Debate is underway on the B.C. Liberal government’s tax and environmental plan for liquefied natural gas exports, amid the usual political theatre.
Most media reported that the government “slashed” its proposed seven-per-cent LNG processing income tax by half, caving in to demands of international energy giants led by Petronas of Malaysia. The 3.5 per cent tax wouldn’t even take full effect until the massive capital investment is written down, and would rise to five per cent after 20 years of production.
All of this casts further doubt on Premier Christy Clark’s extravagant election campaign promise to use LNG revenues to wipe out B.C.’s debt, currently approaching $70 billion, and provide an Alberta-style “prosperity fund” to perform further miracles.
The seven per cent figure was the top end of the range presented this spring while negotiations with LNG investors were ongoing, so it’s not really accurate to say it was “slashed.” This cash calf hasn’t been born yet, and it remains to be seen if it will survive.
Finance Minister Mike de Jong pointed out some of the shifts in the global gas market that have reduced expectations. Japan, one of the potential investors, is considering restarting its nuclear plants as it recovers from the 2011 Fukushima earthquake.
China’s manic growth is slowing, and it has signed a long-term deal to import cheaper Russian pipeline gas.
Oil prices have dropped.
The government’s change of tone started with the recent Throne Speech, which emphasized the fate of B.C.’s only current
“Like forestry, B.C.’s natural gas industry has relied on exports to the United States,” the speech observed. “But the American shale gas revolution has meant the export south has dried up — and is never coming back.”
So before B.C. gets to that prosperity fund, it’s got to stop the bleeding.
You may recall it was a U.S. hurricane-induced spike in gas revenues that allowed the province to spread an extra billion to calm its labour waters for the 2010 Olympics.
The finance ministry estimates that after the startup period, a medium-sized LNG export operation would pay total taxes of around $800 million a year to the province. De Jong notes that this is more revenue from a single plant than B.C. will collect from the entire forest industry this year. There are currently 18 plants proposed.
This new LNG income tax is nowhere near the biggest source.
It’s bigger than the carbon tax that LNG producers will pay on fuel use, but only a fourth of what B.C. collects in royalties for selling the gas.
The biggest source of revenue from this hoped-for plant is “other taxes,” which include sales tax and corporate income tax, which B.C. increased to 11 per cent last year. University of Calgary economist Jack Mintz, who supported B.C. on its ill-fated harmonized sales tax, says this additional LNG tax is wrong-headed at any rate.
“If other provinces take the same view with respect to resource taxation, new levies would be applied to oil refining, forest product manufacturing, mining processing and a host of other activities linked to resource industries,” Mintz wrote last week in the Financial Post.
If B.C. does get a substantial LNG export industry, it will include gas from Alberta, with royalties going there, not here. And companies are also wrangling with the federal government over its taxes, with local governments and First Nations still in line for their cut.
The big question isn’t whether B.C. will get its fair share. It’s whether there will be anything to share.
Tom Fletcher is legislature reporter and columnist for Black Press. Twitter: @tomfletcherbc. Email: firstname.lastname@example.org.