The Alberta government introduced a plan October 19 that will exempt energy companies building new pipelines or drilling for oil from property taxes for three years.
The government estimates the “tax holiday” , which will also lower assessments for less productive oil and gas wells, will save the industry between $81 million to $84 million. Rural municipalities, however, say it will cost them in lost tax revenues, though not as much as feared under previous assessment changes proposed by the province.
The tax break is intended to “attract investment and create good jobs,” said Municipal Affairs minister Tracy Allard in a press conference.
“Our plan is intended to draw investment into the energy industry here in Alberta and help create and sustain jobs,” said Allard.
The government will move ahead with a 35 per cent reduction on shallow gas wells for three years and scrapping the well drilling equipment tax for new drills.
Allard estimated that on average, municipalities will lose about 3 per cent of their tax base. That amounts to $7 million total, Allard estimated.
The new measures come into effect in 2021 — new wells, shallow gas wells and the unproductive ones will see the changes on their 2021 assessment for the 2022 tax year.
Al Kemmere, president of the Rural Alberta Municipalities (RAM), said that the association is willing to support “what appears to be a middle of the road approach on this” even though municipalities will still lose money.
“I haven’t had a great opportunity to fully address the impacts and dig into them deeply, but I am taking the word and the very high-level assessment that this is nowhere near what we were looking at under the assessment model review going forward, and that’s why it is much easier to work with and to take as a first step in this process.”
The RMA estimates municipalities are already owed approximately $173 million in unpaid property taxes related to the resource industry.
Kemmere said that while municipalities weren’t involved in crafting the “wording of this solution,” RMA was “part of informing the minister as to the challenges that are taking place” during Allard’s tour of rural Alberta over the summer.
Tim McMillan, president of the Canadian Association of Petroleum Producers, and Tristan Goodman, president of the Explorers and Producers Association of Canada, both say these changes will mean more competitiveness and future investments.
McMillan added that the four proposals in the initial review were “correcting” what he called inaccurate assessment values for oil and gas properties. He said the announcement doesn’t amount to tax breaks, even though Allard called it a three-year “tax holiday.”
“In fact, this is an interim measure as we’re working to correct a broader system issue that has built up over a long period of time,” he said.
There are challenges to the promise that these tax breaks will eventually lead to a stronger economy and more jobs since forecasts indicate lower oil demand globally for the next five years. However, Allard doesn’t believe that the oil industry “is a thing of the past.”