Thursday, February 25, 2010

Alberta's royalties and tax policies discourage investment

According to  U of C's head of School of Public Policy...
Jack Mintz ... told a Calgary audience that Alberta ranks last among provinces such as B.C., Saskatchewan and the Maritimes -- and lower than states such as Texas -- after factoring in combined royalty and tax payments to government
BC & Saskatchewan have a more attractive royalties and tax policies than Alberta.

... as reported today in the Calgary Herald - "Alberta tax, royalty regime ranks last..."

Alberta's Premier Ed Stelmach

It was proven that governments receive higher revenues when taxes are cut. This may be contrary to intuition, but Presidents Regan, Clinton, and Bush all used this principle and cutting taxes resulted in increased revenues not a decrease. Clinton followed the advice of the conservative economist Arthur Laffer, with very positive results for the US economy.

When governments cuts taxes, businesses grow and consequently hire more people, who in turn buy more good and services and pay more income tax. Increased purchases of goods and services further boosts the economy and creates a multiplier effect.

Liberal and leftist ideology favours government spending, but it tends to have little or no multiplier effect, for the simple reason that governments do not create wealth - they only appropriate it on the peoples' behalf. First for every dollar taken in taxes for use in a government program, a hefty percentage is taken to administer that money by the government itself, or by a government agency. (Take a $ in tax money and put 45 cents into the economy after government waste and expense).

Second, government is inherently inefficient compared to the free market.With lib-left policies we see an increase in government employees, which then typically vote for lib-left parties with policies which increase government spending and therefore taxes to support that spending.

I believe we could apply the same principle to Alberta's royalties and tax policies.

Reducing profits and revenues, discourages investment in drilling, or new projects, this results in decreased royalties. Gas companies such as EnCana prefer to invest in shale plays in the US or BC than in Alberta. Why? They can make a better return on investment in BC or Pennsylvania than they can in Alberta.
The new royalty regime is hurting, especially with respect to conventional oil and gas investments," Mintz told reporters. "I think we have been worse off in the sense that it's not entirely clear the government is going to collect as much new revenue as they hoped because of the investment impacts. I think we need a better fiscal framework to attract investments for Alberta when you have a very competitive global environment for oil and gas investments."

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