A few days ago, I wrote Cronies, henchmen and the future and noted a loss of government revenue derived from natural resources, even though production and commodity prices have risen dramatically in the past decade. BC’s take from natural resources, according to annual public accounts, were these:
- 2001 = $3,975,000,000
- 2012 = $2,699,000,000
I also pointed out that, under HST, resource companies no longer pay provincial sales tax, a savings of hundreds of millions annually.
A Simon Fraser University geology report from 2009 said this:
Today, mining in British Columbia is an estimated $5.6 billion dollar industry – almost double what it was in 2001…
Coal is BC’s number one exported mineral, contributing close to 35% of B.C.’s annual mineral production value…
After coal, copper is the highest valued metal mined in B.C…”
Coal, the largest mineral production in BC, sold at prices 567% higher in 2011 than 2001. Copper, the second most valuable production had prices rise 386% during the same period.
All commodity prices have changed significantly. These statistics are taken from the Ministry of Energy, Mines and Natural Gas.
Citizens enjoying a substantial rise in before-tax income across the past decade pay substantially higher taxes; metals and minerals extractors, despite exceptional revenue growth, pay less.
Teck, BC’s largest mining company, had gross revenue of $2.4 billion and cash operating profits of $402 million in 2001. Ten years later, revenues were $11.5 billion and profit from operations $4.5 billion. So, Teck’s operating profits went up over 1100% but BC citizens’ take from natural resources went down by 32%.
By the way, Teck companies and chair Norman Keevil donated $1.14 million to the BC Liberals in recent years. Other resource companies, Goldcorp, for example, donated millions more. The returns on political donations have been substantial. I’m left wondering why the BC Liberals sold out so cheaply if all they got from Teck and other big mining companies was a few million dollars.
It turns out that British Columbia’s current revenues from natural resources are in dispute. Vaughn Palmer writes about the issue,
[Auditor General John] Doyle’s proposed treatment of the credits that government makes available to petroleum producers who drill deeper (and hence more expensive) natural gas wells.
The credits can be used to reduce royalties paid to government from those same wells. Lately, with output slackening because of the glut of natural gas, the credit-holders have been banking them to claim in future years.
The auditor general argues that the credits should be booked as a liability, thereby increasing the deficit by a hefty $702 million.
The comptroller disagrees, arguing that the credits don’t represent current cash paid to producers, but rather future reductions in royalty payments to government…
Most every professional accountant in the province would agree with the Auditor General on this one, although Vaughn Palmer is not persuaded. Clearly, the government has an existing material liability owed to gas producers that will reduce revenues received in the future and that liability is unrecorded.