Tax expenditures are subsidies delivered through the taxation system. These promote policy goals of government but are subject to far less scrutiny and disclosure than direct spending.
The primary beneficiaries of tax expenditures are Canada’s wealthiest citizens and corporations. Last year, the Canadian Centre for Policy Alternatives published a report that concluded:
Preferential tax treatments such as tax exemptions, credits, and loopholes have become a cash cow for Canada’s rich. This report analyzes the country’s 10 costliest preferential tax treatments, starting with the richest 10% of Canadians, which is responsible for 42 per cent of the federal money spent on these types of tax expenditures (up from 36% in 1992).
In British Columbia, natural gas producers, many with foreign ownership, are milking this generous cash cow.
In fiscal years 2007 through 2018, natural gas producers gained $8.5 billion through royalty reduction programs. We’re not allowed to know which companies gained that value.
Green Party leader Andrew Weaver reported in May that NDP changes to the Petroleum and Natural Gas Act preclude detailed information about royalty revenues being publicly disclosed.
Yet, in BC Public Accounts, the Finance Ministry must disclose “all recipients of government grants or transfers totalling more than $25,000; and all service providers who received total payments from government in excess of $25,000.”
So, when the BC Government paid $25,374 to Apple Electric Ltd. in FY 2018, it dutifully reported the sum. But, when government relieved Encana from paying royalties worth hundreds of millions of dollars, details are a state secret. That single company is producing over $1 million a day in just one BC gas field. They may be paying nothing in royalties.
The finance and energy ministries refuse to provide information about individual recipients of royalty credits and they fail to disclose the total. These numbers are only released when the Auditor General includes them in footnotes to the province’s annual financial statements. In the current year, that came five months after the fiscal year end.
Natural gas royalty credits is not a subject the responsible minister knows well.
In a November 2017 session of the Legislature, Green Party leader Andrew Weaver directed questions to Michelle Mungall, Minister of Energy, Mines and Petroleum Resources. Weaver said:
This deep-well royalty program was designed to enable the provincial government to share the costs of drilling in B.C.’s deep gas basins. It has since transformed into a massive subsidy for horizontal drilling and hydraulic fracturing.
It is my understanding that natural gas companies now receive hundreds of millions of dollars in “deep-well credits,” even for shallow wells, provided their horizontal sections are long enough.
…can the minister please tell the House what the amassed or outstanding value of these deep-well credits currently is?
Mungall defended the program, saying the credits “were not money going to government. It’s just that we’re collecting less royalties…”
Hers was a debating trick known as a distinction without a difference.
The minister replied:
We do have the first number for the member, and it’s the total of accumulated deep credits at $3.2 billion. That’s the total accumulation of all credits. Those credits are only available, however, to any one company if their well is producing. So if their well isn’t producing — say they earned credits as they did their exploration phase, but they didn’t produce the well — then they wouldn’t be able to access those royalty credits.
Ms. Mungall apparently relied on poorly informed staff when she quoted the $3.2 billion figure in November 2017. Despite requests, the ministry failed to correct her misstatements later. When the audited financials were released nine months later, we learned the amount owing was $2.6 billion, as of March 2018.
In answering MLA Weaver, Ms. Mungall downplayed the significance of subsidies. But as the table below shows, in the last three years, the total of credits taken and accrued was $2.361 billion. Net royalties received in the same period were $452 million.
When Weaver asked the value of the deep-well credits redeemed in 2016-2017, Mungall replied:
The total credits that were earned in 2016-2017 was $229 million, and the net of all royalty credits was $145 million.
Her numbers were inaccurate. The Auditor General reported credits taken were $363 million in 2016-2017, with a another $210 million accrued for a total of $573 million.
That number is a long way from Mungall’s figure of $229 million.
The following shows the decline of natural gas revenues during the last ten years. The revenues included receipts from royalties and sale of rights, less unrecorded but accrued credits owed producers, as reported by the Auditor General. The amounts are converted to 2018 dollars, using Bank of Canada inflation calculator, Sept. 9, 2018.
Natural gas rights are tendered for specific properties monthly. The successful bidders commit to payment amounts but the government defers the revenue and recognizes it over nine years. That has allowed government to report revenues in 2018 that came from sales conducted in the years 2010 through 2018. That accounting choice meant that government reduced revenues in years where much revenue was generated by rights sales and inflated it in recent years when sale of rights stopped producing material results.
Categories: Natural Gas