Brian Zinchuk is editor and owner of Pipeline Online
NDP Finance Critic Trent Wotherspoon on May 3.
REGINA –In a move reminiscent of Alberta’s “Ralph Bucks” in 2006, the Saskatchewan NDP are calling on the Saskatchewan Party government to increase the Saskatchewan resource surcharge during the current “windfall” of resource revenue and write $125 million in cheques to Saskatchewan people to assist them in dealing with rising costs. The NDP also propose using a further $125 million from this increase to invest in “the generational challenge in health care” and into a fund for energy-efficiency building retrofits.
In a legislative session that is nearing its end, the proposal led to one of the few times the Official Opposition New Democratic Party has focused on energy issues in question period in this session.
Ralph Bucks were brought in by then-Alberta Premier Ralph Klein at a time when that province had paid off its debt, had zero deficit, was in surplus by $8.7 billon. None of these are the case with Saskatchewan today, which is still in deficit, and has built up substantial debt since the oil downturn that began in in late 2014. That debt and deficit were greatly exacerbated by the COVID-19 pandemic.
The hole in the province’s finances, especially in the early years of the downturn, almost exactly reflected the drop in provincial resource revenue, especially oil, post-2014.
NDP Finance Critic Trent Wotherspoon proposed a one per cent increase of the provincial resource surcharge for oil and potash producers, contingent on high commodity prices. For oil, it would be triggered when WTI oil price exceeds US$90 per barrel, and/or when potash exceeds C$700 per tonne of K2O.
The tax the NDP are proposing to increase is likely little known. The Government of Saskatchewan website describes it like this:
“For resource corporations, the Resource Surcharge rate is 3.0 per cent of the value of sales of all potash, uranium, and coal produced in Saskatchewan, and oil and natural gas produced from wells drilled in Saskatchewan prior to October 1, 2002.
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“For oil and natural gas produced from wells drilled in Saskatchewan after September 30, 2002, the Resource Surcharge rate is 1.7 per cent of the value of sales. The Resource Surcharge applies to resource trusts in addition to resource corporations.”
For oil wells, their first few months and years onstream result in the vast majority of their ultimate production. By the time they are 20 years old, natural production declines have whittled their flows to next to nothing – often “stripper” status, unless enhanced oil recovery like carbon dioxide flood is in place. This would effectively mean most oil production that is covered under this tax are currently at surcharged at the 1.7 per cent level.
While the NDP are proposing increasing that 1.7 per cent to 2.7 per cent, the “one per cent increase” would in fact result in an increase of 58 per cent in revenue collected under this particular tax. For the oil that is produced under the 3 per cent regime, for wells over 20 years old, it would mean an increase of 33 per cent. The same would go for potash.
According to the provincial government, all potash sales are subject to the three per cent surcharge, regardless of when the mine was built. There is no dividing line for date, as there is for oil production.
The net effect of a one per cent increase would be a $250 million increase in provincial revenue, according to Wotherspoon.
He spoke to Pipeline Online about their proposal by phone on May 3.
Wotherspoon clarified this would not be an increase on royalties, but the resource surcharge. He said, “We’re calling for a mechanism to capture windfall profits and just a fair way. And we’re calling for that to be increased by one per cent when oil exceeds $90 a barrel and make sure that the owners of the resource are receiving a fair return on windfall profits while ensuring, of course, that this very important sector remains highly profitable and ensures its strength.”
Asked if they were essentially calling for Ralph Bucks, Wotherspoon said, “We’re calling for a portion of the dollars and, of course, a modest one per cent increase to capture windfall profits which would provide, on the two sectors, about $250 million a year. We’re calling for a portion of those dollars to provide immediate cost of living relief to Saskatchewan people. The reality is we’re facing an unprecedented situation and extraordinary challenge for Saskatchewan people in these industries as a result of the unforgivable invasion in Ukraine.
He continued, “These strong the industries that were experiencing strengthening prices, strong prices have now gone sky-high and, you know, we want these industries to be highly profitable. But the owners of the resource, who are experiencing sky high cost of living, $1.70 at the pumps, breaking the bank just to fill tanks, deserve some relief.”
He said the NDP was calling on recent expansion of the PST to gyms and entertainment venues to be scrapped.
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Pressed on how this proposal is similar to Ralph Bucks, Wotherspoon said, “I’m not going to line it up as a comparison to any other provinces. We face a historic situation. Saskatchewan people are the owners of the resource. These industries are important. We’re going to work to ensure their continued strength and profitability, but a fair return to the owners of the resource by way of a dividend is a meaningful thing.”
He said the NDP have been calling for a fuel tax rebate, something other provinces have done in response to high gasoline prices. “The government was suggesting they just didn’t have the dollars to make that happen, despite the fact that their revenues frankly are soaring.”
Asked if perhaps the federal carbon tax should be lowered instead, to provide relief for fuel prices, Wotherspoon said, “We’ve shared the same view as the provincial government that now wasn’t the time to increase it. We made that clear and we were off the same message on that front.”
Not touching resources?
Going back to the years of the Lorne Calvert NDP government, the longstanding policy of governments of both stripes has been “We’re not touching resource royalties, period.” Asked if this proposal abandons that, and could lead to a blowback such as the Alberta Conservative government under Ed Stelmach experience when it adjusted royalties to cash in on a windfall, Wotherspoon replied, “The situation here, where we’re seeing a modest increase, very modest increase, when these industries are a very serious windfall, due to the extraordinary situation, the unforgivable invasion of Ukraine.
“(It) is incredibly reasonable and it’s about ensuring a fair return to Saskatchewan people. Economically, this will keep us strong. This will keep us competitive. It’ll keep these industries highly profitable. And these are very important industries to the province of Saskatchewan, but the government’s job is to respond to the realities that we face and in these unprecedented times, this is an important, modest measure to ensure fairness for Saskatchewan people, while ensuring strength in these very important economic sectors.”
In speaking to reporters on May 2, Wotherspoon pointed out oil companies has seen earnings go up 400 to 500 per cent, but he did not point out that was coming from a prior year of very low, if any profitability for the oil industry during the pandemic.
He said, “From what they were a year ago, massive windfall profits, in many cases, they’re delivering those dollars with serious increases to their dividends to their stock, those that their shareholders those that don’t own stock, and that’s just fine. That’s how markets work.”
Wider debate
The NDP proposal was the subject of debate several times on May 2 and 3, with Wotherspoon, NDP Leader Ryan Meili, Premier Scott Moe and Energy and Resources Minister Bronwyn Eyre taking part.
Responding to Wotherspoon on May 2, Eyre said, “It’s almost unbelievable to get a lesson from that side on basic economics. They called the economy embarrassing spin. I mean, when you look at basic market international forces, obviously creating a climate is what is important, a climate for affordability. And among the best ways to address affordability is putting in place basic structures that create jobs.
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“The first crack in the armour is the resource surcharge. We know where that is going. Wolf, sheep’s clothing come to mind. Mr. Speaker, the member for Regina Lakeview (Wotherspoon) has suddenly discovered that energy workers have feelings too, that they have gone through challenges. No guff. And yet they come out with a resource surcharge first chance they get.
“She’d better take up her new-found positions with the member for Regina Elphinstone (Meara Conway), who loves production caps; with the member for Saskatoon Nutana (Erika Ritchie), who said that green transition is incredibly important, sooner rather than later. Four hundred and fifty thousand energy jobs in this country would immediately be put under threat. Not without irony: coming to oil and on the other hand going after it guns blazing.”
Eyre accused the provincial NDP of “Agreeing with their new federal NDP-Liberal coalition masters is what they’re doing: keep the oil in the ground; no position on Bill C-69; carbon tax, a pointless crusade; no position on the federal clean fuels standard; kill Northern Gateway; kill TMX (Trans Mountain Expansion); cheer the laying off of energy workers; parrot that energy companies want hard production caps. That is what they’re about. And they’ve just shown it one more time today.”
In an email to Pipeline Online, Eyre added, “Saskatchewan is known for its stable, consistent royalty and tax structure. This proposal by the NDP puts that in direct jeopardy.
“In addition, the royalty and tax structure (including the resource surcharge) is already price-sensitive. When commodity prices are high, the contribution through royalties and the surcharge are also high.”
NDP Leader Ryan Meili on May 3.
Leadership round
The proposal by the NDP and the subsequent debate was one of the few times during this legislative session that the NDP asked about energy resources. In question period on May 3, Meili said to Moe, “There is a bright spot in the Saskatchewan economy, and we all know it is the rising resource prices in potash and oil and gas that should benefit all Saskatchewan people.
“Yesterday my colleague pitched a simple, straightforward plan that would help relieve the incredible cost-of-living pressures that Saskatchewan people, Saskatchewan families are facing today. Immediately scrapping the PST expansion; getting Saskatchewan people a direct rebate now; and investing in the future, in health, in a sustainable economic growth — these are measures that would help today and help stimulate this Premier’s failing economy. And it simply requires booming resource industries to contribute a little bit more of these windfall profits to the owners of the resources rather than shareholders at a time when profits are three, four, five times what they were last year.
“Surely the Premier can agree, when the resources we all own are being sold at record profit, it only makes sense to share that wealth with Saskatchewan people. The Premier has a chance to make a difference. Will he do that today, or does he just not care?”
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Moe replied, “I watched with interest yesterday as the Leader of the Opposition and his Finance critic walked out … and put forward another tax hike on industries in Saskatchewan, industries that are creating jobs for people in this province and industries that we are working very hard to ensure that we can continue to attract their investment into this province to create more jobs into the future.
“With respect to the question … we had one of the representatives here yesterday from Whitecap. I don’t know if the members opposite had the opportunity to run their plan by that member to consult with the industry before coming forward with their plan, but maybe the Leader of the Opposition or the other members that have so much to say, would like to ask the finance critic, in his meeting last week with the Saskatchewan Mining Association, did he bring up the fact that in a debate during the last election he said they weren’t interested in royalty reviews? They weren’t interested in increasing royalty rates here in the province. Did he mention that to the Saskatchewan Mining Association when he met with them last week, or the members from Whitecap that were here? The fact of the matter is that production is up, values are up. We’re not going to make changes before the budget’s even voted off in this House to what we are going to do with Saskatchewan-owned resources.”
Going one more round, Meili asked, “Our plan asks these industries for a modest increase, a very reasonable one per cent triggered only, only when resource prices are through the roof like they are today. And we heard the over the-top rhetoric from the minister yesterday, but that hyperbole is pure hypocrisy. It’s the same minister, the same minister that blindsided the potash industry with an added $117 million take at a time when prices were only a fraction of what they are today.
“To the Premier: instead of rejecting this very sensible measure, instead of missing every opportunity to reduce costs for Saskatchewan people, will he work for them? Will he ask those industries, those with the most, those who are profiting wildly right now from high resource prices, to help out just a little bit with those who are paying a fortune at the pumps?”
Premier Scott Moe tries to cover up cracking up as he comments about “teeny weeny” tax increases, alluding to a campaign promise by Prime Minister Justin Trudeau. To the right of him is Minister of Energy and Resources Bronwyn Eyre.
Moe just about cracked up laughing in his response as he said, “A number of years ago there was a federal election campaign and there was one leader that stood up, one leader that stood up and said, we aren’t going to raise taxes; we’re just going to raise them a little bit, just a teeny weeny, teeny-weeny little bit. And look what’s happened in this nation. We have carbon taxes supported by the NDP.
“Time and time again we see, we see leaders stand up and say they’re going to make just a teeny-weeny little increase in taxes. Give an inch, the NDP for sure will take a mile. Don’t give them the opportunity at all. They’ll join with the federal Liberals; raise taxes; raise the cost of living; print money; loan money; do whatever they can to essentially destroy the Canadian economy. We aren’t going to have any of it on this side, Mr. Speaker.
“We’re going to continue to work with the industries that are creating jobs, creating opportunity for Saskatchewan people. And we will always, always stand up for the people that we represent in this province.”
Do you want to know what’s really going on in the Saskatchewan energy sector? Do you like the in-depth stories like this, that you won’t find anywhere else? Follow Pipeline Online on LinkedIn, Twitter or Facebook.
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