ALBERTA

Economist Mintz calls Alberta oilsands 'poster child' for good royalty regime

10/04/2012 03:20 EDT | Updated 12/04/2012 05:12 EST
CALGARY - A tax policy expert calls Alberta's oilsands royalty regime the "poster child" for how governments ought to collect their due from the energy industry.

Jack Mintz, at the University of Calgary's School of Public Policy, says royalties should be based on companies' bottom lines — a so-called "rent-based system" that subtracts costs such as labour from revenues.

That's the way it works for oilsands producers in Alberta and in places like Australia, Norway and the United Kingdom and it's a relatively new approach.

But conventional producers in the province — as well as those in Saskatchewan, British Columbia and much of the United States — have their royalties calculated based on their top-line revenues.

Mintz says the revenue-based systems can get really complicated and could discourage investment.

"Systems could be amazingly complex. Some are, let's say, less competitive than others. Some are more distortionary by having all sorts of differential treatment depending on the type of asset mix that the firm has," Mintz told reporters.

"But the best kind of system is the rent-based system for royalties and a relatively clean corporate income tax and in the case of Alberta oilsands, the base itself is actually almost a poster child on how to do an appropriate rent-based tax."

Mintz, however, isn't advocating jurisdictions that use a revenue-based system overhaul their regimes overnight.

"We do have a lot of new opportunities of putting in the appropriate royalty and tax regimes, especially for new deposits, whether it's shale gas, tight oil or whatever," he said.

"I'd like to encourage our Canadian governments and the provinces with significant resources, and are developing new regimes, to put in ones which are rent-based.

"This is the new way of doing things, and I think this is the appropriate way of doing it."

In his report, Mintz looked at the energy royalty regimes of Brazil, Canada, Norway, the U.K., the U.S. as well as five provinces and four U.S. States.

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