EU oil and gas tax proposal fuels Canadian supporters

EU oil and gas tax proposal fuels Canadian supporters
EU oil and gas tax proposal fuels Canadian supporters


Proponents of imposing a windfall tax on Canada’s oil and gas industry now have another global power setting a policy precedent.

On Wednesday, the European Commission proposed levying such a tax on the energy sector and redirecting the funds to households and businesses struggling with high inflation. He estimates the policy would bring in 140 million euros (about C$186 million) in revenue.

The European Union is not the only jurisdiction to pursue an additional tax on the energy sector. Earlier this year, the UK imposed a windfall tax on oil and gas producers. Since then, however, new Prime Minister Liz Truss has spoken out against the policy and indicated she will not introduce new windfall taxes.

Progressives in the United States have also campaigned for a windfall tax on oil and gas companies amid rising inflation.

The global push for windfall taxes comes as some companies, particularly those in the oil and gas sector, have posted record profits since the start of the COVID-19 pandemic.

In Canada, the latest quarterly report on gross domestic product from Statistics Canada indicates that non-financial corporations have benefited from the strength in energy prices. According to the federal agency, dividends paid by these companies increased by 9.1% in the second quarter of 2022. Meanwhile, workers’ compensation in Canada increased by 2%.

Senior Economist David Macdonald of the Canadian Center for Policy Alternatives recently looked at the share of gross domestic product made up of corporate profits. His analysis found that after-tax corporate profits reached a historically high percentage of the total output of the Canadian economy in the second quarter of this year.

In contrast, Macdonald found that workers’ compensation as a share of gross domestic product had fallen to its lowest level since 2006. “The period of inflation was an extremely good period for corporate profits, less so for wages of workers.”

Macdonald favored the imposition of windfall taxes to counter this trend.

The NDP has called on the federal government to extend the windfall tax levied on financial institutions earlier this year to the oil and gas sector as well as big box stores. The party argued that funds raised through the windfall tax extension could be used to send more money to low- and modest-income families struggling with high inflation.

On the latter proposal, the NDP posted a victory when the Liberals announced Tuesday that they would double the GST rebate for six months. As for extending the windfall tax, NDP Finance Critic Daniel Blaikie said he had received no indication from Finance Minister Chrystia Freeland that it was on the table.

“We’re going to keep pushing these things,” Blaikie said. “And I think the announcement of the GST rebate is a source of optimism that even when the government is wrong from the start, we can turn them around.”

The finance ministry declined to say whether it plans to expand the windfall profit tax policy.

Many economists oppose windfall taxes, fearing they will discourage business investment.

Michael Smart, professor of economics at the University of Toronto and co-director of the Finances of the Nation project, said the EU’s pursuit of a windfall tax reflects a unique situation in this region, energy prices having increased considerably.

“We don’t face quite the same situation here,” Smart said, adding that windfall taxes are difficult to implement and should be used infrequently.

“I don’t think it’s warranted (here).”

Mostafa Askari, chief economist at the Institute for Fiscal Studies and Democracy, said if the government were to pursue a windfall tax, it should first decide on its objective.

“Targeting (the) energy sector, for me, is a bit strange, unless there is a desperate need for additional government funding,” he said.

Since government revenues have increased due to high inflation, Askari said the case for additional funding was not there. The other concern, he said, is that oil and gas companies might be able to pass these additional taxes on to consumers through higher prices.

However, despite disagreement among economists over the policy, polls suggest the overwhelming majority of Canadians favor a tax on companies whose profits were extraordinarily high during the pandemic. A poll conducted by Abacus Data on behalf of the Broadbent Institute and the Professional Institute of the Public Service of Canada in July 2021 found that 87% of Canadians were in favor of the policy.

The poll was conducted online among 1,500 Canadian adults from July 13-19, 2021. A margin of error cannot be assigned as online polls are not considered truly random samples.

Blaikie said the NDP is counting on public support to convince the Liberals of this policy.

“I think the more Canadians who demand these kinds of measures alongside us in the NDP, the more likely we are to see a positive outcome.”

This report from The Canadian Press was first published on September 18, 2022.

. proposal tax on oil gas EU powers supporters canadian

. oil gas tax proposal fuels Canadian supporters

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