Royalty tax credit would spur economy, manufacturers say

The provincial wing of Canada’s largest trade and industry association is recommending the Alberta government bring in a royalty tax credit to reward oil and gas companies for using Canadian manufacturers in their supply chains.

The credit would “undoubtedly impact provincial royalty revenues” but it would also attract new investment and generate more manufacturing activity, the Alberta division of Canadian Manufacturers and Exporters says in a position paper submitted to the province’s royalty review advisory panel.

“Not only will that result in more business tax revenue, but by creating high-paying jobs, will also raise personal income tax revenues,” the paper says.

Alberta Energy spokesman Chris Bourdeau said the royalty review panel headed by Dave Mowat has received the submission and looks forward to reviewing it.

David Plante, CME’s vice-president for Alberta, said a royalty tax credit could be key to diversifying the Alberta economy by encouraging more manufacturing.

“There’s tremendous opportunity there that’s being left on the table, and we believe that by working co-operatively with the owners and the developers of the resource, we could create a whole lot of wealth and jobs for Albertans, and indeed all Canadians,” Plante said Tuesday.

The paper was written by Mike Holden, CME’s director of policy and economics.

“The general gist of it is you pay less royalties if you use domestically sourced manufactured goods,” Holden said. “We want to provide incentive to source goods from domestic companies because we think that it would be a net ben- efit to the provincial economy and even to the provincial government itself.”

The CME said its intent is for a royalty tax credit that would apply only to new projects or new operational expenditures.

A CME study last year that looked at supply-chain spending in Alberta’s oilsands found that Alberta manufacturers capture 28 per cent of the direct and indirect economic spinoffs. Another 14 per cent goes to other provinces while 58 per cent goes to foreign suppliers in countries like South Korea, China and the United States. (The study didn’t look at the impacts on manufacturing of other aspects of the oil and gas industry such as drilling, refining or pipeline construction.)

The new position paper says that if Alberta’s share of oilsands supply-chain business could be boosted by 25 per cent, the province would see an additional $46 billion in new manufacturing output between now and 2030 in that part of the wider oil and gas sector.

“With resource revenues expected to be at their lowest levels in more than 15 years, it may seem like a bad time to implement a policy that will undercut those revenues even further,” the paper says.

“However, the short-term impact of a royalty tax credit program on the provincial budget will be minimal, and in the long term it could provide significant benefits.”

CME represents more than 10,000 companies, mostly small and medium-sized enterprises. Its member network accounts for about 82 per cent of Canadian manufacturing production and 90 per cent of all goods and services exports.