Oil patch tax relief not in cards in upcoming Canadian budget

Canadian Association of Petroleum Producers and Alberta’s lobbying for tax equity has failed due to economic slowdown and costs of beefed up security

Gary Park

PNA Canadian Correspondent

A sore point between Canada’s petroleum industry and the federal government threatens to become even worse, with upwards of C$30 billion worth of oil sands projects on the line.

For the past 18 months, the Canadian Association of Petroleum Producers and the Alberta government have been lobbying for what they see as tax equity.

They want Finance Minister Paul Martin to reduce the corporate tax rate for resource companies to 21 percent from 28 percent in a budget expected in early December — the same reduction given to all other industries last year.

But the combination of economic slowdown and the costs of beefed up security and military needs mean “large tax changes ... in the tax system would be difficult to accommodate,” said Natural Resources Minister Ralph Goodale.

“There’s clearly a squeeze on flexibility at this time,” he said, ruling out the prospect of even phased-in tax cuts.

A Canadian Association of Petroleum Producers study has estimated that extending the 21 percent marginal tax rate to oil and gas companies would cost the federal government about C$700 million this year.

However, without the change the industry has warned that it will be even more difficult to attract investors, especially for the multi-billion dollar mega-projects planned for Alberta’s oil sands.

The government has insisted that to ensure fairness with other industries, the resource sector would have to accept “improvements to the tax structure.”

That would involve a detailed examination of existing resource tax breaks, including a 100 percent deduction in eligible exploration and development expenses, accelerated write-offs for some capital assets and an accelerated capital cost allowance.

For the industry, giving up incentives is viewed as a regressive move. “They also forget that we pay royalties,” said Charlie Fischer, chief executive officer of Nexen Inc. and a former Canadian Association of Petroleum Producers chairman. “They have more work to do on this issue and that’s fine. But we do expect it to be dealt with ... and not just ignored.”

Anxious to avoid conflict with the Alberta government at a time when it is trying to rebuild political strength in Western Canada, the federal government is eager to explore a solution, said a spokesman in the Department of Finance. “Negotiations haven’t yet hit a wall,” he said.