Tuesday, October 30, 2007

Long-needed royalty rework requires too much, too late

A column from the Oct. 29 edition of The Hinton Parklander:

It has become easier to understand why such a ruckus awaited the Oct. 25 announcement of a new royalty regime for Alberta.
An earthquake occurs when built up pressure is released in a snap, shaking everything within a wide distance.
I won’t resort to Liberal leader Kevin Taft’s tired dramatics in saying that waiting seven years to rework royalties amounts to “the most expensive scandal in Canadian history.” But, it is clear that Albertans have suffered from Ralph Klein’s mismanagement of royalties.
You can hear Klein’s frank voice asking why we are complaining, since the vast majority of us have jobs and Alberta is the wealthiest per capita province in the country. Heck, he even sent us all cheques. The credit for making our province rich lies with the corporations that ate the risks, but mostly with the international market and the high price of oil. No rock bottom royalty rate ever equalled the stimulating power of a $90 barrel of oil.
Klein didn’t get in the way, but he hardly paved it. There’s a tremendous infrastructure, human resource and social deficit that today holds back rather than helps industry. Yes, he paid off the debt and kept taxes low, but other oil-wealthy countries managed to amass hundreds of billions of dollars in their reserve funds during the same period. This province has enough money on hand that we should not have to face make-or-break decision between massive job losses and fair economic rent on resources shows.
By ignoring frequent calls from his top bureaucrats and stifled political opposition to slowly adjust royalty rates, Klein has tied Ed Stelmach’s hands in that he cannot raise royalties to a proper level without paying deep economic costs.
Though it hasn’t become clear in the public debate, the real issue with the royalty hike is not the price increase so much as its scale.
Any successful businessperson understands that escalating costs are a reality of the business world, and they plan accordingly. However, few businesses can sustain a 20 per cent increase all at once. It would have been responsible and business-minded for Klein to slowly and reasonably raise royalties over years within a smarter framework and reinvest those extra dollars directly in infrastructure. Improved road and rail access, smartly planned communities, and suitable healthcare and housing are assets to business. A business grows slowly with its profits, and so should the government’s services to those profit motors.
Instead, we face corporate backlash while we sit without many of the infrastructure and service improvements that a smart business plan could have afforded.
I applaud Premier Stelmach for his measured response, especially in considering the needs of the deep well gas industry, but even his good management will not make up for seven wasted years.
Sadly and ironically, Albertans voted for Klein in droves; voter beware.
Please direct questions or comments to richard@hintonparklander.com

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