Alberta’s faulty pipeline gambit

The Alberta government says that if only B.C. would allow a second pipeline to be built, our gasoline prices would go down.

If only it were true.

The new pipeline will not supply more gasoline to B.C. and it will not reduce our gasoline prices. The reason is hardly a surprise -the new pipeline will carry crude oil, not gasoline.  A report uncovered by reporter Justine Hunter confirms that.

The report was commissioned by Trans Mountain with the hope that it would demonstrate the need for a new pipeline. To no one’s surprise, that’s what they found.  The consulting firm Muse, Stancil & Co. says:

“The startup of [the Trans Mountain expansion] project will act to increase the price of crude oil at Edmonton because roughly 79,500 [cubic metres a day] of crude oil is diverted from the existing North American markets to Northeast Asia (Globe and Mail, May 6, 2019).”

In other words, what B.C. needs is not what the pipeline will deliver. It will send crude oil to overseas markets. It will not send crude oil to be refined into gasoline in B.C.

Even if the second pipeline delivered crude to be refined into gasoline, that wouldn’t happen because our refineries are running full-tilt. They couldn’t produce any more gas even if they wanted to.

For sure, B.C. would be hurt if Alberta were to cut off the existing pipeline. Alberta supplies 80 percent of fuel burned in B.C.

Dan McTeague, senior petroleum analyst for gasbuddy.com, says the only way gas prices could go down if the existing pipeline carried more fuel:

“The new pipeline would be entirely devoted to heavy oil, but the existing pipeline would be expanded by 50,000 barrels per day.”

More supply would reduce prices in a marketplace that was properly functioning.  However, there is some doubt about the marketplace according to the Canadian Centre for Policy Alternatives. They claim that price-gouging is driving up prices. Their report reveals that of the 55 cent per litre increase since 2016, only 6.3 cents is a result of increased taxes while profit margins have increased by 18 cents.

Another group confirms that finding. Navius Research reports that since 2008, refinery margins in Metro Vancouver increased to 35 per cent while the increase was less than 18 per cent in the rest of the country. They say that margins “have decoupled from supply costs, resulting in prices that cannot be attributed to competitive market forces or scarcity of supply.”

While there is no hard evidence of price-fixing by the four companies that supply the Lower Mainland, Premier Horgan has asked the B.C. Utilities Commission to investigate the record-breaking gas prices. It will be interesting to hear what they find.

The BC Liberals see political hay to be made. They have erected huge billboards with a picture of Premier Horgan and the words, “Blame John Horgan.” BC Liberal leader Wilkinson says that Horgan has failed to cap gas taxes.

I have to smile at Wilkinson’s claim, not just because taxes aren’t the problem but because it was the BC Liberals who introduced the carbon tax in the first place.

 

 

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Mexico could ease Canada’s cannabis problem

The plan to drive illegal cannabis growers out of business is going slowly.

The problem is supplying enough legal cannabis to lower retail prices. Eventually illegal sellers will be a quaint memory, something like the bootleggers of alcohol of the past. For that to happen, a plentiful supply of cannabis has to be available and it’s going to take years for that to happen with Canadian growers only.

image: Greenhouse Canada

The cost of legal cannabis remains nearly 50 per cent higher than potleggers according to crowd-sourced data obtained by Statistics Canada. The cannabis store Kamloops seems to fairly well-stocked but in some parts of Canada like Quebec, stores have had to close on some days of the week due to lack of supply.

One way to lower retail prices immediately is to reduce taxes; a solution favoured by the cannabis industry. In addition to provincial sales taxes, the federal government charges one dollar per gram excise tax and an annual cultivation fee of 2.3 per cent of revenue.

Some jurisdictions in the U.S. with legal cannabis markets, such as California, are considering such temporary tax reductions to lure customers away from the illegal market after disappointing early sales.

I don’t think lower taxes are the solution. The whole idea of legalization of cannabis is generate revenue so that other taxes could be reduced. Like other “sin taxes” on recreational drugs such as tobacco and booze, taxes on cannabis provide revenue on a product not currently taxed.

Regardless, Canada has no intention of following the U.S. lead. A Canadian Finance Department spokesperson said: “There are no planned changes to the existing duties at this time (Globe and Mail, February 4, 2018).”

Another way to reduce legal cannabis prices is to increase supply.

Mexico plans to legalize cannabis. The new interior minister of the Obrador government has introduced draft legislation to regulate cannabis. Mexico has been studying Canada’s model of issuing licences for the cultivation, processing, packaging, sale and possession of cannabis.

Mexico has something going for it that Canada doesn’t -climate.  Cannabis doesn’t need to be grown in greenhouses there. The president of Mexico’s National Association of Cannabis Industries says:

“We’re going to be able to create a new industry based on new regulations, to produce cannabis for the rest of the world – our geographic situation and our labour [pool] gives us a major advantage (Globe and Mail, November 8, 2019)”

Enthusiasm is mutual on this side of the border. Canada’s Canopy Growth Corp. is looking at investing in Mexico. Their co-CEO said:

“We think [Mexico] is a real opportunity. When you’re on both sides of America with really well-positioned products, this could be a very good platform to reflect both sides of the border with the U.S. and enter an economy that is substantial.”

However, Mexico faces hurdles. Much of Mexico is controlled by drug cartels who oversee the growth of illegal marijuana. Seizing control of agricultural land will be a challenge. Also, Columbia is also poised to compete in the legal cannabis market and have a workforce experienced in its growth.

Of course, Canada’s fledgling cannabis industry needs to be protected but controlled importation could help our supply problem.

No internet tax for Canadian media

I agree with Conservatives who reject an internet tax to support Canadian media but for different reasons.

    Heritage Minister Melanie Joly. Image: Huffington Post

Conservatives reject taxes do so because they reject government intervention in what they see as a commercial enterprise. If media corporations can’t stand on their own without support from taxpayers, then they should fall.

But media are not only an enterprise; they are reflection of who we are and necessary for an informed citizenry. The goal of all legitimate media is to report unfiltered news and if my taxes go towards achieving that end, then it’s money well spent.

Use of an internet tax to support Canadian media is controversial. Politicians who are normally on opposite sides of the issue agree on this one. Two lobby groups that I support are on opposite sides. The Friends of Canadian Broadcasting supports the internet tax. Open Media rejects it.

A parliamentary committee recently recommended the internet tax, which Prime Minster Trudeau promptly rejected. The recommendations weren’t even unanimously supported among committee members. Predictably, Conservatives rejected the tax and some Liberals supported it. Prime Minister Trudeau sided with the Conservatives (again, for different reasons).

Before decided which side you’re on, it’s useful to know what it is. It’s a tax on streaming content over the internet as opposed to a tax on cable or satellite content, or over-the-air broadcasting.

What it’s called is determined by which side you’re on. Opponents call it a Netflix tax. “Applying the 5-per-cent levy to broadband distribution, that’s a Netflix tax,” said Conservative committee member Peter Van Loan. “Efforts to turn back the clock to an earlier era are doomed to failure.”

Prof. Michael Geist agrees with Van Loan but doesn’t find it necessary to call it a Netflix tax. It’s an internet tax because it applies to all internet content and as such, it’s a bad idea. Geist, a law professor and Canada Research Chair in Internet and E-commerce Law, sees the internet as more than a source Canadian content:

“A taxation system such as the one used for cable and satellite companies is highly inappropriate given the Internet’s importance for communication, electronic commerce, Web banking, education and tele-health. Given its integral role in virtually every aspect of modern life, it is wrong to treat network access as little more than an ATM for the cultural sector.”

Geist points also points out that such a tax is inconsistent with the Broadcasting Act because internet providers are not “broadcast undertakings” under the act.

Trudeau took the line that he was protecting the middle class: “We’re not going to be raising taxes on the middle class through an Internet broadband tax. That is not an idea we are taking on.”

Canadian media deserves support. Open Media suggests that the proceeds from the sale of cell phone wireless spectrum could go to Canadian content. Tax revenue should be used to support public and private broadcasters as suggested by Friends of Canadian Broadcasting. Small market broadcasters like CFJC in Kamloops should continue to receive funding from the CRTC.

Canadians pay one of the highest internet rates in the world. The best way to support Canadian media is to ensure that Canadians have an affordable, high speed internet where innovators can create content.

Stop calling royalties a tax

In raising royalties, Rachel Notley’s NDP government is simply returning Alberta to its roots. Former premier Peter Lougheed urged a sensible development of the tar sands and fair royalties. After flying over the tar sands in 2006, he remarked:

“I was just up there on a trip, just helicoptering around, and it is just a moonscape. It is wrong in my judgment, a major wrong, and I keep trying to see who the beneficiaries are. It is not the people of the province, because they are not getting the royalty return that they should be getting.”

Corporations like to confuse royalties and taxes because they would rather not pay anything to government, regardless of merit or ownership. Royalties are “rents” says Gordon Laxter, economist and founder of the Parkland Institute of the University of Alberta.

“Many think of royalties as taxes. Any government fee must be a tax. Wrong. Private woodlot owners and musicians collect royalties. No one calls them taxes. When governments collect royalties they aren’t taxes either. Royalties are one way to capture economic rents. Leases, ecological charges and corporate taxes are other ways. Government ownership of resource companies is the only way to collect all the rents,” he says in the Monitor magazine.

By rents, Laxter means the profit from a piece of land or real estate. A tax is not that, it’s a levy on income. Royalties are rents, compensation for the use of public land.

When Lougheed flew over the tar sands moonscape, he was being rhetorical when wondering who the beneficiaries were. As former premier, he knew that the beneficiaries were Big Oil and not primarily those who owned the land.

Despite Lougheed’s pleading for Albertan’s to “think like an owner,” successive Alberta governments fell sway to the push from Big Oil who threatened to leave Alberta if royalties were increased. It was an idle threat, of course. Other governments, like Norway’s, impose higher royalties and Big Oil still continues to profit.

Western provinces tend to think small when it comes to their economies.  Like a young adult, no longer a teenager, provinces fail to think in grown-up ways. Western provinces have trouble seeing beyond living their parent’s basement and working at the equivalent of a fast-food restaurant – quick and easy natural resource extraction.

Mel Watkins, one of Canada’s foremost political economists, foresaw adult economies in his 1963 “staple theory of economic growth.” Simply put, his three pronged maturation involved the export of resources only after they had been processed; then on to the production of finished products instead of importing them; and finally, mature economies which become self-supporting and not dependent on resource extraction.

It hasn’t dawned on Western Canadians that we are there, at the third stage. We have cities with populations over a million; we are large enough to be self-supporting. Unfortunately, the quick-and-easy resource extraction mentality is hard to shake. B.C. Premier Clark imagines our future as the exportation of LNG and has lowered rents to please investors.

The reality is that B.C. and Alberta have the population, the talent and ingenuity to complete the last prong of Watkins’ vision. We need to think like grown-ups.

 

Road to prosperity isn’t paved with reduced wages, labour unrest.

Maybe it’s a clever political manoeuvre.  In a recent newsletter sent to all households in B.C., the provincial Liberals suggest how they would reform government using Ireland and New Zealand as models —  countries who have shown “how we can save tax dollars by making the delivery of government services more efficient and effective.”

The idea of reducing taxes through efficient government strikes special resonance in B.C., but that alone was not the key to the phenomenal economic growth in Ireland.  One key decision was to make all education free — no tuition fees for colleges and universities.  B.C. already has frozen tuition fees, and has one of the lowest costs for education in Canada, but it’s not free.  Do the Liberals propose to lower tuition fees further, or even make education free?

Another part of Ireland’s success is the tripartite agreement reached between government, business and labour.  The resulting labour peace and coordinated industrial strategy focusses the  Irish towards a common goal.  A government that is openly hostile to labour, as in Ontario, is a recipe for reduced productivity.  Will the Liberals establish a good  relationship with unions, as well as business?

Irish artists pay no tax.  The spin-off generated by recording groups, for example,  has increased economic activity in the recording industry.  Nelson Riis, MP, has proposed a private member’s bill that make income generated by artists, up to $30,000, tax free.  The bill has received all party support in Canada’s parliament.

Ireland’s government is now considering a “basic income” scheme in which all citizens receive an annual income, regardless of whether they are working or not.  An guaranteed universal annual income could eliminate welfare payments and provide relief for many workers (usually women) who leave  well paying jobs to care for children or elderly parents.

If the Liberals plan to implement some the Irish solutions, it could be a  clever political manoeuvre to steal the thunder of the NDP.  It has worked for the federal Liberals.  They silenced right-wing critics by implementing the policies of the Reform party. Canadians watched numbly as the feds implemented drastic cuts to health, education and welfare.  If Reform had done the same, there would have been a revolt in the land.  One way to silence political opposition is institute their policies.

Tax saving can have a disastrous effect when it is an ingredient in a different political recipe.  Just look at what happened in New Zealand.  They  swallowed the right-wing concoction whole.  Taxes were cut to the rich on the pretense of creating jobs.  Spending to education and social services were cut, as well as subsidies to farmers .  Public utilities were sold off.

The result was an increase in unemployment and despair in the countries youth.  Teen prostitution increased 800 per cent and 11,000 citizens left the country last year.  Urban crime has become a major problem.  Capital took flight as the rich took their tax cuts and invested their wealth in safer economies elsewhere.  Power outages occur in the private utilities that were unheard of in the public utility.

New Zealanders tossed out the right-wing radical government last December but repair to the damage caused will be a long time coming, and they will probably never get their utilities back.  The new prime minister, Helen Clark, has some advice to others who want to try the New Zealand experiment, “Don’t try it.  It won’t work.”

Tax reductions may be useful as part of an overall strategy of government.  But tax reductions alone, while popular, only benefit the rich.  And the Irish solution involved cooperation —  businesses  limited profits in return for a 10 per cent reduction in corporate taxes. This makes taxes only slightly less than Canada’s.  Personal taxes are approximately the same.

Do the Liberals plan to make government more efficient by reducing union jobs and weakening the labour code? If they plan is to go to war with union workers, as Alberta and Ontario have done, the result will be disastrous.  The road to prosperity in B.C. isn’t paved with reduced wages and labour unrest.

Slide in wages , not taxes, to blame for plight of middle class

If these are the good times, I don’t want to know the bad.  Somebody is making a lot of money, but it isn’t middle class Canadians.   Stock markets are soaring, economic indicators are up, but it’s the rich who are getting obscenely rich.

Middle class Canadians are  working harder, but even with two wage earners in a family they are sinking deeper into debt.  Household debt soared alarmingly by 14 percent in the last decade, according to the Vanier Institute of the Family. Canadians vainly try to maintain a life style they once enjoyed as children when their parents were relatively well off.  They dream of a life of conspicuous consumption that they see  on American television, a life now beyond the grasp of most Canadians and Americans.

The incomes of middle class Canadians are slipping away. Family incomes dropped 6 per cent from 1989 to 1998.  This was a time in which things were supposed to be getting better — the recession of the early 1990s was over.

But try as they might, middle class Canadians are becoming  sucked towards either the extreme pole of poverty, or for a very few at the opposite end, riches.  As they struggle to live the dream, preparation for retirement is sacrificed.  Savings dropped from 10 to 1.5 per cent of after tax income.  Their lost standard of living aches like a phantom limb, a way of life permanently severed. They want answers to the aching loss in their standard of living.

An easy target of their grief is taxes — a cure promoted by the rich, who have the most to gain by tax cuts.  But taxes actually fell slightly in the 1990s, says the Vanier Institute (measured constant dollars). The Tax Revolt should be an Income Revolt, but many Canadians have bought into the mythical benefits of lower taxes.  The billions of dollars of tax reduction announced in the recent federal budget will only amount to a few hundred dollars per person, annually.

No, taxes are not the culprit in the drift towards the bottom . The main reason for the loss in standard of living is a drop in wages, which fell relative to inflation.  Unions participated in the national cause of debt reduction though lower wage demands.  Minimum wages dropped in constant dollar values.  There was a shift from permanent, well paying jobs to part time and  short-contract jobs, and a resulting loss in benefits.  More health care paid out of the employee’s pocket.

Taxes are way of keeping the poles from widening. The plight of low income families has worsened as a result of reduced transfer payments to the provinces from the federal government.  Now that we have a budgetary surplus, more money should be provided in the form of unemployment insurance, universal day care, and other transfers to low income Canadians.

As the middle class slipped into the ranks of the working poor, the poor slipped into the ranks of the destitute homeless.  This was especially true in large cities, according to the Canadian Council on Social Development.  Poverty jumped by the greatest amount in Canada’s largest cities: Montreal, Vancouver and Toronto.

The faces of the poor are easily recognized.  The greatest numbers are single mothers, followed closely by recent immigrants,  urban aboriginals, elderly women, and children.  I would have thought that in a country that loves children, Canadians would gladly pay taxes that goes to see them decently clothed, fed and sheltered.

The urban poor are soon to be joined, I suspect, by farmers abandoned by an uncaring government who is not concerned at all to see them plowed under by global free trade.  Other countries are prepared to subsidize a rural life, but the prime minister’s classic shrug seems to say, “let them eat dirt”.

If you can’t find a compelling social or moral reason why tax dollars should help the poor, think of it in practical terms.   As poor Canadians resort to crime, the cost of policing, the court systems and incarceration increases.  Think about the lost productivity of those millions of people who are not doing useful work that could benefit themselves and society as a whole.

The good times roll, it seems, to the beat of a funeral dirge.