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.

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