Published: Oilfield Pulse
Oil prices are low, but business investments are not attracted by raising costs in hard economic times. This is a no brainer. The corporate tax rate was increased by 2%, which is higher than our closest competitor, Saskatchewan. The NDP seem to believe businesses make decisions based on feelings more than they do with their bottom line in mind. The fact of the matter is businesses work with all types of governments across the board and will invest in jurisdictions where they can make the most profit. However, in the worst move that can be pulled in a time of economic crisis, the NDP increased cost, and we saw investors run to more amicable business atmospheres. Saskatchewan has now seen billions of dollars dumped into the Kindersley region by Raging River, while Shell walked away with a $2 billion dollar loss from their Carmon Creek project in Alberta. Neil Rozwell, CEO of Raging River, cited consistency and lower geopolitical risk for investing in Saskatchewan rather than Alberta.
Their solution to garner more revenue is to punish businesses by increasing costs.
It's clearly not working.
Although the NDP didn't end up shaking too much up with their royalty review, this was also bad decision making on the government's part, especially during a downturn. The royalty review in 2007 pushed businesses out of the province, since the combination of increased rates and dropping oil prices meant much smaller profits. These changes ended up being rolled back in January of 2011 when it was clear companies were leaving the province due to a 20 percent hike in royalty rates. Knowing past behaviour predicts the future, the NDP soldiered on with their plan to review the royalty framework for a third time. In many ways, driving business away from the province in this instance could have been avoided, because the negative outcomes have been realized in the past. Couple the prospects of an increased corporate tax and potential royalty increases, and it's a recipe for disaster when trying to attract investors.
As for the future, there is no doubt we will see increased drops in business activity while the Alberta government busies themselves with finding new and creative ways to implement new taxes. Their solution to garner more revenue is to punish businesses by increasing costs. It's clearly not working. The latest fiscal update revealed losses of approximately $900 million in corporate revenue. And, we can only expect more of the same in the future. The upcoming carbon tax will cost producers much more, and NDP carbon policies come with the possibility of actually limiting production. In a report issued by the Fraser Institute, it was fond that production will have to be levelled off between 2025 and 2027 based on current and reduced emissions targets in order to meet the 100 mega tonne cap the NDP have applied. This, despite National Energy Board predictions that demand for oil, in particular from the oilsands, will actually increase in the coming years.
No matter which way you slice it, the real target of the NDP seems to be the end of the oil and gas industry. They continue to kill off business by increasing business costs, reviewing policy unnecessarily, and increasing taxes everywhere possible. The NDP campaigned on change, but change isn't always a good thing. The real test for Rachel Notley and her caucus will come next election, when those voters, who blindly opted in and voted on the premise of hope, are now living in real life despair. Sometimes, we create our own problems through expectations.