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Advocates of windfall tax on oil and gas sector can now point to EU for inspiration

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By Nojoud Al Mallees in Ottawa

Proponents of imposing a windfall tax on the Canadian oil and gas industry now have another global power setting precedent for the policy.

On Wednesday, the European Commission proposed levying such a tax on the energy sector and redirecting funds to households and businesses struggling with high inflation. It estimates the policy would bring in 140 million euros (around $186 million) in revenue.

The European Union is not the only jurisdiction to pursue an extra tax on the energy sector. Earlier this year, the United Kingdom imposed a windfall tax on oil and gas producers. Since then, however, new Prime Minister Liz Truss has come out against the policy and indicated she would not bring in any new windfall taxes.

Progressives in the United States have also campaigned for a windfall tax on oil and gas companies amid rising inflation.

The global push for windfall taxes comes as some corporations, especially those in the oil and gas sector, have posted record profits since the onset of the COVID-19 pandemic.

In Canada, the latest quarterly report on gross domestic product from Statistics Canada says non-financial corporations have benefited from strong energy prices. According to the federal agency, dividends paid out by such corporations were up 9.1 per cent in the second quarter of 2022. Meanwhile, worker compensation in Canada rose two per cent.

Senior economist David Macdonald of the Canadian Centre for Policy Alternatives recently looked at just how much gross domestic product is accounted for by corporate profits. His analysis found that after-tax corporate profits reached a historically high percentage of the total Canadian economy output in the second quarter of this year.

In contrast, Macdonald found workers’ compensation as a share of gross domestic product fell to the lowest level since 2006. “The inflationary period has been a tremendously good period for corporate profits, less so for workers’ wages.”

Macdonald supports imposing windfall taxes to address this trend.

The NDP has been calling on the federal government to extend the windfall tax levied on financial institutions earlier this year to the oil and gas sector as well as big box stores. The party has argued the funds raised from extending the windfall tax could be used to send more money to low- and modest-income families struggling with high inflation.

On the latter proposal, the NDP posted a win when the Liberals announced on Tuesday they would double the GST rebate for six months. As for extending the windfall tax, NDP finance critic Daniel Blaikie said he’s received no indication from Finance Minister Chrystia Freeland that it was on the table.

“We are going to continue to push on these things,” Blaikie said. “And I think the announcement about the GST rebate is cause for some optimism that even when the government gets it wrong out of the gate that we can make them change course.”

The Finance Department declined to comment on whether it is considering extending the windfall tax policy.

Many economists oppose windfall taxes over concerns they can discourage business investment.

Michael Smart, an economics professor at the University of Toronto and co-director of the Finances of the Nation project, said the EU’s pursuit of a windfall tax reflects a unique situation in that region, with energy prices having shot up dramatically.

“We don’t face quite the same situation here,” Smart said, adding that windfall taxes are difficult to implement and should be seldom used.

“I don’t think it’s warranted (here).”

Mostafa Askari, chief economist at the Institute of Fiscal Studies and Democracy, said if the government were to pursue a windfall tax, it would first have to decide its intended purpose.

“Targeting (the) energy sector, to me, it’s somewhat odd, unless there is a desperate need for extra funding for the government,” he said.

Given government revenues have been up because of high inflation, Askari said the case for extra funding isn’t there. The other concern, he said, is oil and gas companies might be able to pass on these additional taxes to consumers through higher prices.

However, despite disagreement among economists on the policy, polling suggests the overwhelming majority of Canadians support a tax on businesses whose profits were extraordinarily high during the pandemic. A poll conducted by Abacus Data on behalf of the Broadbent Institute and the Professional Institute for the Public Service of Canada in July 2021 found 87 per cent of Canadians were in favour of the policy.

The survey was conducted online with 1,500 Canadian adults from July 13 to 19, 2021. It cannot be assigned a margin of error because online polls are not considered truly random samples.

Blaikie said the NDP is relying on public support to convince the Liberals on the policy.

“I think the more Canadians that are out there calling for these kinds of measures alongside us in the NDP, the more likely we are to see a positive result.”

This report by The Canadian Press was first published Sept. 18, 2022.

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U.S. senators call for trade crackdown on Canada over dairy quotas, digital policies

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WASHINGTON — A pair of senior U.S. senators is urging the Biden administration to get tough with Canada for “flouting” obligations to its North American trade partners. 

Democrat Sen. Ron Wyden of Oregon and Republican Sen. Mike Crapo lay out their concerns in a letter to U.S. Trade Representative Katherine Tai. 

The letter says American dairy producers still aren’t getting the access to the Canadian market they’re entitled to under the U.S.-Mexico-Canada Agreement. 

It also describes Canada’s planned digital services tax as discriminatory and raises similar concerns about new legislation to regulate online streaming and news. 

All three, the senators say, would give preferential treatment to Canadian content and deny U.S. tech companies fair access to the market north of the border. 

The letter comes after meetings this week in San Diego between U.S., Canadian and Mexican trade emissaries, as well as the North American Leaders’ Summit in Mexico City earlier this month. 

The USMCA, referred to in Canada as CUSMA, has been at the centre of a number of bilateral and trilateral disputes since it went into effect in the summer of 2020. 

“Three years later, it is disappointing that Canada and Mexico have failed to come into full compliance with the agreement — and, in some cases, have flouted their obligations,” the senators write. 

“USTR must take decisive action to ensure full compliance with the agreement and with dispute settlement panel findings. It is critical to ensure that every chapter of USMCA is fully and timely enforced.”

Canada and Mexico have their own issues with how the U.S. is interpreting the deal, which was signed in 2018 after protracted trilateral efforts to replace NAFTA. 

As the Mexico City summit wrapped up, a dispute panel ruled against the U.S. over how it interprets the rules that determine the origin of core automotive components. 

It remains unclear whether the U.S. plans to comply with that decision.   

This report by The Canadian Press was first published Jan. 27, 2023. 

The Canadian Press

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Alberta

TotalEnergies EP Canada ups stake in Fort Hills oilsands project

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Calgary – TotalEnergies EP Canada Ltd. says it is increasing its ownership in the Fort Hills oilsands project by acquiring part of Teck Resources Ltd.’s stake in the mine.

Teck announced last year that it would sell its 21.3 per cent stake in Fort Hills to Suncor Energy Inc., the third partner in the project, for about $1 billion.

However, TotalEnergies EP Canada says it has exercised its pre-emption right to acquire an additional 6.65 per cent in the project from Teck for $312 million.

The deal brings the company’s stake in Fort Hills to 31.23 per cent. Suncor will own the rest.

French company TotalEnergies announced in September 2022 its plan to exit the Canadian oilsands by spinning off TotalEnergies EP Canada in 2023.

It says the acquisition of an additional interest in Fort Hills helps build TotalEnergies EP Canada for the future.

This report by The Canadian Press was first published Jan. 27, 2023.

Companies in this story: (TSX:TECK.B, TSX:SU)

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