It’s time to face the facts: The oil sands are no longer a safety valve for Alberta.
Earlier this week, Royal Dutch Shell announced it would not invest in any new oil sands operations because of the expense of developing the projects. Most of the spending for bitumen extraction comes upfront, which is known as a “sunk cost”. Bitumen is among the lowest-priced oil in the world, with the highest cost for extraction and production.
A year ago, oil sands producers were losing money every day. Today things are looking slightly more optimistic; Saudi Arabia, which effectively determines the global oil price, said they would like to see the price of a barrel of crude to rise to $60 in 2017. That’s better than the roughly $55 a barrel many forecasted the price would stay at, but a far cry from the glory days of $100 a barrel, which brought a flood of investment in the 2000s.
The bitumen bubble is not going away any time soon. Relying on resource royalties to fund our future is a recipe for stagnancy.
Alberta’s oil industry is facing huge challenges. ExxonMobil Corp. slashed reserves after pulling back from the $16-billion Kearl oil sands project, and ConocoPhillips said erasing oil sands barrels had reduced its reserves to a 15-year low. It doesn’t help that the United States continues to ramp up shale fields production, which further drives down the price of Canadian crude.
All of this means the province can’t perpetually hope oil prices will rebound to bring prosperity back to Alberta. And with the provincial deficit inching towards $10.4 billion (the largest in Alberta’s history), something needs to be done.
It’s time to look at a provincial sales tax, as Alberta Party leader Greg Clark has proposed.
MacEwan University economist Ergete Ferede has said a five per cent sales tax would generate roughly $5 billion, which would wipe out half the province’s deficit.
Finance Minister Joe Ceci has committed to wiping out the deficit with no public sector layoffs or additional taxes. This kind of reminds me of United States President Donald Trump’s proposal to raise military spending by $54 billion while making cuts to federal social assistance and foreign aid — it makes little to no sense and is wishful thinking.
Although Alberta is currently the only province in Canada without a provincial sales tax, you may be surprised to learn that Alberta was actually the first province to implement a provincial sales tax, by the Alberta Social Credit government, in 1936.
Albertans will soon have to face a choice: they can bask in the misnomer of the ‘Alberta Advantage’ (while services get cut and government buildings are shut down), or they can pony up and pay what the rest of Canada has been paying for decades.
As the world invests more into renewable energy and pulls back from fossil fuels, the Alberta government desperately needs a new source of revenue. Introducing a provincial sales tax could have other benefits as well, such as tempering the impact of the carbon tax.
Unless we want to wallow in mediocrity for years to come, it’s time to bite the bullet. Or in this case, the bitumen.