Lakeland — The makings of an initial plan to throw a tax lifeline to Alberta's slumping energy industry while still maintaining tax needs for Alberta municipalities was unveiled by Municipal Affairs Minister Tracy Allard today. The new plan will introduce a tax exemption for new wells and pipelines from 2022 to 2024, and reduce property assessments for troubled companies.
"To keep less productive oil and gas fields viable across the province, we will be lowering their assessments," said Allard at a virtual news conference joined by the Rural Municipalities Association and the Canadian Association of Petroleum Producers.
The tax break is intended to “attract investment and create good jobs,” said Allard — but it’s only temporary. A long-term review of assessment models will be finalized over the three years.
“Our plan is intended to draw investment into the energy industry here in Alberta and help create and sustain jobs,” the Municipal Affairs minister said.
The new outline for the plan comes after Allard 'paused' an initial model review to address the tax revenue versus tax expense debate that has been brewing between industry and municipal tax collectors for years. The earlier plan included four possible formulas that could have seen municipalities losing between seven and 20 percent of incoming tax revenues. That plan was met with a wave of opposition from municipal leaders, many who even organized a protest on the steps of the Alberta Legislature.
RELATED: Municipalities fear millions in tax losses with assessment change
In the outline for the new plan — which has yet to see a lot of specifics — Allard estimated that on average, municipalities will lose about three per cent of their tax base, as opposed to the 7-20 per cent IRMA predicted with the initial review. That amounts to $7 million total, Allard estimated in a separate press conference with rural media outlets.
The new plan will also see the provincial government scrapping the well drilling equipment tax for new drills. The new measures come into effect in 2021 — new wells, shallow gas wells and the unproductive ones will see the changes on their 2021 assessment for the 2022 tax year.
RELATED: Bonnyville area reacts to initial plans
Al Kemmere, president of the Rural Municipalities of Alberta, said that the association is willing to support “what appears to be a middle of the road approach on this” even though municipalities will still lose money. Kemmere said he was only informed of the Monday news conference the Friday before.
“I haven’t had a great opportunity to fully address the impacts and dig into them deeply, but I am taking the word and the very high level assessment that this is nowhere near what we were looking at under the assessment model review going forward, and that’s why it is much easier to work with and to take as a first step in this process.”
Kemmere said that while municipalities weren’t involved in crafting the “wording of this solution,” RMA was “part of informing the minister as to the challenges that are taking place” during Allard’s tour of rural Alberta over the summer.
Savings mean investments, say industry reps
On the oil side, both Tim McMillan, president of the Canadian Association of Petroleum Producers, and Tristan Goodman, president of the Explorers and Producers Association of Canada, say these changes will mean more competitiveness and future investments.
McMillan added that the four proposals in the initial review were “correcting” what he called inaccurate assessment values for oil and gas properties. He said the announcement doesn’t amount to tax breaks, even though Allard called it a three-year “tax holiday.”
“In fact, this is an interim measure as we’re working to correct a broader system issue that has built up over a long period of time,” he said.
There are challenges to the promise that these tax breaks will eventually lead to a stronger economy and more jobs since forecasts indicate lower oil demand globally for the next five years. However, Allard doesn’t believe that the industry “is a thing of the past.”
Reviewing the review
The four options that came out of the initial review — all of which would have reduced the assessed value of oil and gas property, thus the taxes they pay — aren’t off the table completely. Instead, they’ll be reviewed over the course of three years.
“I felt that these measures were too abrupt,” said Allard. “I feel that this three-year window was really solving for viability.” Changes to assessments will still happen at some point after.
During this second review of the review, Allard promised unpaid taxes will be on the table too. Kemmere stressed that over the last three years, this has been the biggest challenge for RMA members.“We’ve seen $81 million two years ago, $173 million last year of unpaid taxes, and if we don’t fix that in the near future, all these modifications are going to be for naught because it is going to leave my member municipalities without that ability to make sure that the tax collection is treated the same way as every other taxpayer,” said Kemmere.
This includes the education property tax requisitions, since municipalities can’t collect them from oil and gas producers that don’t pay their taxes, but they do have to pay them up to the province.
For Kemmere, legislative or regulatory changes are necessary to “fill the loophole.”
“It’s not all the players in the industry, but it is enough that it is $173 million last year and a good percentage of that were just people who chose not to pay their taxes, rather than bankruptcies,” said Kemmere.Both McMillan and Goodman agreed it’s a problem, but the CAPP president thinks it’s not as big of an issue as Kemmere argued.
“I would take some exception with the numbers that have been put forward. We have done a similar search on the numbers. It is a very small percentage of taxes which go unpaid,” said McMillan, but added that “there’s some legitimate concerns about the mechanisms that municipalities have to rectify those unpaid taxes.”
