CAPP 2015 Alberta Pre-Budget Submission

Industry is increasingly challenged to remain cost competitive in the global market for oil and gas investment. In 2013, non-oil sands operating costs approached 50 per cent of operating revenues – up from approximately 20 per cent in 2008. The increased cost profile of the industry is linked to increased production from unconventional sources, a tight labour market and constrained market access.
Official submission

Published: October 01, 2014

In addition to rising costs, industry’s challenges are compounded by the recent decline in the price of oil and gas Although most financial firms foresee oil settling into a range between $60 and $65 US a barrel over the course of 2015, right now the price of the North American benchmark is in the high to mid-$40 range. The price of oil has declined by 50 per cent since June 2014, and most analysts do not expect prices to recover substantially before the end of Q2.

The implications for the oil and gas industry and the Alberta economy are substantial: according to TD bank, Ontario is now poised to lead Canada in economic growth in 2015 (2.5 per cent), followed by B.C. (2.4 per cent) and AB (2.3 per cent). With some forecasts suggesting the prospect of a recession for the province.

In response to these challenges, CAPP is seeking to work with the provincial government to advance priorities that increase economic competitiveness without imposing additional costs on government.

Recommendations

Scientific Research and Experimental Development (SR&ED) Tax Credit:

  • Remove the annual SR&ED expenditure limit in Alberta, similar to the B.C. approach
  • Allow corporate partners of a partnership to claim their respective share of the Alberta SR&ED tax credits
  • Conduct a review of the Alberta SR&ED program as it pertains to competitiveness with other provincial R&D programs, the economic and productivity benefits of the program and its administrative efficiency

Municipal Competitiveness:

  • Prioritize economic competitiveness as part of the municipal government act review process
  • Re-introduce a linkage between the residential and non-residential property tax rates in rural and specialized municipalities, and consider 1.33 to 2.00 as the starting range
  • Freeze rate ratios for rural and specialized municipalities already above the threshold to recognize existing practice and budget constraints
  • Establish a formal requirement for rural and specialized municipalities to consult with the major non-residential assessment base representatives in the municipality prior to raising non-residential to residential tax rate ratio
  • Adopt a province-led approach for assessing industrial facilities. This would serve to enhance independence, give assurance that assessments are free of municipal influence, and would promote consistency in the application of provincial legislation
Consider whether Machinery and Equipment (M&E) should continue to be assessed and, if so, review the 77 percent assessment approach for M&E and education tax exemptions in the context of the competitiveness of the overall assessment and tax burden of the oil and gas sector from a benefits perspective, relative to other provinces, and relative to other municipalities and sectors within Alberta.

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