Pause on tax reform for oil and gas firms welcomed by rural leaders

The provincial government's decision to put the brakes on its proposed revamp of the way oil and gas operations are assessed for taxation is being applauded by the head of the Rural Municipalities of Alberta.

Earlier this year, the province laid out four possible new taxation models aimed at providing relief to Alberta's struggling oil and gas companies by reforming the assessment process for their wells and other operations. 

The current system evaluates them on replacement cost — not market value — a practice industry and government officials say overvalues industry assets and inflates tax bills. 

But the RMA reacted with alarm and says 69 counties and municipal districts could lose up to 40 per cent of their tax base.

"There's no doubt about it, it's created some tremendous angst among my member municipalities, the proposals that they've had," said RMA president Al Kemmere. 

But Tracy Allard, newly installed as minister of municipal affairs in a summer cabinet shuffle, says no decision has been made on a new assessment model and consultations will continue.

"While we of course want our oil and gas businesses to be strong and viable so they can invest, create jobs, and pay taxes in our municipalities, we must also carefully consider the impact a reduction in assessment would have on the municipalities these employers operate in," said press secretary Justin Marshall in an emailed statement. 

'We're encouraged'

Kemmere says the RMA in encouraged by that statement.

"She definitely has a desire to hear from all those affected, and then come up with a solution that the industry can live with, that the municipalities can live with and that the province can live with."

The reeve of Ponoka County agrees that some fundamental changes need to be made, but he's not convinced that just changing the way oil and gas operations are taxed is the right approach.

For Ponoka, the reforms as proposed would result in an increase in residents' taxes varying from 150 to 200 per cent to maintain the same level of services. 

"We need to look at it as a system. It's extremely complex. There's multiple components of it and multiple categories, and you can't just look at one and make modifications to that," said Paul McLauchlin.

The difficulties that the energy sector has been facing for the past five years are affecting the county's bottom line, too, he says.

"We've actually had to write down about $3 million in taxes, which represents roughly 20 per cent of our taxes over the course of the last three or four years," he said.

But according to the Canadian Association of Petroleum Producers, some businesses are not going to be able to survive unless the province gets on with its changes.

"We still strongly recommend that the government proceed with a decision on reforming the assessment system this year. There will really never be a better time to do it," said CAPP's vice president of oilsands and fiscal policy, Ben Brunnen. 

"This is a difficult choice in the best of circumstances."

Brunnen says CAPP's own analysis found that, under the proposed changes, the vast majority of municipalities could get by without a deficit by drawing on their reserves. In some areas even, counties would win, he said.

That's because oil and gas firms will be better able to boost investment in existing operations if they feel they're being taxed under a fairer assessment model, he said.

McLauchlin says it's important to realize that in rural areas like his, there's lots of overlap between the energy business and the farmers who let companies operate on their land.

"A lot of folks around here actually support their farming habit with being oil and gas operators or working in the industry," he said. 

"So we're very aware of the stress on the industry and the stress that's occurred for a few years now. And so I think the tension might be falsely created by some advocacy by some groups."

McLauchlin also noted that the taxes paid by oil and gas companies largely gets reinvested to maintain and improve the infrastructure used disproportionately by those firms.

"I think most people don't understand the wear and tear the oil and gas industry has on our assets, on our roads," he said.