Main menu:

History of RPE Thought

Posts by Tag

RSS New from the CCPA

  • Unpacking the details of Manitoba Hydro September 9, 2019
    What would a long view of Manitoba Hydro all entail.  Read report here.
    Canadian Centre for Policy Alternatives
  • CCPA submission to Treasury Board consultation on regulatory modernization September 6, 2019
    On June 29, 2019, the federal government launched a public consultation on initiatives intended to "modernize" the Canadian regulatory system. Interested Canadians were invited to provide input on four current initiatives: Targeted Regulatory Reviews (Round 2) Review of the Red Tape Reduction Act Exploring options to legislate changes to regulator mandates Suggestions for the next […]
    Canadian Centre for Policy Alternatives
  • Join us in November for the 2019 CCPA-BC Gala, featuring Nancy MacLean September 3, 2019
    Tickets are available for our 2019 Annual Gala Fundraiser, which will take place in Vancouver on November 21. This year’s featured speaker will be Nancy MacLean, an award-winning historian and author whose talk, The rise of the radical right: How libertarian intellectuals, billionaires and white supremacists shaped today’s politics, is very timely both in the US and here in […]
    Canadian Centre for Policy Alternatives
  • Report looks at captured nature of BC’s Oil and Gas Commission August 6, 2019
    From an early stage, BC’s Oil and Gas Commission bore the hallmarks of a captured regulator. The very industry that the Commission was formed to regulate had a significant hand in its creation and, too often, the interests of the industry it regulates take precedence over the public interest. This report looks at the evolution […]
    Canadian Centre for Policy Alternatives
  • Correcting the Record July 26, 2019
    Earlier this week Kris Sims and Franco Terrazzano of the Canadian Taxpayers Federation wrote an opinion piece that was published in the Calgary Sun, Edmonton Sun, Winnipeg Sun, Ottawa Sun and Toronto Sun. The opinion piece makes several false claims and connections regarding the Corporate Mapping Project (CMP), which we would like to correct. The […]
    Canadian Centre for Policy Alternatives
Progressive Bloggers

Meta

Recent Blog Posts

Posts by Author

Recent Blog Comments

The Progressive Economics Forum

Will Oil & Potash Put SK Back in Black?

The Sask. Party government pulled out all the stops yesterday to report an ostensibly balanced budget, quite possibly the last one before next spring’s provincial election.

Revenue Assumptions

The drop in oil prices is a huge fiscal blow to Saskatchewan, and one of the ways the government projects continued balanced budgets is by assuming a rebound in oil prices. Perhaps more significantly, it assumes no corresponding rebound in the Canada-US exchange rate this coming fiscal year:

WTI Oil E-Rate
Today $43.88 78.58
2015-16 $57.15 79.16
2016-17 $69.50 81.38
2017-18 $79.00 82.88
2018-19 $85.75 84.25

Source: Provincial Budget, page 50.

Historically, there has been a very close correlation between oil prices and the exchange rate. Yet the Saskatchewan government is assuming that, by 2018-19, the price of oil will recover three-quarters of the way to $100 per barrel while the exchange rate will recover only about one-quarter of the way to parity.

The budget notes (on page 47) that every US$1 increase in the price of oil boosts provincial royalty revenue by $23 million. However, every one-cent increase in the exchange rate reduces provincial royalty revenue by $38 million.

The exchange rate is so important to provincial finances because commodity prices are denominated in US dollars. A higher exchange rate lowers the Canadian-dollar value not only of oil revenue, but also of potash and uranium revenues.

The Saskatchewan government projects the fiscal benefits of rising commodity prices without the fiscal costs of a rising exchange rate.

Revenue Policies

Beyond optimistic assumptions, yesterday’s budget included some policy changes to collect more revenue. In particular, with oil down, the provincial government looked to potash companies for additional revenue.

Some of us thought that our province should have been collecting a better return from potash even when oil prices were high. In 2012, I proposed closing four specific loopholes in the Potash Production Tax:

  • The ongoing holiday for sales in excess of the 2001 and 2002 average.
  • The deduction of Crown royalties against the Production Tax.
  • The Saskatchewan Resource Credit.
  • The 120% writeoff of investment in calculating the Production Tax.

Budget 2013 reduced the Saskatchewan Resource Credit from 1% to 0.75% of sales. I would have eliminated it altogether, but reducing it was certainly a step in the right direction.

Yesterday’s budget begins to address the 120% writeoff. On the one hand, it extends the writeoff from investment in excess of 2002 levels to all investment. On the other hand, it stops companies from deducting the whole 120% right away and makes them spread it out over a few years.

Largely as a result of this policy change, potash revenues are projected to jump by $233 million between the current fiscal year and the upcoming one (page 78). PotashCorp, which comprises about half of the industry, complains that the change will reduce its 2015 profit by $100 million.

In one sense, the government is just borrowing against future potash revenues – collecting more money now by pushing a slightly larger writeoff out into the future. To quote the budget (page 56), “This change will provide the Province with an immediate temporary increase in revenue from the potash industry by deferring deductions for current capital spending to future years.”

But this move calls attention to the magnitude of the writeoff and the potential to collect more revenue from potash. The budget also promises a broader review of the Potash Production Tax. I say, “Bring it on!”

Enjoy and share:

Write a comment





Related articles