The Shotgun Blog
Tuesday, October 30, 2007
The Stelmach effect
Ed Stelmach's tax hikes haven't become law yet -- that won't happen for another year. But the effects are already being felt.
Notice that the pain isn't being felt by "Big Oil". It's being felt by the thousands of little operators who service Big Oil -- everyone from truck drivers to restaurateurs. The Exxons of the world can do business anywhere in the world -- they already do. But a five-person company in Red Deer can't suddenly move its operation to Colombia. That's one jurisdiction that's moving the opposite direction of Alberta and Kazakhstan in terms of rule of law, privatizing the oil sector and inviting foreign firms in.
I recently spoke with a senior oilman in Calgary who was down in Colombia looking at investments. He said he bumped into several other Albertans down there at the same time. To think that "Big Oil" can be trapped by Stelmach is simply not how things work. But Little Oil can be trapped -- and already is.
Posted by Ezra Levant on October 30, 2007 | Permalink
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"Tax"??? You have an odd definition of the word "tax". If I have an apple tree in my yard and agree to share the profits of apple sales with you where I get 47% and you get 53%, but you do all the work, then we just have a profit-sharing business deal. If I later decide I want more, so demand 65% (and, since I own the yard, I can get it) then we have a new profit-sharing deal, even if you don't like it. But to call it a "tax" is just to play silly word games. You'd never play games with the truth, would you Ez?
You can make the case, if you like, that the new split of revenue is bad because more money for the oil companies and less for government is a good thing and you can make the case, if you like, that the government is in breach of contract for changing the rates, but when you insist on calling it a "tax" your dishonesty calls into question whether YOU even believe your arguments. After all, if you thought they were right, why the need to lie by using the word "tax"?
Posted by: Fact Check | 2007-10-30 11:33:08 AM
As a small player in the service sector, I've already accepted my fate. It was going to slow down, one way or another it always does. Now it's time to move on, and see how to take advantage of the situation.
As a contractor who never gouged clients, we stand to gain from the slowdown. Clients have long memories, and those who treated them fairly are often rewarded. I have already seen an increase in calls. There is a small group of contractors who seem to be busier during Industry downturns. Once managers start looking for lower rates and better service, things take on a different appearance.
If every manager, supervisor, and contractor in Alberta spoke candidly, you probably find the majority happy about the slowdown. The loudest, and most critical are the ones who caused the stampede in the first place.
Posted by: dph | 2007-10-30 11:36:51 AM
Oh well, oil companies can always move to the North Sea.
Hang on, royalties there have just doubled when the British government unilaterally passed a new regime to reflect the higher price of crude.
Stelmach has gone on record as saying he would not like to see crude exported and processed in the US and will be encouraging more refineries in Canada.
More roads, hospitals and schools. Something Ralphie did not deal with for the past seven years as he kept funnelling the money into his Calgary buddies pockets without regard for the needed infrastructure.
Calgary's credo: Grab all the money you can for yourself and screw the rest.
At least that's what the evidence shows. As any good lawyer would know.
Posted by: set you free | 2007-10-30 11:44:27 AM
This post is basically a repeat of the NEP post, and I'm amazed at how few people have entered the discussion. It seems that not many participants have a connection with the oil industry. This is suprising since the home base of the WS is in the heart of the oilpatch.
I keep getting unsolicited and unwanted magazines from June Warren publishing among others. Now IHS Energy is joining the act. Any company that buys their product or service is put on a mailing list to receive mags such as oilweek, etc. It amounts to a lot of junk mail, but they do have some interesting articles about the patch. I've tried unsuccessfully to get them stopped.
Maybe the WS just got mixed up in the pile with all these "free" publications, and couldn't swim to the top.
Posted by: dph | 2007-10-30 12:20:01 PM
Stelmach ... what a thinker. Whose sock puppet is he anyway? Dion's?
I hope Albertans did what they put on their bumper stickers two or three decades ago.
"Lord please let the boom come back, I won't piss it all away this time"
Posted by: John | 2007-10-30 12:34:49 PM
Notice how Ached Stomach is now bragging that he must have struck the right balance with royalties "because no one is happy".
What kind of head up your bum logic is that?
When you annoy everybody, you lose votes from everybody.
Posted by: Epsilon | 2007-10-30 12:48:35 PM
Hey Epsi, nice to see that you have acclimated to the hardcore Western Standard fare of making up funny names of people Ezra and his co-horts don't agree with. You will have a long and prosperous career in the sacred halls of the Western Standard.
As for Ezra's posting. What exactly is your big gripe, that those staving oil companies that are hardly capabal of making a living have to share more of their bounty? Give it up already, whoever goes to Colombia or Africa for Oil will find a whole other mess to deal with and different expenses. The fact that this is slowing down right now is probably a good thing overall for Alberta, it may just give the Province (and it's people) a chance to catch up.
But hey, keep on your fearmongering, probably needed to get someone to elect you by calling up the Ghosts of NEP again.
Posted by: Snowrunner | 2007-10-30 12:59:54 PM
Epsilon - When you annoy everybody, you lose votes from everybody.
I would think that Stelmach's main concern is losing votes from Conservatives. Klein lost 15% in the last election. Another drop like that would put then in Liberal territory.
Posted by: O’REILLY | 2007-10-30 1:01:35 PM
The one thing that I haven't seen in this discussion is a clear comparison of the rates charged by different jurisdictions. It seems that as long as Alberta keeps our rates lower or comparable to the lower rates we should be fine.
I'm guessing that Ed's rate hikes won't be too hard for the "big oil" to stomache.
Posted by: MarkAlta | 2007-10-30 1:02:49 PM
It's just more fearmongering, likely from somebody whose options include being a corporate lawyer without moving from Calgary.
Just listen to the NDP ads on the radio accusing both the Liberals and Conservatives of taking donations from Big Oil.
Steady Eddie knows infrastructure in Alberta has been neglected and at least he's trying to do somthing to clean up the mess Ralphie left behind.
Oh, well. If the oil companies leave (comparison of more attractive places, please), Alberta can catch up slowly.
Posted by: set you free | 2007-10-30 1:35:11 PM
My preference is that all companies, big and small have an opportunity to make as much money as possible. For me personally, this means higher wages AND higher returns on my investments and pension plan. Giving more money to government so they can spend it on politically inspired boondoggles is reckless. They certainly will not lower my taxes. So I see no personal benefit here at all.
To actually brag about chasing businesses off to Colombia and Africa is absolutely insane. Snowrunner, you are completely insane making a statement like that.
There is a mythconception about "needing time to catch up" This is nonsense. Our hospitals are best in Canada. Our schools are best in the world. Our civic infrastructure is keeping up with demand. People are whining about comparitively small issues like potholes and want to shutdown an industry so that we can fill a few potholes. This suggests a lack of critical thinking and an inability to weigh values and priorities.
There is fear, Snowrunner. You are happy about it. I am not happy about it because my taxes are not dropping, nor is my paycheck rising nor is my retirement fund growing because of naivists like you.
Posted by: Epsilon | 2007-10-30 1:37:02 PM
I'm all for the separation of oil and state.
Let the oil companies do what they do best, discover and develop Alberta's natural resources.
Let our elected representatives decide what our infrastructure needs are, based on dialogue with citizens.
Steady Eddie knows who he answers to ... the people of Alberta.
That's much different than the Oilgarchy under Ralph, where the needs of the oil companies took priority over infrastructure needs.
At least, that's what auditor general Fred Dunn has been saying since 2004. Last I checked, Dunn was anything bur a raving marxist.
Posted by: set you free | 2007-10-30 1:48:44 PM
Companies - big or small - do not pay taxes. The consumer and shareholders pay taxes. Except for many loser Dippers, most Canadians are shareholders, either directly or through their pension plans.
Posted by: obc | 2007-10-30 2:15:10 PM
Epsi You're joking right?
"Our hospitals are best in Canada. Our schools are best in the world. Our civic infrastructure is keeping up with demand"
...i take it you haven't been to Emerg for a while eh? Needed a hip operation?
Haven't seen school ceilings leak or old 1990's circa books?
Driven on 17th ave and Blackfoot any time of the day?
Sorry, we're playing catchup any way you look at it.
Just plain math. Increasing population, blow up a hospital.
Replace it with?
Posted by: tomax7 | 2007-10-30 2:17:17 PM
Alberta has the best health care and schools in Canada. it's not perfect and never will be. But it is serving the needs of the population at a level that is better than anywhere else in Canada.
The traffic is better than comparitive situations in Vancouver or Toronto.
So let's play catch up in areas we are behind but that is no excuse to tax the life out of small oil companies.
Leaky roofs and old school books are small problems. These can be managed. Don't make these seem bigger than they really are.
Maybe if you would get up and go to work earlier, you could beat the traffic. That's what I do. Stop sleeping in and then complaining about traffic and sticking me with a tax bill because you are too lazy to get up in the morning!
Look at the situation realistically and comparitively. The tone of your post indicated that you are reating emotionally not logically. This has resulted in an emotional-political decision by Ache Stomach that has damaged Alberta's industry and reputation.
If you think we have it too rough here, I suggest that you move to Columbia or Africa along with Snowrunner.
Posted by: Epsilon | 2007-10-30 2:42:12 PM
Ya Epsi, the lazy people who cannot get up early and beat the traffic, have no right to complain.
Having said that, Tomax is a good-guy, and there is nothing wrong with legitimate criticism, as long as it is kept in pespective.
Talking about schools in Africa--you know one of the strangest things about some of the schools in Africa, is that some that are so very very poor, do a much better job at educating their students than some of the very wealthy in Africa.
Money can buy you a building, pay salaries, but after all is said and done, education does not happen if students are not there to learn, and if teachers are there for their own self-interest.
Even hospitals can only go so far.
I heard a story from a woman who had been in China, back when there were very few Drs or hospitals. She said that she lived in a place, and knew a family who farmed. They had one child--a boy--and one day they were out doing whatever it is they did, and the boy had an accident with one of the tools. He basically dissenboweled himself. Well, the father was not there--the grandfather was. He repacked the bowels--that had fallen into the manure covered earth, back into the boy. He carried the boy miles, to the closest Dr. The Dr took one look and said he would have to removed the bowels before stiching the boy up--to clean the mess. The granfather said to the Dr, that there was no way he was going to permit that--because it simply took too long to get everything back in--so the Dr had no choice but to clean what he could see, and stich up what he could.
The boy lived, grew up, and was as successful as the rest. This was before the revolution apparently.
So, we have what we have, and we get what we get, with what we plan and pay for. Alberta has gone through some massive growth--and there are guge issues--yet these issues are logistic in nature. The growth has exceeded the ability to react and develope. What I am surprised about is that they have not done what they could do to bring in more temporary housing, to take care of the workers, who need roof and bed, so they can get a move-on and build more permanent housing that people can buy. The upward pressure on housing prices is insane. Alberta currently has the highest rate of inflation--since I last checked.
Posted by: Lady | 2007-10-30 2:58:40 PM
I had a really shitty school life in Glasgow. Schools essentially were useless baby sitting services for a population rendered emotionally sterile by misguided socialist governments to help us poor "disadvanteged" types.
Thanks to no one but me, I now hold graduate degrees in science.
Personal Discipline + Books (or internet) = Education
There is no need for a lot of meney to be spent in education.
Posted by: Epsilon | 2007-10-30 3:04:26 PM
...and Tomax deserves a spanking on this one!
Posted by: Epsilon | 2007-10-30 3:05:46 PM
More money in the hands of the Alberta government when its already running a huge surplus will ensure that that money won't be spent with any discrimination. After Peter Litmus (went in blue, turned pink) did the same thing to the oil patch 35 years ago, eventually handing the mess to the football player who took too many hits without a helmet, the result was over-expansion of facilities to the point where operating budgets couldn't expand enough to catch up to the infrastructure (remember all the Hospital closures). Alberta is already the highest per-capita spender in Canada.
When Oil falls to $45.00 per barrel, you don't want to be among the last to buy a house in Calgary.
Posted by: John Chittick | 2007-10-30 3:16:42 PM
I agree with John that by the Stelmach gov't. taking more money from the oil companies it will just go into that huge pot and result in higher spending. What Alberta needs is smarter spending. I don't believe for one minute that Stelmach will actually use the extra oil money to do any good with infrastructure etc.
However, better in the Alta. gov't pockets than the oil companies. (Even if that means that they don't get their 9 billion dollar profits next year, and instead only make it to 8 1/2 bil.
Posted by: MarkAlta | 2007-10-30 4:07:47 PM
I'd like to make a point that has not been touched on here. Much has been said about 'big oil' moving out of Alberta. Here's the thing. The oil must come from somewhere. You can still find oil in Africa, the middle east, the north sea, the gulf of mexico. But production is declining in all of these areas as the fields mature. The same thing is happenning in Alberta's convential oil fields. In fact, Alberta's conventional oil fields would have been considered mature when they were first discovered by middle eastern standards. The truth is that the world is running out of oil. As demand for oil continues to increase, 'big oil' will find and produce it wherever it can. Anyone who has been watching knows that oil prices have been rising the last few weeks and are now at record highs. This is the season when oil prices normally fall as the summer driving season ends. Of course, there any number of factors that affect the price of oil. But the most important factor is supply vs demand. Global oil production is flat or declining. Demand continues to increase at a fairly steady rate. As long as these trends continue, oil prices will continue to rise. So if there is a bust in Alberta's economy now because of the new royalty structure, it will be a short one. Because the oil has to come from somewhere. And a final thought about the state of Alberta's economy. I heard that Encana would cut $1b from its operating budget in 2008 if the royalty review was fully implemented. However, I did not hear that Royal Dutch Shell would stop any of their $27b oil sands investments, regardless of the royalty review. Sometimes one needs to put these things into perspective.
Posted by: spike | 2007-10-30 5:28:36 PM
...hey i'm back, was looking for Marc ;-)
So Epsi, I need to get up early eh? You know what time I get up in the mornings! I thought I saw someone peeking in my windows at 5am...I drive to Red Deer College every day and back so how much earlier do I need to get up?
Why are we even talking about get up earlier, oh yeah - traffic problems. Right, ignore the problem.
Comparing us with Africa? Sure, there are also starving children in Bongo Bongo, and maybe a little about the poor cows dying in India - let's throw them, but what's that got to do with Alberta?
Point being, yes we have a great province, but sadly it has not reached its potential. It hasn't reached it potential because people didn't raise enough awareness something isn't clicking.
Yes there are waiting lines in Emergency, did you read that part, "Emergency". I'll say is slowly E-m-e-r-g-e-n-c-y. Does the Emergency word imply 4-6 hour waiting time? I'm missing something.
Yes there are leaky schools - this isn't a small thing.
Maybe compared to the planet Uranus, but otherwise it is a big issue. You know, dampness, mold, related health issues, sick kids, then waiting in Delayed Emergency - oh I already mentioned that.
Traffic better then Vancouver or Toronto? Oh really? What was the population of Toronto again? What was the population of Vancouver again? Compare Calgary to those centres? Wow.
Epsi, you gotta admit your sedatives are past due on this one. Alberta could have been a better place if the leadership did its job.
Maybe than bring light to our issues, some would rather get up earlier and call others lazy then tackle the problem head on.
Pretty simple. Not critical, just plain simple.
Posted by: tomax7 | 2007-10-30 5:30:39 PM
"...and Tomax deserves a spanking on this one!"
OOooooOOOoo spank me! spank me!
Ah wait, you're a guy right?
Umm, never mind.
Posted by: tomax7 | 2007-10-30 5:34:00 PM
Encana is a whiner as far as I'm concerned. I think they were cutting to start with and used this as a smoke screen.
The industry was slowing down last year, not due to the royalty report but because wages are so high, work force is so low, something has to give.
Posted by: tomax7 | 2007-10-30 5:37:10 PM
Yes we have public buildings in disrepair but is that the fault of government neglecting those buildings. School boards and other public institutions need to amortise as do private businesses. Income tax structure takes into account depreciation and money is set aside to fix or replace buildings as necessary. I don't think that this happens with public buildings in Alberta. When schools are in bad enough repair we hear the school boards whining for government to come in with the funds necessary to bring them up to grade. These sorts of things are rife here and need to be addressed.
Posted by: DML | 2007-10-30 6:12:44 PM
Check the numbers. The number of wells drilled last year was down from the year before by a much higher percentage than the projected decrease for next year.
You're right tomax, it's just another smokescreen. Encana has always been a drama queen.
Even before they were Encana. Lower gas prices are really driving the slowdown.
Posted by: dph | 2007-10-30 6:18:33 PM
"Alberta has the best health care and schools in Canada. it's not perfect and never will be. But it is serving the needs of the population at a level that is better than anywhere else in Canada."
However, BC has the healthiest population and that's better.
Alberta has the most trucks though.
But Ontario has the most screwed up people. (Too much multiculturalism will do that to ya)
The Maritimes have the most inbred people and work less than any other region of Canada.
Saskatchewan has the most potential.
Manitoba is basically screwed with too many Indians and commies.
Quebec is probably the best province, they get money in the mail, don't work too hard, know how to party and eat well, apparently don't plan to take any shit whatsoever from the Muslims (I love that about them) and they have a good sense of who they are. They don't ever even have to say "at least we aren't Americans". In fact I believe Quebecers for the most part, actually like Americans. Certainly more than they like the Ontarioyoyos.
I guess that sums up our fabulous country.
Newfoundland isn't actually part of Canada, but the people rock! Maybe that's why they call it the Rock.
Posted by: John | 2007-10-30 9:49:27 PM
BC has an alarming number of serial killers. I know that statistically it isn't a big threat, but it's kind of a turnoff. I grew up in the maritimes. You're right, they're inbred. I left alone and married a squarehead, problem solved.
Posted by: dph | 2007-10-30 10:04:19 PM
Hee hee, good insight Tomax!
Truth be known my boyfriend and I post using the same handle. I will leave it to you to decide from whom you'd rather receive a spanking!
Posted by: Epsilon | 2007-10-31 11:54:33 AM
Time and again it's been proved that when you lower taxes, you increase revenue. The corollary to that is that when you increase taxes, expect revenues to fall. So the hike in royalties is fine with me; the last thing I want is for the government to be swimming in even MORE cash.
In general you tax what you want less of. Increased taxes on the oil patch will definitely slow down development. Not many people I know are against that, to tell you the truth. Inflation in Alberta is really out of hand.
Growth is fine, but let's get realistic. I think Stelmach knows exactly what he's doing here. If some businesses on the margin are affected, that's a shame, but it's not the government's job to prop up marginal enterprises.
This is just like when the Bank of Canada hikes interest rates.
As for businesses leaving for Columbia, leave room in your luggage for body armour.
Posted by: Norman | 2007-10-31 4:38:35 PM
Norman - Time and again it's been proved that when you lower taxes, you increase revenue
True to a point. If you reduced taxes to 0 you would generate no revenue. Recent studies have indicated that in the US they are getting close to the point where tax cuts wouldn't generate higher revenue.
Posted by: O'REILLY | 2007-10-31 6:49:49 PM
"Recent studies have indicated that in the US they are getting close to the point where tax cuts wouldn't generate higher revenue."
So what do the DemoRats propose? Trillions MORE in taxes instead, a la Charlie Rangel's new proposal this week. Since more tax cuts will hurt the economy (the Republicans have NOT called for more tax cuts - just maintaining the present tax level), let's RAISE taxes instead - say the DemoRats.
That makes a lot of sense! (sarcasm)
Posted by: obc | 2007-10-31 6:56:19 PM
obc - So what do the DemoRats propose? Trillions MORE in taxes instead, a la Charlie Rangel's new proposal this week.
The one thing (maybe the only thing) that is of some benefit is reform of the AMT which is being used to tax people it was never intended for.
Posted by: O'REILLY | 2007-10-31 8:20:07 PM
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