More than nine weeks ago, I sent this message to the BC Auditor General:
I wonder how you managed to produce 40 pages on tax expenditures without a single mention of natural gas royalty reduction programs.
Producers have deducted $5.85 billion in royalty payments , 2007-2018, and have accrued a further $2.61 billion in unrecorded credits accrued by producers.
One would think that an almost $1 billion a year benefit by tax expenditure, flowing to a relative handful of companies, would be a subject worthy of specific mention.
Today, I received a phone call from the Auditor General’s office where it was explained to me that royalties are “not tax revenues”. Therefore, billions of dollars in contributions of government toward gas industry drilling and infrastructure costs, by way of royalty reduction credits, are not tax expenditures.
One might think British Columbia’s Auditor General would favour maximum information in financial disclosure. Apparently, not in this province.
The International Budget Partnership (IBP) was formed in 1997 to promote transparent and inclusive government budget processes as a means to improve governance and service delivery. It provides a definition.
Tax expenditures are part of any government’s toolbox, and in some cases they can be an effective way to provide incentives to citizens and firms.
However, their impact on the budget tends to be much less visible than that of normal expenditures, and they receive little systematic scrutiny. They also can disproportionately benefit specific interest groups, who will lobby to maintain them.
As tax expenditures can be very large compared to normal government spending, it is important for civil society organizations to monitor them, assess their impact, and push governments to publish detailed information and carry out periodic reviews.
What are tax expenditures, and why are they of interest?
Tax expenditures are usually defined as a government’s estimated revenue loss that results from giving tax concessions or preferences to a particular class of taxpayer or activity. The revenue loss, or “expenditure,” is calculated as the difference between whatever tax would have been paid …and the lower amount that was actually paid after the tax break.
Tax expenditures are used instead of direct spending to deliver a government subsidy to a class of taxpayer or encourage a desired activity.
They can take many forms, including tax exemptions; tax deductions; tax offsets (or credits); and concessional tax rates or timing rules, such as accelerated depreciation of capital assets, that either reduce or defer a taxpayer’s tax liability…
A small number of companies — mostly owned outside BC — have taken or accrued more than $8 billion in royalty reduction credits since 2007. The credit program has accelerated so that in four of the last six fiscal years, credits exceeded royalties that otherwise would have been paid.
With the near elimination of revenues from tenders for petroleum and natural gas rights explained HERE, British Columbia now gifts valuable natural resources to a specific interest group.
Yet, the Auditor General deems this government policy, with its multi-billion dollar impact, unworthy of pubic discussion. Our business-friendly corporate media also refuses to report the scale of tax expenditure subsidies to gas producers.
A specific interest group benefits hugely and ordinary citizens pay the costs. This is the system of corporate welfare, working silently.