WESTLOCK — The provincial government pressed a three-year pause button on implementing any of the proposed assessment model changes, but it is introducing a tax exemption for new wells and pipelines from 2022 to 2024.
The tax break is intended to “attract investment and create good jobs,” said Municipal Affairs minister Tracy Allard in a press conference today, but it’s only temporary. A long-term review of assessment models will be finalized over the three years.
“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 — less productive wells will also see reduced assessments — and scrapping the well drilling equipment tax for new drills.
Allard estimated that on average, municipalities will lose about three per cent of their tax base, as opposed to the 7-20 per cent RMA predicted with the initial review. That amounts to $7 million total, Allard estimated in a separate press conference with rural newspapers.
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, 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.”
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.
On the oil side, both Tim McMillan, president of the Canadian Association of Petroleum Producers, and Tristan Goodman, president of the Explorers and Producers Association of Canada, 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 industry “is a thing of the past.”
Reviewing the review
The four options that came out of the initial review — all of which would have reduced the assessed value of oil and gas property, thus the taxes they pay — aren’t off the table completely. Instead, they’ll be reviewed over the course of three years.
“I felt that these measures were too abrupt,” said Allard. “I feel that this three-year window was really solving for viability.” Changes to assessments will still happen at some point after.
During this second review of the review, Allard promised unpaid taxes will be on the table too. Kemmere stressed that over the last three years, this has been the biggest challenge for RMA members.
“We’ve seen $81 million two years ago, $173 million last year of unpaid taxes, and if we don’t fix that in the near future, all these modifications are going to be for naught because it is going to leave my member municipalities without that ability to make sure that the tax collection is treated the same way as every other taxpayer,” said Kemmere.
This includes the education property tax requisitions, since municipalities can’t collect them from oil and gas producers that don’t pay their taxes, but they do have to pay them up to the province.
For Kemmere, legislative or regulatory changes are necessary to “fill the loophole.”
“It’s not all the players in the industry, but it is enough that it is $173 million last year and a good percentage of that were just people who chose not to pay their taxes, rather than bankruptcies,” said Kemmere.
Both McMillan and Goodman agreed it’s a problem, but the CAPP president thinks it’s not as big of an issue as Kemmere argued.
“I would take some exception with the numbers that have been put forward. We have done a similar search on the numbers. It is a very small percentage of taxes which go unpaid,” said McMillan, but added that “there’s some legitimate concerns about the mechanisms that municipalities have to rectify those unpaid taxes.”
