A new report by RBC Capital Markets estimates a significant financial windfall for Canadian governments through our local oil and gas industry in an era of now-higher commodity prices and improved profitability.
Released in July, RBC's report (1) estimates these revenue streams will generate roughly $48 billion for Canadian governments in 2022 and will rise to $64 billion in 2023, totalling $112 billion over the two-year period.
With talk of a "windfall tax" from heightened oil and gas profits in various countries worldwide (2)(3)(4), RBC says it has presented these figures to help contextualize the situation where such a tax isn't needed because of the significant boost in government revenues already being realized.
The fact is, Canada's abundant natural resources are already an existing windfall, benefiting all Canadians.
Other revenue streams from energy producers to governments such as bonuses and sales of crown leases, employment, land use fees and income taxes were not factored into RBC's analysis but also provide meaningful benefits to Canadians. An example is the $175 million of land lease sales year-to-date made in Western Canada which typically increase alongside commodity prices, representing another form of fiscal benefit (1).
Royalty & Tax Outlook - RBC Capital Markets
In addition to royalties and taxes, other energy-related revenues also contribute to government coffers. Oil and gas producers pay the Crown freehold mineral taxes, annual lease rental payments, land sale bonuses, and a levy to fund the province's energy regulator agency. In Alberta's last fiscal year, these "other" payments totalled roughly $400 million (1).
A large majority – about 85% - of the mineral rights in Western Canada are held by the Crown, and producers must pay a royalty rate to develop these resources. If you're familiar with which provinces are responsible for most Canadian energy production, it should be no surprise that most government revenues are generated in the West (1).
Of Canada's three leading oil and gas producing provinces, royalties are chiefly generated in Alberta (91% of 2021/22 WCSB royalties), followed by Saskatchewan (5%) and British Columbia (4%). Oil sands comprise the lion's share of resource revenue, accounting for roughly 65% of the total (1).
Government Revenues from Oil & Gas
Canada's energy sector has long been a significant contributor to government revenues. A recent analysis found that between 2000 and 2019, the oil and gas industry added $505 billion to government coffers including everything from royalties, property taxes, corporate taxes and personal income taxes (4).
It's hard to grasp just how much $505 billion is. Comparison to government social programs and revenues generated by other Canadian sectors is required to put this amount of cash into perspective.
Between 1969 and 2019, Canadian parents received $499 billion in children's benefits and family allowance payments from the government (4).
From 2000 to 2019, the real estate industry added slightly more than $211 billion in taxes to Canadian governments from coast-to-coast. Additionally, the construction sector generated $298 billion to federal, provincial and municipal governments over the same time period (4).
Put the two aforementioned sectors together, and you get $509 billion to government coffers between 2000 and 2019 – about as much as oil and gas.
Oil & Gas and the Canadian Economy
What could $112 billion in potential revenues from oil and gas over the next few years pay for?
From schools and roads to hospitals and playgrounds – and the jobs needed to build and operate them – we briefly examine what natural resource revenues could pay for in a blog last year.
That is funding to support many nurses, police, doctors and other critical public sector workers who play an essential role in providing Canadians with the services they need.
Economists have said time and time again that oil and gas pay the bills in Canada. We owe much of our economic prosperity and relatively high per-capita income to trade – and crude oil and natural gas exports dominate that trade (5).
As a trading nation heavily reliant on exports for our economic prosperity, we should be doing everything we can to open up our natural resources to global markets apart from the U.S.
Canada is among the most transparent and stringently regulated natural resource producers globally. In a world focused more on environmental outcomes than ever, we should be a go-to supplier of choice for everything from oil, natural gas, minerals, metals, lumber, food and everything in between.
1 – RBC Capital Markets – Canadian Energy – Yahoo!! Fiscal Windfall Arrives, Date Accessed: July 28th, 2022
2 – Bloomberg – UK Oil and Gas Lobby Group Disappointed as Windfall Tax Becomes Law, Date Accessed: July 28th, 2022 (https://www.bloomberg.com/news/articles/2022-07-14/oil-and-gas-lobby-group-disappointed-as-windfall-tax-becomes-law#xj4y7vzkg)
3 – Jeff Merkley United States Senator for Oregon – Dems Introduce Windfall Tax on Big Oil So Companies' Pay a Price When They Price Gouge', Date Accessed: July 28th, 2022 (https://www.merkley.senate.gov/news/in-the-news/dems-introduce-windfall-tax-on-big-oil-so-companies-pay-a-price-when-they-price-gouge-22)
4 – Financial Post – Opinion: Oil and gas taxes pay for a lot of social benefits, Date Accessed: July 28th, 2022 (https://financialpost.com/opinion/opinion-oil-and-gas-taxes-pay-for-a-lot-of-social-benefits)
5 – National Post – Oil pays the bills, Date Accessed: July 28th, 2022 (https://www.pressreader.com/canada/national-post-latest-edition/20180517/281990378174469)
Share this page to spread the word.
If you have noticed rising costs at the grocery store, gas pump, your favourite restaurants or anywhere else in your daily life, you are not alone. Today, much of the world is struggling with supply shortages and increased living costs associated with the technical term “infl...
Does the world need more oil and gas in 2022 and beyond? If you've read any of our previous posts related to the global energy supply crunch and dire warnings of underinvestment in the oil and gas sector, you probably know the answer is a big YES. The most plausible projectio...
As the world's third-largest reserve holder and fourth-largest producer and exporter, Canada's reliance on foreign oil is shockingly significant. Between 1988 and 2020, Canada imported approximately $488 billion of foreign oil. According to Statistics Canada, we've imported o...