When I published my news story on corporate income tax earlier this week, I received some pushback from a handful of people saying that the article was being disingenuous because I was leaving out revenue from oil and gas royalties, which they claimed are kind of a corporate tax.
So, here I am, writing an article on royalty revenue and the context of how it fits in with Alberta’s revenue in general.
To start, here’s a table of all revenue sources for last year (which was as of August’s first quarter fiscal update):
|Personal income tax||$11.244|
|Other tax revenue||$5.747|
|Corporate income tax||$4.107|
|Premiums, fees and licences||$3.929|
We see that resource revenue came in at just barely under $6 billion last year, roughly 13% of total government revenue. It was the third highest single source of revenue—coming behind personal income tax ($11.2 billion) and federal transfers ($9.072 billion) and just barely ahead of “other” tax income ($5.747).
The vast majority of that $5.937 billion was royalty revenue, with only $120 million of it coming from bonus and sales of Crown leases. But that’s only 2% of resource revenue: 98% of it is royalty revenue (although, technically rentals and fees are lumped in with coal royalties, but even then, that’s still under $200 million).
Now, here’s what revenue looks like for the current fiscal year, according to the fiscal update released last month:
|Personal income tax||$10.712|
|Other tax revenue||$5.242|
|Premiums, fees and licences||$3.869|
|Corporate income tax||$2.146|
This year, resource revenue will be the smallest contributor of provincial revenue, at only $1.224 billion, about 2.6% of total revenue.
But we’re in the middle of a pandemic and are slowly coming out of a record-low oil price slump, so it makes sense the revenue based on oil would be affected by oil prices.
So, let’s see what revenue looked like over time. I was able to find revenue data going back to 2008.
Hmmm. That’s kinda busy. What about this one?
This one looks better.
Still kind of busy. What about if we just look at the 4 largest contributors?
Ah. That’s better. Now we can actually tell what’s been going on over the last 12 years.
Of the 4 largest sources of government revenue last year—personal income tax, other tax revenue, royalties, and federal transfers—3 of them have been trending up. Royalties are the only one that appears to be trending down. To be fair, it did seem to have been trying to make a comeback over the last 4 years, but a lot of those gains will be lost this year with the pandemic and record-low oil prices.
Here’s another graph, this time showing the percentage of total revenue that each of last year’s 4 largest revenue sources.
This graph pretty much shows the same thing as the previous graph: resource revenue is trending down and the others are trending up. Although “other tax” has increased overall by just marginal amounts.
Something this one shows that the previous one didn’t is that during the last 13 years, royalties have never been been more than 1/3 of provincial revenue, and only 2 years saw it over 1/5 of government revenues.
I also find it interesting that despite all the posturing of the UCP government that Ottawa doesn’t do enough for the province, federal transfer payments are the fastest growing revenue stream for Alberta. If these rates continue, federal funding could become the biggest source of revenue for Alberta by the end of the UCP government’s first term.
With those who complained about my omission of the royalties from the story on corporate income taxes, their most common argument is that if you add up all corporate income tax revenue and royalty revenue, it would make up more than half of all government revenue.
I mean, you can’t really add the two and say that it’s representative of how much oil and gas generate in government revenue: it’s not just oil and gas companies paying all that corporate income tax.
But let’s humour them. Let’s assume every dollar paid in corporate income tax comes from oil and gas companies. (It doesn’t, but we’re humouring these critics.)
Here are two more graphs. I promise these are the last ones.
This compares the combined total of corporate income tax and royalties with personal income tax (the largest source of revenue for the province).
This one shows the percentage of total revenue that personal income tax and the combined total of corporate income tax and resource revenue.
Both of these charts show us that—even when combined—corporate income tax and resource revenue have never made up the majority of provincial revenue over the last 13 years. As well, for half of this time, personal income tax has been generating a larger portion of revenue for the Alberta government than even corporate income tax and resource revenue combined.
The entire NDP term relied heavily on personal income tax to make up the shortfall in corporate income tax and resource revenue, and that reliance is continuing into the UCP’s term.
I thought I’d finish with a table showing the totals that each revenue source has contributed over the last 13 years.
|Personal income tax||$130.704||22.97%|
|Other tax revenue||$64.090||11.26%|
|Corporate income tax||$54.594||9.59%|
|Premiums, fees and licences||$44.175||7.76%|
Over the last 13 years, the Alberta government under the PCs, NDP, and UCP has generated over half a trillion dollars in revenue. Roughly 23% of it came from personal income tax. It was the only revenue source to crack $100 billion. No other revenue source came even close.
We’ve received roughly the same amount in federal transfer payments over the last 13 years as we have royalties, with each of them bringing in a little over 15.5% of the total revenue.
Even if we ignore all the low royalty revenue since the 2015 recession, royalties still brought in only 21.5% of total revenue between 2008 and 2015. Personal income tax during that same period brought in 21.1%.
If you combine corporate income tax and royalties, you barely get 25%, so nowhere even close to the “more than half” that people were claiming to me earlier this week.
And again, that’s if you combine resource revenue with all corporate income tax, regardless of which companies actually paid the tax.
12 replies on “Royalties funded only 15.5% of Alberta revenue since 2008”
Kim – thanks for taking the time again to write on this. I appreciate the links to the sources, makes it much easier to follow what is going on. I know there were other comments than mine on the original article, however, I want to continue our discussion based on my comments in regard to this topic.
I think the main bone I pick with the writing here is in the conclusion you are leading the reader to. I know it is of your opinion that the reader can assume whatever he/she wants, however, in your first article “The 10 Alberta Industries that generated the most income tax revenue in 2019”, you are leading the horse to the water that says “and oil and gas is not one of the top contributors”. Yes, if you are solely talking about income taxes, this is correct. But you are omitting the “why”, intentional or not. Now this article is written and attempts to lead the reader to the conclusion of “royalties are not much”, or at least your use of the word “only” in the title implies that it is not much. In fact, this article in a way debunks your first article’s point, also intentional or not. My debate back on Tuesday was that oil and gas accounts for a significant portion of revenues to the Alberta government. Even in a down year (2018/2019, as it is our most complete data set), oil and gas accounts for $5,538M of total revenue ($5,419M royalties + $119M taxes, p.s. I omitted the $10M in coal royalties to square it up a bit). This is more than the top 10 industries pay in corporate income taxes combined by nearly double (those 10 summed up comes out to $2,911.6M). All the dialogue is saying is that money out of oil and gas pockets is big time for Alberta. You are correct in that oil and gas is not as much as personal income tax revenue (nor should it be), and yes, the government federal transfers (which to be honest I found quite interesting, I was unaware that so much was kicked back to AB in 2020 fiscal). But it is still the third largest generator of revenue for Alberta, which makes it quite substantial.
My second thought, I still do not understand why you are saying that you cannot consider oil and gas’ royalties paid ($5,419M) and their income taxes paid ($119M) in combination to conclude that oil and gas companies paid $5,538M to the Alberta government in fiscal 2019. To me, it would like having a regular full time job and owning a revenue property concurrently. You still include the sum of each source of income on your T1 every year. You would not omit your rental income and conclude it is not representative of how much you earned in revenue during the year. Also, just for the record, maybe it was someone else, but I never had claimed that oil and gas revenues were half of total Alberta government revenue – it is not. It is nearly double what other corporations pay in tax (at least in the ’19 fiscal year).
Last point, and this is just my opinion, but your articles are lacking a massive “so what” factor. Perhaps not your purpose or intention of these blog-posts, however I am not sure why you would put in the work and effort in these to not concretely conclude on them. A lack of conclusion opens you up to interpretations and debate from other parties, with the only defense utilizable by you being “I did not say that / you drew that conclusion on your own / why would you assume XYZ”. A more efficacious way to get results in your articles might be to post a winding thought or narrative; something from which the reader can glean your opinion, or at worst, argue and challenge your opinion (rather than argue their own drawn opinion). Good debate stems from opinions on both sides. Not stating yours leaves the reader wandering to that water on their own, and instead of being a drinking horse, being a sheep.
Again, you can’t assign all corporate income tax to oil and gas because oil and gas doesn’t generate all the corporate income tax revenue.
I have no idea who said it was more than half combined. I had several people comment on the topic: here, on Twitter, on Facebook, and over email. I didn’t keep track on who specifically said what.
Thanks for the feedback.
Tom Schellen — you must keep in mind that oil & gas royalties are not revenue, they are proceeds from the sale of provincially-owned assets. Accordingly your analogy of having both income from a job and income from a revenue property is not accurate. A more accurate analogy would be having both income from a job and proceeds from selling off assets that you own. If you use those sale proceeds to cover part of your day-to-day living expenses (as Alberta has been doing for decades), instead of saving them (as per Lougheed’s vision for Alberta), then your net worth will steadily decline. At some point you will have no assets left to sell, and will no longer be able to maintain the same standard of living. Alberta stumbled upon a windfall, in the form of substantial oil and gas reserves, which, if managed prudently, could have left this province and its residents with a huge endowment fund the income from which would have supported provincial finances in perpetuity. Instead, that windfall has been largely pissed away in the span of one or two generations, and at this point about all Alberta is likely to have to show for it is a population with aging toys and an aversion to paying reasonable taxes.
Doug – Well actually, it is revenue. If you look up Alberta’s 2018-19 annual report, page 9 shows the fiscal summary. Under “Revenue”, 3rd line down is “Non-renewable resource revenue”. It makes up the total revenue of $49.6bn for that year. Maybe we can compromise and both call it all remunerations? No matter how you look at it, O&G was the result of $5.5bn of the total $49.6bn in fiscal 2019, more than any other industry.
Also, you’re ignoring the fact that the AB government isn’t drilling for this oil on their own. They are contracting the rights to this oil out to third-party companies. It is ignorant to say you cannot combine O&G taxes and royalties, because without O&G companies drilling for, processing, shipping, and selling hydrocarbons, they stay in the ground. If they stay in the ground, the AB government gets $0 rather than $5.5bn in 2019. Kim’s latest blog-opinion is that O&G isn’t the largest industry in Alberta. But right here in this article and comment section, we prove that it is, at least from the stand-point that it generates the highest revenue for Alberta. It is not the largest overall contributor to revenue, sure, but in terms of how much money O&G as an industry pays to the AB government compared to how much money any other industry pays to the AB government, it is by far the largest. The numbers are right there, there is absolutely no room for debate on that.
My most recent news story never once said that oil and gas isn’t the largest industry in Alberta.
Tom — just because the AB government chooses to classify O&G royalties as revenue in their annual report does not make it revenue. Just because the AB government chooses to use 3rd parties to monetize its O&G resource assets, rather than doing so itself, doesn’t make the funds received from that monetization revenue. I could similarly use a 3rd party used clothing consignment store to monetize the clothes hanging in my closet. Without their help the clothes would stay in my closet and I would receive no funds. If I treat the funds received from the monetization of the clothes in my closet as revenue and rely on them to pay my weekly grocery bill, at some point my closet will be empty, I will be naked, and I will still be hungry. Alberta is well on its way to being naked and hungry.
Doug: (sorry for the reply on this thread, the site isn’t giving me the option to reply directly to your comment)
It’s a cash IN-flow. What do you call it then if it’s not revenue? What name would you assign it? Capital gain? No matter what you call it, it ends up at the bottom of the provinces P&L.That money (or royalty in kind, if you will) does not flow to our government without someone pulling it out of the ground in the first place. It makes up 11% of Alberta’s funds. It just does. $5.5bn/$49.6bn = 11.1%. The money isn’t fictitious – it’s used for roads, schools, hospitals, and all other Alberta public funding. You can’t simply ignore it because you don’t like it.
In your odd example of clothing, though, let’s say you consign the clothing to another company. They sell it all for $10,000 and give you $8,000 of that. Do you or do you not have $8,000 in your pocket now? You can’t now say “gee I really wanted to buy new carpet for my house but I don’t have $8,000” because guess what, you now have $8,000. It exists. It’s part of your budget now.
Oil and gas under ground is NOT public property. You or I do not own the hydrocarbons under Alberta soil (that’s a Texas thing, not an Albertan thing). The Alberta government owns the mineral rights and they choose how to extract it to earn monies (also known as revenues) off of it. Whether it’s a third party that pulls it and they take royalties, or whether they drilled it themselves, it’s part of their cash flows. I don’t know where you’re reading that I’m talking about HOW the government spends that money, that interpretation is up to you. I’m simply stating that it’s incredibly ignorant to not consider that $5.5bn of Alberta’s $49.6bn in fiscal 2019 came from O&G.
Again in case you skimmed that – $5.5bn of Alberta’s $49.6bn revenues came as a result of oil and gas underground. Whether or not you think that should be higher or spent differently is up to you, but that’s the fact. $5.5bn of $49.6bn.
Tom — clearly O&G royalties do represent a cash inflow, but not all cash inflows are revenue. Where a cash inflow is the result of a capital asset being sold it is typically referred to as sale proceeds. The problem with calling sale proceeds revenue and using them to pay operating expenses, and getting used to being able to use them to pay operating expenses, is that those operating expenses will continue to be incurred year after year, whereas the sale proceeds will eventually be depleted. Alberta’s O&G resources took millions of years to form, became commercially developable and hugely valuable during the 20th century, and may end up becoming largely worthless by the end of the 21st century if the market for those resources dries up. Lougheed’s vision was to use a significant portion of the cash inflows from the monetization of those non-renewable resources to create an endowment fund, the Heritage Trust Fund, income from which could be used to support provincial finances, thereby continuing to benefit future generations of Alberta businesses and residents, in perpetuity. Unfortunately, successive Alberta governments have been unable to keep their fingers out of the proverbial cookie jar, and have chosen instead to piss away those cash inflows by treating them as general revenue and using them to keep Alberta’s provincial taxes artificially low. If this approach continues, then the entire benefit of those O&G resources will have been blown on a handful of generations of Alberta businesses and residents, with nothing left for future generations (except the burden of billions of dollars of clean-up costs). Alberta has been acting like a foolish lottery winner, blowing through their winnings in a short period of time, only to end up broke and alone. It is time for the party to end, the mess to be cleaned up and some fiscal prudence to be shown.
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Will you be doing an updated “all revenue sources” for Alberta article? I think a lot of people are confused on where the large portions of revenues come from and articles like this really help. 😊
I might. The provincial budget will be coming out later this month, and we should have more details on revenues then for the last two years.