CAPP study: Canadian governments cashing in on resource royalties

By the OGJ Online Staff

CALGARY, Apr. 26 -- Canadian governments are cashing in on resource royalties from high commodity prices, which have also boosted oil patch earnings, the Canadian Association of Petroleum Producers reported.

A study commissioned for CAPP said tax and royalty revenues for the federal government and provincial governments, such as Alberta, will be an estimated $60.5 billion (Can.) for 2000-2003. That is 16% more than governments collected in the past decade.

The report, prepared by ARC Financial Corp., a Calgary-based research firm, estimated oil and gas companies will pay $2.2 billion in federal taxes for 2000, reaching $2.8 billion in 2001, $4.8 billion in 2002, and declining to $3.2 billion in 2003. Federal taxes were $800 million in 1999.

CAPP warned high tax levels could divert capital from the oil patch and slow development of oil and gas resources.

Ottawa's share of the industry's taxes is expected to increase to 67% from an average 60% in the 1990s. The study allows for some reduction in commodity prices from current high levels.

CAPP, which represents a majority of Canadian oil companies, has been lobbying Ottawa for tax cuts that have been granted to other industries. It said the oil patch is uncompetitive relative to other industries and to other oil-producing regions in the world.

Ottawa said in 2000 it would reduce corporate taxes to 21% from 28% for all sectors except resources. It said the industry already pays an effective rate of 21% because of other existing deductions.

CAPP Pres. Pierre Alvarez said the industry must demonstrate adequate financial performance if it is to remain viable.

"Although we recognize that we operate in a world of cyclic oil and natural gas prices, if our relative financial performance is not competitive, investors will divert their capital dollars to other Canadian industries or to other regions of the world. This could slow down the development of new, much needed supplies of oil and gas," Alvarez said.

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