Editor’s Note Vol. 25 No. 2 EDITORIAL EDITOR
Darrell Stonehouse | dstonehouse@junewarren-nickles.com CONTRIBUTING WRITERS
Joseph Caouette, Lynda Harrison, Carter Haydu, Richard Macedo
Is this corporate welfare?
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News that the Canadian Association of Petroleum Producers (CAPP) asked the federal government to rework the tax treatment around capital-cost allowances for the development of liquefied natural gas (LNG) export terminals to save the industry as much as $2 billion over the next seven years comes as no surprise. In the late 1990s, the federal government accelerated the allowance, allowing oilsands operators to write off capital costs faster, resulting in a boom in construction and production that will pay dividends for the next 50 years. So it only makes sense that a similar program could spur LNG export development. Speaking to the standing committee of finance last fall, CAPP president David Collyer said LNG terminals should be treated as manufacturing plants, allowing them to write off 90 per cent of capital costs within seven years of construction. The facilities are currently treated as part of the gas transmission system, meaning costs would be written off over a period of 27 years. Collyer said the reclassification would “positively influence near-term final investment decisions for LNG liquefaction facilities.” CAPP is arguing the change in capitalcost allowance is needed to compete with the United States and Australia in the global LNG export race. Opposition to the request is already taking shape. The Canadian Taxpayers Federation says LNG terminals are not manufacturing and shouldn’t be treated as such. It also argues the lost tax revenue will have to be made up from the people of British
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Columbia, meaning they will be subsidizing the LNG industry. Labour organizations say the accelerated capital-cost recovery for manufacturers makes sense because manufacturing creates so many jobs, something the LNG export facilities can’t claim. The real problem, of course, is government’s insistence on using the tax code and tax policy as a means to interfere in the free market—usually for political ends. Fair tax policy would treat all industry the same, eliminating the distortions that encourage the misallocation of capital to less-profitable enterprises. Both federal and provincial governments would stick to taking the money they need to run their affairs and quit trying to use the tax code to pick winners and losers, or to encourage the development of one sector of the economy over another. And it goes further than that. By using tax policy as a political tool, governments can also affect public perceptions of private enterprise. LNG developers are already being vilified in the media as corporate welfare cases asking to be “subsidized” by the government. For the record, a subsidy is a handout like what was given to the Ontario auto industry, not a request to keep more of your own money like the LNG industry is asking. Until government stops politicizing the economy, this sort of nonsense will continue, and even if it’s successful in getting its requested change, the oil industry will come out looking bad. Something needs to change. Darrell Stonehouse
Editor dstonehouse@junewarren-nickles.com
N E XT I S S U E April 2013 A look at how the midstream is expanding to account for growing liquids production and in preparation for LNG exports. Plus, a review on instrumentation and automation technologies.
Want to sound off on any content in Oil & Gas Inquirer? Send your emails to dstonehouse@junewarren-nickles.com. Please mark them as ”Letter to the Editor” if you want them published.
OIL & GAS INQUIRER • MARCH 2
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