Pipes leading to a processing plant at the Suncor Fort Hills facility in Fort McMurray, Alta. Advocates of imposing a windfall tax on Canada’s oil and gas industry now have another global policy precedent. On Wednesday, the European Commission proposed imposing such a tax on the energy sector and redirecting capital to households and businesses facing high inflation. It estimates the policy will generate 140 million euros (about $186 million) in revenue.
The European Union is not the only jurisdiction seeking an additional tax in 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 opposed the policy and said she would 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, especially those in the oil and gas sector, have posted record profits since the start of the COVID-19 pandemic. In Canada, the latest quarterly gross domestic product report from Statistics Canada says non-financial companies have benefited from high energy prices. According to the federal agency, dividends paid by such companies rose 9.1 percent in the second quarter of 2022. Meanwhile, workers’ compensation in Canada rose 2 percent. Senior economist David Macdonald of the Canadian Center for Policy Alternatives recently looked at how much gross domestic product is represented by corporate profits. Its analysis found that after-tax corporate profits reached a historically high percentage of the Canadian economy’s total output in the second quarter of this year.
Instead, Macdonald found that workers’ compensation as a share of gross domestic product fell to its lowest level since 2006. “The period of inflation has been an extremely good time for corporate profits, less so for workers’ wages.” Macdonald advocates for windfall taxes to counter this trend. The NDP is calling on the federal government to extend the windfall tax imposed on financial institutions earlier this year to the oil and gas sector as well as big box stores. The party argued that funds raised by extending the windfall tax could be used to send more money to low- and moderate-income families struggling with high inflation. In the latest proposal, the NDP scored a victory when the Liberals announced Tuesday 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 for these things,” Blaikie said. “And I think the announcement of the GST rebate is cause for some optimism that even when the government is wrong out of the gate, we can get them to change course. .” The Treasury declined to comment on whether it was considering extending the surprise tax policy. Many economists oppose windfall taxes because of concerns that they can discourage business investment.
Michael Smart, an economics professor 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 that region, with energy prices having risen dramatically. “We’re not dealing with the same situation here,” Smart said, adding that windfall taxes are difficult to implement and should be used rarely. “I don’t think it’s warranted (here).” Mustafa Askari, chief economist at the Institute for Fiscal Studies and Democracy, said that if the government were to pursue a windfall tax, it would first need to decide its intended purpose.
“Targeting (the) energy sector, to me, is kind of strange, unless there’s a desperate need for extra funding for the government,” he said.
Since government revenues have increased due to high inflation, Askari said the case for additional funding does not exist. The other concern, he said, is that oil and gas companies may be able to pass those additional taxes on to consumers through higher prices.
But despite disagreement among economists over the policy, the poll shows an overwhelming majority of Canadians support a tax on businesses whose profits have been exceptionally high during the pandemic. A poll conducted by Abacus Data on behalf of the Broadbent Institute and the Professional Institute for the Public Service of Canada in July 2021 found that 87 per cent of Canadians were in favor of the policy. The survey was conducted online with 1,500 Canadian adults from July 13 to 19, 2021. No margin of error can be assigned because online polls are not considered true random samples.
Blaikie said the NDP is relying on public support to convince the Liberals on policy. “I think the more Canadians that are out there calling for these kinds of measures alongside us in the NDP, the more likely we are to see a positive outcome.”