Photo: The Canadian Press
Pipes leading to the processing unit at Suncor’s Fort Hills facility in Fort McMurray, Alta.
Supporters of an unexpected tax on the Canadian oil and gas industry now have another precedent as a global force for this policy.
The European Commission on Wednesday proposed imposing such a tax on the energy sector and redirecting funds to households and businesses suffering from high inflation. It estimates that the policy will generate 140 million euros (about $186 million) in revenue.
The European Union is not the only jurisdiction to impose an additional tax on the energy sector. Earlier this year, the UK imposed an unexpected tax on oil and gas producers. But since then, new Prime Minister Liz Truss has opposed the policy and indicated that it would not bring in any unexpected new taxes.
Progressives in the US also campaigned for an unexpected tax on oil and gas companies amid rising inflation.
The global push for unexpected taxes comes as some companies, especially those in the oil and gas sector, have posted record profits since the onset of the COVID-19 pandemic.
In Canada, the latest quarterly GDP report from Statistics Canada says non-financial companies have benefited from strong energy prices. According to the federal agency, dividends paid by these companies rose 9.1 percent in the second quarter of 2022. Meanwhile, workers’ compensation in Canada rose 2 percent.
Chief Economist David MacDonald of the Canadian Center for Policy Alternatives recently looked at how much GDP is calculated through corporate earnings. His analysis found that after-tax corporate earnings reached a historically high proportion of the Canadian economy’s total output in the second quarter of this year.
In contrast, MacDonald found that workers’ compensation as a proportion of GDP fell to the lowest level since 2006. “The period of inflation was a very good period for corporate profits, and even less so for workers’ wages.”
MacDonald supports unanticipated taxes to counter this trend.
The National Party has called on the federal government to extend the unexpected tax imposed on financial institutions earlier this year to include the oil and gas sector as well as supermarkets. The party argued that the money raised from the unexpected tax extension could be used to send more money to low- and modest-income families struggling with rising inflation.
In the latest proposal, the National Party won when the Liberals announced on Tuesday that they would double the GST deduction for six months. Regarding the unexpected tax extension, NDP financial critic Daniel Blake said he had received no indication from Finance Minister Chrystia Freeland that it was on the table.
“We will continue to press on these things,” Blake said. “And I think the announcement of the GST rebate is cause for some optimism that even when the government misses out on the gate, we can make it change course.”
The Department of Finance declined to comment on whether it was considering extending the unexpected tax policy.
Many economists oppose unanticipated taxes due to concerns that they might discourage business investment.
Michael Smart, a professor of economics at the University of Toronto and co-director of the Finances of the Nation project, said the EU’s pursuit of a windfall tax reflects a unique situation in that region, where energy prices have skyrocketed.
“We’re not exactly in the same situation here,” Smart said, adding that unanticipated taxes are hard to implement and should rarely be used.
“I don’t think that is justified (here).”
If the government is to continue imposing an unexpected tax, it will first have to define its intended purpose, said Mustafa Askari, chief economist at the Institute for Fiscal Studies and Democracy.
“Targeting the energy sector to me is a bit odd, unless additional government funding is urgently needed,” he said.
Since government revenues are rising due to high inflation, Al-Askari said the issue of additional funding is not there. Another concern, he said, is that oil and gas companies may be able to pass these additional taxes on to consumers through higher prices.
However, despite the disagreement among economists over policy, polls indicate that the vast majority of Canadians support a tax on companies whose profits have been unusually high during the pandemic. A survey conducted by Abacus Data on behalf of the Broadbent Institute and the Professional Institute of Public Service Canada in July 2021 showed that 87 percent of Canadians supported the policy.
The survey was conducted online with 1,500 Canadian adults from July 13-19, 2021. No margin of error can be determined because online surveys are not truly random samples.
Blaecke said the National Party relies on popular support to persuade the Liberals to this policy.
“I think the more Canadians out there who are calling for these kinds of measures alongside us in the NDP, the more likely we are to see a positive outcome.”