Business
Government Subsidies and the Oil and Gas Industry
A look at Strathcona Resources Ltd.
Does the Canadian government subsidize companies operating in our oil and gas sector? According to research by science and technology journalist Emily Chung, between $4.5 billion and $81 billion of public funds are spent each year for assistance to the industry. But Chung notes how ambiguous definitions (what exactly is a subsidy?) mean that those numbers come with serious caveats.
I thought I’d make this discussion a bit more manageable by focusing on just one industry player: Strathcona Resources Ltd.
Strathcona is big. They produce around 185,000 barrels of oil equivalent each day and the company is currently ranked 98th among publicly traded companies in Canada in terms of market cap ($5 billion) and 88th for operating margin (21.59%).
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What Is a Subsidy?
In the context of their report on the fossil fuel industry, the Department of Finance Canada asserts that “subsidies” can include:
- tax expenditures,
- grants and contributions,
- government loans or loan guarantees at favourable rates,
- resources sold by government at below-market rates
- research and development funding
- government intervention in markets to lower prices
The report defines tax expenditures as:
A type of tax measure, such as a preferential tax rate, exemption, deduction, deferral, or credit, with which the government aims to achieve public policy objectives through the tax system.
In the specific context of Strathcona, I could find no evidence that they’d received any direct public funding or “bailouts”. The government did recently announce a billion dollar partnership with the Canada Growth Fund (CGF) to build carbon capture and sequestration infrastructure, but that’s clearly an investment and not a subsidy. CGF is a Canadian arm’s-length crown corporation whose investments are managed by the Public Sector Pension Investment Board.
Strathcona’s 2023 Annual Report includes a reference to only one loan liability, but that had already been paid off and, in any case, wasn’t guaranteed by any level of government.
What Tax Benefits Does Strathcona Receive?
Many. The company’s annual report discusses its $6.1 billion “tax pool”. The pool is made up of deductions and credits that it can’t use this year, but that can be deferred for use in future years. Here’s how those break down:
The “Other Tax Deductions” item includes the Scientific Research and Experimental Development (SRED) deduction. That represents amounts spent on SRED-eligible research that companies can deduct from their payable taxes.
What Grant Funding Does Strathcona Receive?
Open Government data reports that only two federal grants were awarded to Strathcona, both in 2023. The first, worth $3.2 million, came from Natural Resources Canada as part of their Energy Innovation Program. Its purpose was development of Lindbergh Semi-Closed Cycle Flue Gas Recirculation and Carbon Capture.
The second grant was worth $12.5 million. It involved Environment and Climate Change Canada looking for an Orion Organic Rankine Cycle Waste Heat Recovery and Power Generation Project.
What Benefits Do Governments Receive From Strathcona?
Government subsidies don’t exist in a vacuum. As a rule, it’s assumed that subsidies to the private sector work as an investment whose primary payback is in profitable economic activity. Governments can also enjoy direct benefits.
In 2023, for example, Strathcona paid more than $405 million in crown royalties to provincial governments. They also spent $2.4 billion as operating expenses that included labor, energy costs, transportation, processing, and facility maintenance. Most of that money was spent in Canada.
A very rough estimate would suggest that total annual personal income taxes generated by people employed by Strathcona would be somewhere around $14 million. Vendors might pay another $13 million in corporate taxes.
There are also indirect benefits. For instance, those with jobs around the oil patch are, obviously, not unemployed and receiving EI benefits.
We could also take into account the larger impact Strathcona has on the general economy. Think about the food, shelter, clothing, and entertainment spending done by the families of Strathcona (and their vendors’) employees. That money, too, performs important social and economic service.
So does Strathcona receive more from government subsidies than the money they feed back into government accounts? Well, the $405 million in crown royalties are likely annual payments, as are the $27 million paid as income taxes. That’s what governments get. On the other side of the balance sheet, there is the $6.1 billion in deferred taxes and $16 million in grants. Those will probably be amortized over multiple years.
But does the word “subsidy” really describe tax benefits in any useful way? After all, there’s no company in all Canada – my own company included – that doesn’t deduct legitimate business expenses. And each and every Canadian receives similar benefits whenever they file their T1. For illustration, a Canadian whose total income happened to match the national average ($55,600) pays around $5,600 less in taxes each year due to various deductions and credits – including the basic personal amount.
Does that mean we’re all receiving government subsidies? There’s nothing wrong with thinking about it that way, but it does kind of strip the word of any real meaning.
Now you could reasonably argue that $6 billion is an awful lot of deferred tax, especially for a company with a 22% operating margin. And you could look to the tax code’s complexity for answers as to how this could have happened. But that’s not a subsidy in any coherent sense.
Think the tax code should be reformed? The line forms right behind me. However, the problem with playing around with the tax code is that changes apply to everyone, not just Strathcona or some other preferred target. Successfully anticipating how that might play out in dark and unanticipated ways isn’t the kind of thing for which governments are famous.
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Business
We need our own ‘DOGE’ in 2025 to unleash Canadian economy
From the Fraser Institute
Canada has a regulation problem. Our economy is over-regulated and the regulatory load is growing. To reverse this trend, we need a deregulation agenda that will cut unnecessary red tape and government bloat, to free up the Canadian economy.
According to the latest “Red Tape” report from the Canadian Federation of Independent Business, government regulations cost Canadian businesses a staggering $38.8 billion in 2020. Together, businesses spent 731 million hours on regulatory compliance—that’s equal to nearly 375,000 fulltime jobs. Canada’s smallest businesses bear a disproportionately high burden of the cost, paying up to five times more for regulatory compliance per-employee than larger businesses. The smallest businesses pay $7,023 per employee annually to comply with government regulation while larger businesses pay $1,237 per employee.
Of course, the Trudeau government has enacted a vast swath of new regulations on large sectors of Canada’s economy—particularly the energy sector—in a quest to make Canada a “net-zero” greenhouse gas (GHG) emitter by 2050 (which means either eliminating fossil fuel generation or offsetting emissions with activities such as planting trees).
For example, the government (via Bill C-69) introduced subjective criteria—including the “gender implications” of projects—into the evaluation process of energy projects. It established EV mandates requiring all new cars be electric vehicles by 2035. And the costs of the government’s new “Clean Electricity Regulations,” to purportedly reduce the use of fossil fuels in generating electricity, remain unknown, although provinces (including Alberta) that rely more on fossil fuels to generate electricity will surely be hardest hit.
Meanwhile in the United States, Donald Trump plans to put Elon Musk and Vivek Ramaswamy in charge of the new Department of Government Efficiency (DOGE), which will act as a presidential advisory commission (not an official government department) for the second Trump administration.
“A drastic reduction in federal regulations provides sound industrial logic for mass head-count reductions across the federal bureaucracy,” the two wrote recently in the Wall Street Journal. “DOGE intends to work with embedded appointees in agencies to identify the minimum number of employees required at an agency for it to perform its constitutionally permissible and statutorily mandated functions. The number of federal employees to cut should be at least proportionate to the number of federal regulations that are nullified: Not only are fewer employees required to enforce fewer regulations, but the agency would produce fewer regulations once its scope of authority is properly limited.”
If Musk and Ramaswamy achieve these goals, the U.S. could leap far ahead of Canada in terms of regulatory efficiency, making Canada’s economy even less competitive than it is today.
That would be bad news for Canadians who are already falling behind. Between 2000 and 2023, Canada’s GDP per person (an indicator of incomes and living standards) lagged far behind the average among G7 countries. Business investment is also lagging. Between 2014 and 2021, business investment per worker (inflation-adjusted, excluding residential construction) in Canada decreased by $3,676 (to $14,687) while it increased by $3,418 (to $26,751) per worker in the U.S. And over-regulation is partly to blame.
For 2025, Canada needs a deregulatory agenda similar to DOGE that will allow Canadian workers and businesses to recover and thrive. And we know it can be done. During a deregulatory effort in British Columbia, which included a minister of deregulation appointed by the provincial government in 2001, there was a 37 per cent reduction in regulatory requirements in the province by 2004. The federal government should learn from B.C.’s success at slashing red tape, and reduce the burden of regulation across the entire Canadian economy.
Addictions
Annual cannabis survey reveals many positive trends — and some concerning ones
On Christmas Eve, during his final year of high school, Justin Schneider’s friend handed him his first bowl of weed.
Schneider says he remembers it being an especially stressful evening and thinking, ‘Oh my God, they were lying to us about this.’
“Here I was this ‘good kid,’ staying away from alcohol and drugs, but this stuff is the best thing I’ve ever had,” he said. “But that reaction was brought on because it was the first time I’d ever taken any type of medication for anxiety.”
At first, Schneider used cannabis to cope with generalized anxiety, depression and insomnia. By his late twenties, he had become a heavy user.
In 2018, after more than 20 years of daily cannabis use, he was finally able to overcome his cannabis dependency with the help of a psychiatrist and addictions counselor.
Canadians’ relationship with cannabis has shifted dramatically since it was first legalized for non-medical use in 2018, a new survey shows.
The 2024 Canadian Cannabis Survey, released by Health Canada Dec. 6, reveals cannabis use has become increasingly normalized, driven by broader legal access and growing social acceptance. It also suggests legalization has achieved many of policymakers’ key goals.
But Schneider and others warn cannabis is not without its risks, and say better public education is required to address some of cannabis’ lesser known risks.
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‘Some sketchy guy’
Health Canada’s annual survey, which collected responses from more than 1,600 Canadians aged 16 and older, reveals a thriving legal cannabis market in Canada.
The number of users purchasing cannabis through legal channels has nearly doubled since legalization, rising from 37 per cent in 2019 to 72 per cent today.
“I imagine if I was just starting out [with cannabis] now, I wouldn’t ever have to interact with some sketchy guy, and that would have been easier growing up,” said Jesse Cohen, a 34-year-old daily cannabis user from Montreal.
Cohen uses cannabis to unwind after work or while performing menial tasks at home. Today, he picks up his supply from a sleek, well-lit government-regulated dispensary. He feels this interaction is safer than buying it on the black market.
Cohen says he has also seen the quality and variety of products on the market improve — accompanied by an increase in price.
In the survey, just over one-quarter of all respondents said they used cannabis for non-medical purposes in the past year, up from 22 per cent in 2018. Among youth, that number was 41 per cent.
The number of youth using cannabis has remained stable since 2018, a finding that challenges some critics’ claims that legalization would lead to higher rates of youth consumption.
“For youth, I do think that the whole legalization de-stigmatized and took the risk out of it — it wasn’t a taboo subject or a taboo activity anymore — so there wasn’t the same draw,” said Ian Culbert, executive director of the Canadian Public Health Association, a non-profit that promotes public health.
“Let’s face it, youth experiment, and if it’s something your grandmother is doing, you don’t necessarily want to be doing it too.”
Another positive trend, Culbert says, is that cannabis users now seem to be better informed about the risks of driving while high.
Only 18 per cent of people who had used cannabis in the past year reported getting behind the wheel after cannabis use, down from 27 per cent in 2018.
Culbert interviewed cannabis users when cannabis was legalized. At that time, many said they thought their driving abilities improved when under the influence of cannabis.
“Of course, that’s just not the truth … They felt that their video game experience was so much better when they were consuming, therefore why wouldn’t driving a car be better?” Culbert said.
“I think [because of] education efforts, and the fact that police across the country have put in programs to identify and prosecute people who are driving impaired, that message has gotten through, and people are now equating it to drinking alcohol and driving.”
Public health campaigns also seem to have raised awareness of cannabis’ risks to physical health. Successive Health Canada cannabis surveys have shown a growing understanding of cannabis’ effects on lung health and youth brain development.
Schneider believes public health campaigns now need to focus more on the mental health risks associated with heavy cannabis use.
“I think there’s a responsibility to say that, for a small proportion of people, it can be very psychologically addictive and very, very risky to mental health.”
According to Health Canada, regular cannabis users can experience psychological and mild physical dependence, with withdrawal symptoms that include irritability, anxiety, upset stomach and disturbed sleep.
“You don’t actually have anxiety,” said Schneider about his own withdrawal symptoms. “But your brain creates it anyway, driving you to use cannabis to relieve it.”
Research also shows frequent use of high-THC cannabis is linked to an increased risk of psychosis, a mental condition marked by a disconnection from reality. Individuals with mental disorders or a family history of schizophrenia are at particular risk.
In the survey, only 70 per cent of respondents said they had enough reliable information to make informed decisions about cannabis use. And the number of respondents saying they have not seen any education campaigns or public health messages about cannabis has increased, from 24 per cent in 2019 to 50 per cent today.
Culbert says the revenue that the government generates from cannabis creates a disincentive for it to issue strong health warnings.
“There’s no coherence in our regulatory and legal frameworks with respect to health harms and the level of regulation,” he said.
“Governments are addicted to their sin taxes,” he said.
This article was produced through the Breaking Needles Fellowship Program, which provided a grant to Canadian Affairs, a digital media outlet, to fund journalism exploring addiction and crime in Canada. Articles produced through the Fellowship are co-published by Break The Needle and Canadian Affairs.
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