Brad Wall’s Wonderful World of Laissez-Faire

By Simon Enoch
CCPA, Saskatchewan Office
March 23, 2012

In the wake of Wednesday’s Saskatchewan budget which saw the elimination of the Saskatchewan Film Employment Tax Credit and with it the almost certain demise of the industry in the province, Premier Brad Wall tweeted: “If an industry cannot survive at all without a permanent taxpayer subsidy, should the taxpayers subsidize indefinitely?”

This is an excellent question posed by our premier. So let’s look at all those industries that manage to “stand on their own two feet” as it were and forgo any and all government assistance in our province.

Oil and gas, the economic powerhouse of the province and awash in profits must be a model of laissez-faire integrity. Surely it doesn’t need government handouts to make a go of it in Saskatchewan? Let’s take a look:

• Drilling royalty relief deductions are provided to companies to encourage new drilling in the form of drilling incentives. The royalty tax rate is reduced for an initial volume of production.
• The “Oil Well Reactivation Program” is designed to encourage oil wells that are currently shut-in or suspended to be reactivated. Oil produced from these wells is reclassified as new oil for production tax purposes resulting in a lower tax royalty rate.
• The “Workover Reclassification Program” encourages investments to increase oil production from existing wells by performing “workovers” (wells that require significant repairs or modifications). Incremental oil produced from these wells is reclassified as new oil for production tax purposes resulting in a lower tax royalty rate.
• The “Royalty Tax Rebate” is designed to offset the provincial portion of income taxes that are payable as a result of the federal government’s decision to disallow provincial royalties and similar taxes as deductions in determining taxable income.
• Saskatchewan oil producers are allowed to deduct arm’s length transportation expenses incurred in transporting clean oil from the well-head to the point at which the oil is sold. This is deducted for royalty calculation purposes.
• Enhanced Oil Recovery Royalty Regime lowers royalty rates to allow EOR projects to recover investment and operating costs including a 5 per cent annual gross return and is based on project profitability and investment payout.
• Enhanced Oil Recovery Tax Exemption. Chemicals and agents used for injection to enhance oil recovery are exempted from provincial sales and fuel taxes.

This is just a sampling of the many subsidy programs offered to the oil and gas industry in Saskatchewan. In total, the International Institute for Sustainable Development estimates total government subsidies to the industry in the area of 327 million per year.

Okay, so what about potash? Surely the pink gold of the province is profitable enough to sustain the industry without resort to corporate welfare?

Retroactive to January 1, 2005, there is a 10-year tax holiday from base payments on expansions of potash mines that exceed productive capacity of 200,000 tonnes of potassium chloride (KCl) per year.
The province is also providing a capital investment incentive to promote expansion of production. The depreciation rate on capital expenditures in excess of the base (defined as 90% of 2002 capital expenditures) is set at 120%.

Effective Jan. 1, 2010, companies would be eligible to deduct from the potash production tax $100,000 a year for every new corporate office job created in Saskatchewan or relocated here. The hefty deduction can be claimed for each job for five years, after which the deductible will be lowered to $25,000 per job. The announcement also outlined a $25,000 per year deduction for all existing corporate office jobs — a reward for potash companies that already have established offices here.

Also note that Saskatchewan industry – such as potash – which is a vociferous consumer of electricity, benefits from subsidized, cheap power from the provincial crown.

Okay, so apparently our resource sector requires generous government supports to be able to make a go of it in the rough and tumble world of competitive capitalism. Surely, there must be some industry in the province that has the wherewithal to refuse the benevolence of Saskatchewan’s corporate welfare state? What about Agriculture?

“Saskatchewan-based companies involved in the value-added processing of agricultural products can apply for project funding to a maximum of $50,000 over a four-year period for prototype and product development; systems improvements; marketing/marketing opportunities; and skills and training.”

Manufacturing?

“Saskatchewan-based manufacturing and processing firms can have their corporate income tax rate reduced to as low as 10% depending on their allocation of income to Saskatchewan.”

Small business?

“Small Business Loans Association (SBLA) Program provides business development opportunities to entrepreneurs that have difficulties in obtaining traditional and/or sufficient financing. Monies are disbursed interest free to Small Business Loans Associations to a maximum credit line of $200,000.”

Fishing?

“The Commercial Fishing and Freight Subsidy and Price Support Program provides financial support for the commercial fishing industry in northern Saskatchewan through two components: a freight subsidy and a price support mechanism.”

Sorry Brad, it seems virtually all of Saskatchewan’s economy relies to some extent on government incentives or subsidies. Perhaps our premier should do a quick study on our province’s economy before he feels the urge to tweet in the future. Saskatchewan has always required government supports and incentives to direct private investment to areas deemed essential to the health of the provincial economy. Mr. Wall may well wish for Saskatchewan to be a model of laisse-faire economics, but if he were to apply the same logic to the whole of the Saskatchewan economy that he has to the film industry, he just might be surprised by the result.

Simon Enoch is Director of the Saskatchewan Office of the Canadian Centre for Policy Alternatives. He holds a PhD in Communication and Culture from Ryerson University.