Main menu:

History of RPE Thought

Posts by Tag

RSS New from the CCPA

  • Study explores media coverage of pipeline controversies December 14, 2018
    Supporters of fossil fuel infrastructure projects position themselves as friends of working people, framing climate action as antithetical to the more immediately pressing need to protect oil and gas workers’ livelihoods. And as the latest report from the CCPA-BC and Corporate Mapping Project confirms, this framing has become dominant across the media landscape. Focusing on pipeline […]
    Canadian Centre for Policy Alternatives
  • Study highlights ‘uncomfortable truth’ about racism in the job market December 12, 2018
    "Racialized workers in Ontario are significantly more likely to be concentrated in low-wage jobs and face persistent unemployment and earnings gaps compared to white employees — pointing to the “uncomfortable truth” about racism in the job market, according to a new study." Read the Toronto Star's coverage of our updated colour-coded labour market report, released […]
    Canadian Centre for Policy Alternatives
  • Uploading the subway will not help Toronto commuters December 12, 2018
    The Ontario government is planning to upload Toronto’s subway, claiming it will allow for the rapid expansion of better public transit across the GTHA, but that’s highly doubtful. Why? Because Minister of Transportation Jeff Yurek’s emphasis on public-private partnerships and a market-driven approach suggests privatization is the cornerstone of the province’s plan. Will dismembering the […]
    Canadian Centre for Policy Alternatives
  • 2018 State of the Inner City Report: Green Light Go...Improving Transportation Equity December 7, 2018
    Getting to doctors appointments, going to school, to work, attending social engagments, picking up groceries and even going to the beach should all affordable and accessible.  Check out Ellen Smirl's reserach on transportation equity in Winnipeg in this year's State of the Inner City Report!
    Canadian Centre for Policy Alternatives
  • Inclusionary housing in a slow-growth city like Winnipeg December 3, 2018
    In Winnipeg, there is a need for more affordable housing, as 21 percent of households (64,065 households) are living in unaffordable housing--according to CMHC's definition of spending more than 30 percent of income on shelter.  This report examines to case studies in two American cities and how their experience could help shape an Inclusionary Housing […]
    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