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Thursday, March 02, 2006
Getting a piece of Ralph's booty
ERIC REGULY
Globe and Mail
Ralph Klein has a lot of money. The rest of us don't, for the simple reason that so many deadbeat provinces aren't sitting on billions of dead dinosaurs who had the courtesy to turn into a subterranean ocean of oil and gas. Today's question, boys and girls, is how the rest of Canada can extract some of the riches from Alberta without the undeserving bastards noticing. Or noticing and not squawking about it.
The Kingdom of Klein presents a tempting target for looters. On Monday, the province revealed it will have a 2005-06 revenue surplus of $7.4-billion. That's slightly more than the federal government's surplus and more than the operating budgets of some of the lesser provinces.
The Alberta surplus figure does not include the $1.3-billion spent on the $400 rebate cheques for every Alberta resident and a few other expenditures. Include those bits and the true figure would be closer to $10-billion. If oil and natural gas prices stay high, the next surplus could be sufficient to buy every Albertan a timeshare in a ski chalet.
His Ralphness could make things easy for himself by writing a $1-billion cheque for each of the other provinces. The simple gesture would save Confederation and land his mug on the next $20 bill, festooned with images of oil rigs. The chances of that happening are roughly equivalent to the planet exchanging orbit with Pluto before sundown.
Still, be optimistic. Canada has a long and glorious history of taking from the rich to subsidize the poor. It's called nation building. Here are some suggestions.
Wallop the oil industry with taxes: If you don't like paying taxes, and want to make a lot of money, the oil industry has your name written all over it. Corporate tax rates for the resource players have been falling and will reach 21 per cent next year. Exploration and development expenses, right down to building temporary access roads, are deductible against taxes. Royalties are 100 per cent deductible. Oil sands projects benefit from accelerated capital cost allowances and pay a mere 1-per-cent royalty rate until the project produces a profit.
And so on. The oil and gas industry makes billions of dollars a year. If you believe the cheap energy era is over, they will keep making billions. If these companies paid more taxes, or had fewer tax writeoffs, the feds would have more money to launder to the have-not provinces. The oil companies would moan and threaten to invest elsewhere. There is no elsewhere. There is only the oil sands, which the Alberta marketing brochures tout as Saudi Arabia North.
Imitate Iraq: The constitution of the war-ravaged country proposes to divide oil revenues on a per-capita basis. If it flies, all of Iraq's regions, even the ones devoid of oil wells, will get a share of the wealth. Queen's University Professor Tom Courchene has floated the idea of spreading Alberta's royalty bucks among the provinces. Great, doomed idea.
Make Alberta feel guilty about its Kyoto freebie: Shock! The new Tory government seems to be getting all warm and fuzzy about the Kyoto climate change accord. This should make Alberta nervous, because the oil sands are turning into a carbon dioxide factory of epic proportions. Deficit-plagued Ontario could use this to its advantage.
Ontario has closed one big coal-burning electricity plant and wants to mothball the rest (they produce up to a quarter of the province's juice). The smelly old beasts are one of the biggest single sources of national carbon dioxide emissions. Replacing them with Kyoto-friendly gas-fired plants will cost billions, which Ontario doesn't have.
Here's the pitch. If Ontario emits less carbon dioxide, Alberta's oil sands can emit more. In exchange, Alberta does something nice for Ontario, like buying carbon credits from Ontario or financing the construction of a transmission line that would deliver renewable hydro from Manitoba. Problem is, Alberta doesn't do nice.
Make the Heritage Fund go global: Norway's version of the Alberta Heritage Fund invests almost all of its $190-billion (U.S.) fortune outside the county. The $13.6-billion (Canadian) Alberta fund should consider doing the same.
How would that help the rest of Canada? Taking one of the biggest funds out of domestic competition would remove some of the upward pressure on the value of assets, such as real estate. This would make Quebec's Caisse de dépôt and the Ontario Teachers funds happier. Plus, they'd get a kick watching Alberta squander billions on sub-Saharan gold mining plays.
Give up and wish Alberta the worst: Alberta is an oil economy, right? Not so. It's mostly about gas. In fact, gas royalty revenue is almost four times greater than oil royalty revenue. Alberta's gas production peaked in 2001. At the current rate of production, proven (though not theoretical) reserves will last a mere nine years. So let Alberta enjoy its fat surplus. In time, it will be poor again and seek money from the rest of Canada. Canada will know what to say.
Thursday, March 02, 2006
Getting a piece of Ralph's booty
ERIC REGULY
Globe and Mail
Ralph Klein has a lot of money. The rest of us don't, for the simple reason that so many deadbeat provinces aren't sitting on billions of dead dinosaurs who had the courtesy to turn into a subterranean ocean of oil and gas. Today's question, boys and girls, is how the rest of Canada can extract some of the riches from Alberta without the undeserving bastards noticing. Or noticing and not squawking about it.
The Kingdom of Klein presents a tempting target for looters. On Monday, the province revealed it will have a 2005-06 revenue surplus of $7.4-billion. That's slightly more than the federal government's surplus and more than the operating budgets of some of the lesser provinces.
The Alberta surplus figure does not include the $1.3-billion spent on the $400 rebate cheques for every Alberta resident and a few other expenditures. Include those bits and the true figure would be closer to $10-billion. If oil and natural gas prices stay high, the next surplus could be sufficient to buy every Albertan a timeshare in a ski chalet.
His Ralphness could make things easy for himself by writing a $1-billion cheque for each of the other provinces. The simple gesture would save Confederation and land his mug on the next $20 bill, festooned with images of oil rigs. The chances of that happening are roughly equivalent to the planet exchanging orbit with Pluto before sundown.
Still, be optimistic. Canada has a long and glorious history of taking from the rich to subsidize the poor. It's called nation building. Here are some suggestions.
Wallop the oil industry with taxes: If you don't like paying taxes, and want to make a lot of money, the oil industry has your name written all over it. Corporate tax rates for the resource players have been falling and will reach 21 per cent next year. Exploration and development expenses, right down to building temporary access roads, are deductible against taxes. Royalties are 100 per cent deductible. Oil sands projects benefit from accelerated capital cost allowances and pay a mere 1-per-cent royalty rate until the project produces a profit.
And so on. The oil and gas industry makes billions of dollars a year. If you believe the cheap energy era is over, they will keep making billions. If these companies paid more taxes, or had fewer tax writeoffs, the feds would have more money to launder to the have-not provinces. The oil companies would moan and threaten to invest elsewhere. There is no elsewhere. There is only the oil sands, which the Alberta marketing brochures tout as Saudi Arabia North.
Imitate Iraq: The constitution of the war-ravaged country proposes to divide oil revenues on a per-capita basis. If it flies, all of Iraq's regions, even the ones devoid of oil wells, will get a share of the wealth. Queen's University Professor Tom Courchene has floated the idea of spreading Alberta's royalty bucks among the provinces. Great, doomed idea.
Make Alberta feel guilty about its Kyoto freebie: Shock! The new Tory government seems to be getting all warm and fuzzy about the Kyoto climate change accord. This should make Alberta nervous, because the oil sands are turning into a carbon dioxide factory of epic proportions. Deficit-plagued Ontario could use this to its advantage.
Ontario has closed one big coal-burning electricity plant and wants to mothball the rest (they produce up to a quarter of the province's juice). The smelly old beasts are one of the biggest single sources of national carbon dioxide emissions. Replacing them with Kyoto-friendly gas-fired plants will cost billions, which Ontario doesn't have.
Here's the pitch. If Ontario emits less carbon dioxide, Alberta's oil sands can emit more. In exchange, Alberta does something nice for Ontario, like buying carbon credits from Ontario or financing the construction of a transmission line that would deliver renewable hydro from Manitoba. Problem is, Alberta doesn't do nice.
Make the Heritage Fund go global: Norway's version of the Alberta Heritage Fund invests almost all of its $190-billion (U.S.) fortune outside the county. The $13.6-billion (Canadian) Alberta fund should consider doing the same.
How would that help the rest of Canada? Taking one of the biggest funds out of domestic competition would remove some of the upward pressure on the value of assets, such as real estate. This would make Quebec's Caisse de dépôt and the Ontario Teachers funds happier. Plus, they'd get a kick watching Alberta squander billions on sub-Saharan gold mining plays.
Give up and wish Alberta the worst: Alberta is an oil economy, right? Not so. It's mostly about gas. In fact, gas royalty revenue is almost four times greater than oil royalty revenue. Alberta's gas production peaked in 2001. At the current rate of production, proven (though not theoretical) reserves will last a mere nine years. So let Alberta enjoy its fat surplus. In time, it will be poor again and seek money from the rest of Canada. Canada will know what to say.
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