Friday, June 12, 2015

against a royalty increase

One of the campaign promises of the Alberta NDP was a pledge to increase oil royalties. Now when a politician tells you they aren't going to raise taxes you should still expect them to raise taxes.  But when a politician tells you they are going to raise taxes then you can bet your bottom dollar that taxes are going up. And what softer target can one imagine than the universally despised oil companies? Those callous despoilers of oceans and warmers of planets!  But is it really a good idea to increase oil royalties? What will be the impact of this tax grab?

One problem with the imposition (or, as in our case, the increase) of a partial excise tax is that factors of production are shifted out of the given industry and redirected towards less efficacious ends. Given that price is determined by supply and demand the levy cannot simply be directly passed on to consumers. Instead it is imputed back to factors of production in terms of lower wages and returns on capital. This will also work to drive marginal firms, those which are breaking even, out of the industry to seek better opportunities in other fields. The exodus of non specific factors of production will lead to a decreased supply which in turn will eventually mean higher prices for consumers.

There is a moral issue here as well. Despite the claims of the government of Alberta the oil in the tar sands does not belong to "the people of Alberta" but rather to those who expended the capital and labour necessary to bring the product to market. It is wrong that the state should take from those who have worked long and hard (or those who bankrolled the project) in order to give to those who played no part in the creation of this wealth. It is wrong to live parasitically off the efforts of others and especially wrong to do so through the use of force. Wealth belongs to those who create it not.

Instead of increasing oil royalties it would be better for this tax to be lowered or removed entirely.

Thursday, June 4, 2015

nobody wins a trade war

The Canadian government has a beef with an american law requiring stringent country-of-origin labelling on meat products and is now threatening retaliatory tariffs on a whole slew of goods if the law is not repealed. But is it really wise to use Canadian consumers as human shields in an effort to force Americans to eat more Canadian AAA? The sanguine response to any foreign impediment on free trade (especially something as benign as a labelling law) would be to remain apathetic in the face of foreign protectionism. The best approach is one of unilateral free trade. We can only really control what we do, not what other people do, and by far the best strategy for Canadians is to embrace free trade. Instead of imposing quotas, subsidies or tariffs we should remove these wherever they exist without concern for whether or not our actions are reciprocated. Domestic producers should be exposed to foreign competition; they must either improve their process and be able to provide the consumer with a superior product or a lower price or go under and let their capital be acquired by someone who can. The death of a firm in a market economy is a healthy process not should not be grieved. Nor should we complain if a foreign government subsidizes their producers and this results in a cheaper product than we can make here. The impact of this policy is for foreign taxpayers to indirectly subsidize Canadian consumers. Well what's wrong with that?