times out of 20.

Policies introduced by Notley’s NDP win favour

One area where public opinion appears more uniform concerns how Albertans view NDP policies introduced since May.

By far the most popular bill seems to be the very first introduced by the NDP, which banned corporate and union donations to political parties —although it still allows such entities to guarantee loans and pay employees to work campaigns. Seventy-two per cent of Albertans surveyed stated they “support” or “strongly support” this legislation.

Another bill — Bill 2, an Act to Restore Fairness to Public Revenue — which introduced five new tax brackets for Alberta’s wealthiest and abolished the province’s ‘flat tax’ also received strong approval from survey respondents.

Perhaps most surprising is the support for the province’s new climate change plan exhibited by Albertan who were polled, particularly given that a Mainstreet Research survey conducted on December 3 (which featured a margin of error of +/- 1.8 per cent at 19 times out of 20) concluded that 68 per cent of Albertans oppose the plan.

In Abacus’ recent poll, it was found that 48 per cent of Albertans support the phase-out of coal-powered electricity by 2030 (with 36 per cent opposing), 47 per cent support a carbon tax (with 41 per cent in opposition) and 47 per cent for the cap on oilsands emissions (with 37 per cent against it).

Such data could serve as a strong counter to arguments by conservatives like the University of Calgary’s Barry Cooper, who argued in a rambling column for the Calgary Herald that Alberta’s carbon tax “was unmentioned in the NDP election platform and is opposed by two out of three Albertans.”

Notably absent from the survey, however, was a question about Bill 6, the very contentious legislation that mandates OHS and WCB coverage for farm workers.

Kinney suggests such findings relate to the demographic changes that Alberta has undergone in recent years: “We are younger, we are more urban, we are more educated,” he said.

“Those are all traits that correlate with identifying as progressive, according to our poll.”

Kinney added that these progressive trends are also identifiable on the federal political landscape in Alberta.

“We went from one non-Conservative MP in this province to five,” he said. “When you look at ridings in Alberta that had a majority of non-Conservative voters, we went from three in the last election to 12 in this election.”

Carrying the progressive momentum forward

Some ostensibly conservative elephants in the room weren’t addressed in the poll.

Alberta is the only province in Canada without a sales tax, making the public purse much more vulnerable to volatility associated with global commodity prices.

David Stewart, political science professor at the University of Calgary, has previously estimated that a provincial sales tax (PST) that matches the “level of the next lowest province” — Saskatchewan, featuring a five per cent tax — would draw in $11.6 billion in revenue.

That amount has the potential to erase the debt and allow for investments in sectors like clean energy, affordable housing and public transit.

The NDP has announced it will not introduce a PST. In addition, the party has said it doesn’t intend to bring in rent control, which would prevent landlords from gouging tenants. Alberta is the sole province in Canada without such a policy.

But Kinney emphasizes that political change takes time, noting the progressive takeover of the legislature in May represented the apex of a decade’s worth of momentum.

As people acclimatize to the NDP and Alberta’s right-wing continues to implode, it seems reasonable to assume that momentum could continue: “It’s important to create the space for people to talk about it,” Kinney said.

“This type of report really shows that your neighbours aren’t as conservative as you think, your coworkers aren’t as conservative as you think, your relatives aren’t as conservative as you think.”

“If this helps an awkward dinner conversation with some relatives, then all the better.”

Correction: An earlier version of this article incorrectly stated Progress Alberta is affiliated with the Broadbent Institute.

Image: Dan Voaklander

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Open any newspaper and you’ll find umpteen stories about taxes — from Vancouver’s ongoing transit tax referendum to Alberta’s budget crisis to Toronto’s property tax increase.

“It’s probably safe to say that there was no golden age where everyone loved paying taxes,” says Alex Himelfarb, co-editor of Tax Is Not a Four-Letter Word. “Then again, there’s probably never been a time when paying the bill was our favourite part of shopping.”

Case in point: the 40,513 responses the Alberta government received to its online budget survey. Citizens were evenly split between reducing spending, increasing revenue (i.e. increasing taxes) and running a deficit to make up for the government's $7 billion revenue shortfall.

Meantime in Metro Vancouver, voters are participating in a mail-in ballot until May 29 on a 0.5 per cent sales tax increase that would fund part of a $7.5 billion, 10-year transit plan. Yes, that's right, citizens are actually being asked to vote in favour of increasing taxes.

Himelfarb, who served as secretary to cabinet for three prime ministers and who is a member of DeSmog Canada’s board of directors, has spent a lot of time thinking about what ties all of these debates about taxes together.

“What we’ve been missing in Canada is an honest conversation,” Himelfarb told DeSmog Canada. “So everybody talks about the cost of a new idea but nobody talks about the cost of a tax cut.”

Since 2006, Canada has cut federal taxes by $332 billion, he says.

“If we had kept even half of that, even 40 per cent of that, think of how much more resilient we would have been during the recession, how much more help we could have given the provinces and people who paid a huge price during that period of time, to help young people get into the workplace, to tackle climate change and to deal with infrastructure,” Himelfarb says.  “That’s the cost of tax cuts.” 

Why People Hate Paying Taxes

People don’t like paying their taxes in part because the connection between what we pay and the goods and services we receive has been broken, Himelfarb says.

“We get our public goods with no price attached,” he says. “Probably most of us — unlike my parents — have never known or lived in a place that didn’t have water we could trust or food we could trust. We take it for granted. Because there’s no price and we’ve known no alternative, we take for granted the public goods. We de-value them.”

Add to that a massive shift toward a consumer society in which people derive a lot of social standing from what they consume and it’s an uphill battle for taxes.

“In a consumer society we tend to value these private purchases more than the public goods,” Himelfarb says. “It’s me as a private consumer versus me as a citizen. We don’t get that kind of standing, that kind of competitive edge, with public good because by definition everybody benefits equally.”

Tax Cuts and ‘Magical Thinking’

That means taxes almost always get short shrift.  

“You hear today that tax cuts are going to be paid for by cutting ‘gravy trains,’ by reducing waste, by cleaning up government. It’s what the philosopher Joseph Heath calls ‘magical thinking.’ We so desperately want this bargain; we want it to be free,” Himelfarb says.  “We want Swedish-style services and American-style taxes so badly that we’re ready to believe that we can have these tax cuts for free.”

There’s never enough gravy to pay for the tax cuts, Himelfarb says, and therefore cuts always have some impact on services.

“And the consequences of the extraordinary level of tax cuts we’ve had over the last 15 to 20 years is austerity forever,” he says. “Cutting programs, forgoing investments, deferring the kind of maintenance we need on infrastructure. One of the reasons why we have unbelievable traffic gridlock in all the cities is because that big investment we should have been making has been cut.”

Do Referendums on Taxes Make Sense?

David Moscrop, a political theorist who studies the psychology of political judgment, recently published a blog on Policy Options that lambasted the provincial government for putting Metro Vancouver’s transit tax to a vote at all.

“By putting the plan to the people—by making it a binary choice between a good but costly decision and no decision at all—the government of British Columbia has forced citizens into the unenviable role of political self-representation: a job for which few of us are equipped when it comes to long-term, highly-technical issues,” Moscrop wrote. “And while we battle it out in our crumbling streets and on our crowded buses, the government of the day remains insulated from the political costs of the burden of the decision.”

Himelfarb also has concerns about referenda on taxes.

“I think more engaged participation by citizens is a good idea, important even, but referenda may not be the most effective way,” he said. “What I worry about is to have a referendum without the honest conversation about the costs of the various options.” 

He continued: “Tax cuts are still talked about as though they are free. That means that people keep assuming that we can have what we want without new taxes. So changing the conversation is a prerequisite to democratic decision-making.”

A study by the C.D. Howe Institute found the costs of congestion are higher than the cost of the proposed Vancouver transit tax. Congestions costs between $500 million and $1.2 billion per year for the Metro Vancouver area, the study found.

The Beginnings of a Tax Revolution

If the sentiment about taxes — engrained during the neo-liberal, free-market ideology wave of the late 1970s and throughout the 1980s — is going to turn around, it’s going to happen at the municipal level, Himelfarb says.

“If there’s going to be a tax revolution, it’s going to start in the cities,” he says. “It’s because when senior governments cut taxes they often pass the burden of those cuts to lower levels of government. What the senior governments do is sometimes abstract and long term. Unfortunately for municipalities, they have nobody to pass the consequences to. People live with those consequences in a concrete way.”

Photo: Alan Cleaver via Flickr

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Jennifer Story of the Canadian Centre for Policy Alternatives recently interviewed Alex Himelfarb, former chief of the Privy Council and member of the DeSmog Canada advisory board. Himelfarb recently co-authored with his son, Jordan Himelfarb, a collection of essays called Tax is Not a Four Letter Word. In this interview Story asks Himelfarb about the book and his efforts to shift they way Canadians think about taxes. 

Jennifer Story (JS): The sub-head of the book is “A different Take on Taxes in Canada”… different from what?

Alex Himelfarb (AH): Different from the predominant negative view of taxes as simply a burden from which we must be relieved. For decades now that’s precisely how our leaders have talked about taxes. Our tax conversation has become profoundly distorted. What’s missing in this conversation is what we get for the taxes we pay. We are more than just consumers and taxpayers. We are citizens with responsibilities for one another; we undertake to do some things together, things that we could never do alone or that we can do much better collectively. Taxes are the way we pay for those things. They’re the price of living in Canada and the opportunities that provides. Indeed, those opportunities exist because of the sacrifices and taxes of previous generations to build the Canada we inherited.

It’s become a political truism that politicians would have to be nuts to talk about taxes unless they’re promising more cuts. But that fear of taxes is limiting, dangerous. We need to shift the conversation, to recognize that the public services and goods we value have to be paid for and that tax cuts are not free. We cannot have Swedish levels of service and American levels of taxation.

We demand of our leaders to explain how they are going to pay for new services but, equally, we need to demand that they explain the COSTS of their promised tax cuts ­–­­­ to our quality of life, to our democracy, to our economy. Would we be so pleased with the next tax cuts if we knew they came with worsening traffic congestion, increased risks to food safety, longer wait times for health care, less help for the jobless and needy, rising inequality and environmental degradation? We seem only to talk about what government costs and not about what it gives.

Too much is at stake to let our identities as “consumers” and “taxpayers” supplant our citizenship and commitment to the common good.

(JS): You already knew more than your average citizen about taxes and the public good. What, if anything, were you surprised to learn during the editing of this book?

(AH): We worked with people who have much greater tax expertise. We learned a lot about the technical aspects, new kinds of taxes. But the biggest thing we learned is how profoundly this anti-tax conversation now dominates.

Of course, a minority will never be convinced, and we will always have legitimate disputes about the right amount and mix of taxes. But the majority does value what their taxes buy. Nonetheless, they worry about how government spends, inevitably  circling back to the problem of waste. Why would I want to pay taxes when so much is wasted?

Let’s be clear, I have never known a political leader who promoted more waste, less efficiency. Politicians are always reluctant to raise taxes and they all want to get as much bang for their revenue as possible.  Some governments are better at this than others, but over the past few decades, all governments have sought to get the best results at the lowest costs. Yet perceptions of wasteful spending persist.

In part, concern about government waste is a proxy for differences in values. What we call waste is often spending we don’t much like (say, the arts from the right, or military spending from the left). That’s the stuff of elections as we try to choose a government that reflects our priorities.

But here’s the thing: we can’t pick and choose a personalized, made-to-order government profile in the way we personalize our latest mobile device. We cannot unbundle government the way we are proposing to unbundle cable services. No political party, no government will be a perfect reflection of our personal preferences. In a pluralistic society, sometimes we pay for things we don’t like. For a democracy to work we must get beyond our personal desires, engage on what the country needs now and for the future, sometimes even set aside our private desires for a larger purpose. There will always be some spending we just can’t fathom, but much of that isn’t waste, simply disagreement on what the country needs and on the role of government. Sometimes we are part of the minority. Those tensions are built into any democracy. It will always be so.

Yes, waste, pure and simple, happens. All of us have shaken our heads at some example of inexplicable spending. All governments do, and ought to, work at reducing waste and increasing efficiency. But no organization, public, private or in-between, is or ever will be perfectly efficient, nor does the evidence support that private is necessarily more efficient than public.  We are talking about imperfect systems made up of perfectly imperfect people. Those desperate to prove government is useless will always find some example. While it is certainly the job of leaders to ensure that waste is minimized, our fixation on government waste is vastly exaggerated, and undermines even the minimal amounts of trust we need to find collective solutions to problems we can’t address on our own.

Former Parliamentary Budget Officer Kevin Page reminded us regularly that any promises that tax cuts would be paid for by reducing waste are bogus – the numbers never add up. The screaming headlines about waste mislead us. Studies in the U.S., even before the major downsizing of the ’90s, found big numbers but which added up to a very small percentage of spending.  Same here in Canada. The vast majority of tax dollars are spent on things the majority of us care about: infrastructure, environment, health and safety, health care, education, social assistance, child development. The gravy just isn’t there.

Tax cuts inevitably affect public services. The evil twin of tax cuts is austerity, ongoing and seemingly endless. In Canada, austerity has been implemented in the slowest of motion and so the consequences are less visible than, say, in parts of Europe. But they are real nonetheless, felt first by women and youth, and the most vulnerable. Austerity, it seems, makes us meaner. Next in line are the politically easy targets – civil service, teachers, unions. It seems that bashing bureaucrats is always good politics whatever the consequences.

But of course in the end we all pay the price in rising inequality and the erosion of essential institutions, infrastructure and the environment. This erosion happens so slowly it’s hard to attribute to the tax cuts. Government just slowly gets worse. Ironically this is used to justify further tax cuts. Witness recent proposals to eliminate EI because it now serves so few people so badly. The Post Office. What next? When we lose trust we can’t solve problems together. We look at traffic gridlock and instead of saying, ‘let’s build transit solutions’, we conclude, ‘government doesn’t work’.

Extreme inequality further undermines trust – those at the very top become increasingly effective at convincing us of the dangers of taxes – after all they don’t need many of the public services the rest depend on – and those at the bottom won’t want to pay if they think the game is rigged. Extreme inequality erodes our ability to come to a common view, to build a shared sense of the common good.

Perhaps the most enduring consequence of austerity is that it stunts the political imagination. Previous generations could imagine universal public health care, public pensions, the National Child Benefit. But now our first response to the dreamers is ‘ya, but how would we ever pay for it?’ This breeds a kind of fatalism, declinism –growing doubt that we could make things better together, that we could ever hope to solve the big problems, inequality or climate change.

If I track the last fifteen years, all the tax cuts, federal taxes as percentage of GDP are four points lower, each point worth about $20 billion. Imagine what we could do with that, or even a portion. The two cents of GST that the Conservative government cut in its first couple of years cost about $14 billion per year, slightly more than the surplus they inherited. Think about how much more resilient we would have been without those cuts when the recession hit, how much more we could have helped those hardest hit, without so much added debt and without turning to austerity as though it were inevitable. We chose the path we are on.  We can choose something better.  

(JS): You are fundamentally an optimist … what evidence do you see to be optimistic about the future as it relates to taxes?

(AH): To some degree, optimism is a matter of disposition. But it’s also a philosophical choice. If we have a choice between hope and despair, why would we choose despair? If we believe nothing is possible, then we don’t act. When we think nothing is possible, well, nothing’s possible.

But in practical terms, I see some signs – perhaps I want to see them – that people are ready to turn a corner. Municipal leaders in Vancouver, Edmonton, Calgary, Halifax – just to cite a few – seem ready to discuss more ambitious visions for their cities and grapple with the revenue tools they’ll need. Maybe it’s easier to build trust locally.

Bill de Blasio, the Mayor-elect in New York City, won on four priorities: addressing inequality, taxing the rich, raising the incomes of the lowest public sector earners, and limiting police powers. Various jurisdictions are raising the minimum wage. When the State of Missouri’s Republican legislature recently passed a tax cut, the Democratic governor vetoed it, and he seems to be winning the debate. We simply can’t keep squeezing and let inequality go unchecked. We will turn this around. The question is how much pain will we endure before we do that.

(JS): You said at the Toronto book launch that not all the authors would agree about some things. What are those areas of tension you found and how were they resolved?

(AH): Who gets taxed, what’s the best mix – all debatable. But they agree 100% that we have a distorted conversation and that’s doing damage. They agree we need to transform how we govern and tax reform must be an essential part of that transformation. And they agree that there’s no free lunch; we all must pay our fair share.

We will have to be smart in how we tax and, to be fair, progressive. By progressive I mean three things: those who benefit most should pay the greatest share; those who do most damage to the commons should pay most for its repair; and when we have broad-based and seemingly regressive tax measures, as we will, we should mitigate the harm to those least able to pay.

(JS):Imagine you’re sitting in Stephen Harper’s chair. What do you think the number one agenda item should be to improve our tax system for the common good?

(AH): I wouldn’t necessarily lead with taxes. But I wouldn’t avoid the discussion. There’s no way to get to where we need to go without considering taxes. The number one agenda item for me would be to address poverty and inequality. We can’t achieve the trust necessary to move forward together without tackling inequality. We won’t find the collective will to tackle climate change if we don’t tackle inequality.

Here in Toronto, the tale of two cities, the rich and poor, that is the problem. The resilience of our cities demands that we address this. The focus on waste, the gravy train, bloated bureaucracies, this is a conjurer’s trick. Focusing on those ‘problems’ ensures we don’t focus on the real problems. Don’t look there, look over here. Don’t look at that, look at this.

We need leaders to say no to these conjurers’ tricks, to focus on building the cities, the provinces, the country we need.  It is time to change the conversation.  We don’t need to choose decline. We will get the future we are willing to pay for.

Edited to reflect the author's changes on 12/23/13. Image Credit: Kevin Dooley via Flickr.

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British Columbia's five-year old carbon tax has managed to cut personal and corporate taxes, slash climate-wrecking carbon emissions and be an economic success story according a study published this week. Plus it's popular with the public. That's a stunning win-win-win-win.

And yet for nearly a year Conservative MPs have launched relentless attacks on the very idea of carbon tax in the House of Commons. In 41 days the House of Commons was in session this year, Conservative MP after Conservative MP rose in the House to issue dire warnings about a carbon tax more than 250 times. And the issue was not even on the table.

Who are these Conservative MPs working for?

Thanks to the carbon tax BC residents enjoy the lowest income tax in the country (not Albertans), use the least amount of fuel per person and have arguably the healthiest economy the study found. So much for the Tories baseless claims of doom and gloom.

"If you look at the real evidence the BC carbon tax is a remarkable success," said Stewart Elgie, lead author of the "BC’s Carbon Tax Shift After Five Years: Results" study and professor of law and economics at University of Ottawa.

The innovative BC policy increases taxes on things people don't want: carbon pollution, and reduces taxes on things people do want: incomes and earnings. It's more accurate to call it a carbon tax shift. Here's how it works: a carbon levy was gradually added to the costs of fossil fuels while income (personal and corporate) taxes were cut. It is revenue neutral so the BC government collected the same amount of overall taxes.

After five years the carbon tax on gasoline is now 7 cents a litre. BC's per person fuel consumption dropped an astonishing 17.4% after four years. (data for the fifth year is not yet compiled) In the rest of Canada fuel consumption went up 1.5%. While gas might be a bit more expensive, BC residents are actually saving money by using far less. And as a bonus their taxes have gone down. Win-Win.

Emission Cut Score: BC 10, Canada 1

Total carbon (greenhouse gas) emissions in BC declined 10% over the first four years of the carbon tax much better than the 1.1% decline across Canada according to data from Environment Canada.

Canada had 20 years to meet its Kyoto Protocol target of a 6% emission reduction and failed. The Harper government claimed the target was impossible and turned Canada into the first nation to pull out of the international agreement. Amazingly BC's smart government policy achieved 10% reduction in only 4 years and its economy is doing slightly better than the rest of Canada. Win-Win.

"It's not a trade off between the economy or the environment. Nor between jobs and the environment. Those are false choices," Elgie told DeSmog.

"Many business leaders know that industries and regions that have high levels of energy efficiency and low levels of pollution will be the winners." 

There is widespread support for putting a price on carbon across Canada. The Council of Canadian Chief Executives have endorsed a national carbon tax. Most oil companies support this as well said Elgie.

Canadians get it as well. A recent poll conducted by Harris-Decima found that 62% of Canadians agree that “a Canadian energy strategy will only be successful if it transitions Canada to a low-carbon economy"

The Carbon Tax, BC's most popular tax

BC's Gordon Campbell-led Liberals deserve credit for having the courage to be leaders said Elgie. An important lesson for policy makers is that the Campbell government did not pay a political price for being ahead of the curve. In fact in an election soon after the carbon tax shift went into effect they gained more support. "It may have helped them a bit."

Today polls show that nearly 65% of all BC residents support the carbon tax. It's hard to imagine any other tax with that level of support.

While this is one of the best designed carbon taxes in the world it could use some improvement said Elgie. It currently exempts venting and fugitive emissions from the oil and gas sector. As previously documented by DeSmog those emissions are huge and drastically underreported. Moreover BC's Christy Clark government's proposed strategy for liquefied natural gas (LNG) exports will make it impossible to achieve the legislated goal of a 33% reduction in emissions by 2020 without properly taxing all emissions from gas production.

"Taxing pollution and lowering income taxes is the best way to build a greener and stronger economy. The world is moving in that direction and Canada risks being left behind," said Elgie.

BC brings made-in-Canada proof that a carbon tax shift is the most cost-effective way to build the clean and green economy Canadians want. “Our future prosperity is too important to be trapped in senseless partisan politics. Canada desperately needs statesmen to fight for our long term interests.”

So who are Conservative MPs working for when they make unsubstantiated attacks on carbon taxes? 

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