Internal report in 2010 warned of fiscal consequences from royalty cut

Edmonton – Recently uncovered internal reports show that the Government of Alberta had long predicted this year’s deficits and budget cuts.

The confidential draft document “Energizing Investment Phase 2: Royalty Curves and Adjustments,” shows the government projected a 2012/2013 surplus of $505 million in 2012/2013 without the reductions to royalty rates for unconventional oil and gas production, or a $142 million deficit if the rates were reduced.

On May 27, two days after this document was created, the government went ahead with the royalty reductions.

“They’ve been acting like this year’s deficit came as some kind of surprise to them, and they’ve tried to point fingers at bitumen prices,” Alberta Federation of Labour president Gil McGowan said. “But the deficit was predictable, and was predicted in this report to the minister. Royalty reductions were to blame, and were blamed in this report.”

The document projects that those royalty reductions will have larger revenue impacts in 2013/2014 and 2014/2015, though it does not show adjusted budget surpluses or deficits for those years.

“Royalty rates are part of the adult conversation Albertans need to have about revenue,” McGowan said. “Let’s start with looking at what royalty giveaways have already done to this province.”

The document goes on to show that the low rate on royalties mean that in some cases, oil and gas companies can recoup their capital costs in under a year.

“The decision to lower royalty rates in 2010 was a panic decision,” McGowan said. “And you don’t make good choices when you’re panicking. The royalty rates were unwarranted.”

AFL Backgrounder: Unconventional Royalty Breaks caused last year’s deficit confidential government documents

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MEDIA CONTACTS:

Gil McGowan, President, Alberta Federation of Labour at 780-218-9888 (cell)
Olav Rokne, AFL Communications Director at 780-289-6528 (cell) or via email orokne@afl.org.