When Will Alberta Stop Giving Away its Oil?

$15B a Year and Counting

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 particularly overdue and would scale back the expensive tax cuts being showered on the wealthy and the 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 and Sustainability Funds by reducing its dependence upon un-renewable 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 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% 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 tar sands is even greater, where a less-ambitious target of 25%, to account for higher upfront costs, would bring in over $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 percent of revenues from the oil patch, but by 2009, this had fallen to 10 percent. The situation has been made worse, not better, by the emergence of the tar sands as the dominant market player. Since 1986, less than $25 billion has gone to public coffers while over $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 percent of that produced in the tar sands.

The oil companies are not about to return the largesse gained at our expense. But we can and should 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 and Sustainability Funds and ensure stable funding for programs into the future, as they’ve stated they wish to do, the solution lies in getting for Albertans a larger, fairer, return on our oil.

Trevor W. Harrison is a political sociologist at the University of Lethbridge and Director of Parkland Institute. David Campanella is Parkland’s Calgary Research Manager.

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