Proposed U.S. tax reform bad for Canadian oil industry, report says

The director of the University of Calgary's School of Public Policy says Canada's oil sector may be about to lose its competitive advantage when it comes to attracting investments.

'Our industry will probably not be competitive anymore,' says Jack Mintz

Jack Mintz with the University of Calgary's School of Public Policy, left, said a lower U.S. corporate tax rate, combined with the lightening of U.S. regulations, will draw oil investors to the larger U.S. market. (CBC)

The director of the University of Calgary's School of Public Policy says Canada's oil sector may be about to lose its competitive advantage when it comes to attracting investments.

In a report released Tuesday, Jack Mintz with School of Public Policy said President Donald Trump's tax-reform proposal and the blueprint put forward by the House of Representatives would make new investments in the U.S. oil industry more attractive.

"The United States is currently preparing for significant reforms to the tax system," Mintz told CBC News. "Business taxation is very high on the list, in the interest in spurring investments in the U.S."

Mintz said both proposed models for U.S. tax reform would see corporate income tax rates lowered, bringing the U.S.'s marginal effective tax and royalty rate closer to rates in Canada — something Mintz said would have "a very significant impact" on Canada's oil industry.

"Overall, our industry will probably not be competitive anymore once you take into account both regulations and carbon policies, relative to United States, if these plans go ahead," Mintz said.

'That big tax advantage … would be gone'

Trump's plan proposes a federal corporate income tax rate cut from 35 to 15 per cent. The House of Representatives' plan proposes to lower the rate to 20 per cent, but also introduces a "100 per cent write-off" for all capital expenditures.

Mintz called the proposals "dramatic," with the combined tax burden on U.S oil dropping "from roughly 36 per cent to the Canadian level."

U.S. President Donald Trump speaks about tax reform during a visit last month to Loren Cook Company in Springfield, Missouri. (Kevin Lamarque/Reuters)

"So that big tax advantage that we built up would be gone, as a result," Mintz said.

The report said Alberta enjoys the lowest marginal effective tax and royalty rate of all provinces and the lowest when looking at "nearly all comparable U.S. states measured," with the exception of Pennsylvania.

If the Republicans' tax proposals are passed, the report says Alberta would lose a completive edge while Saskatchewan would become "one of the highest taxed oil-producing jurisdictions."

Extra pressure

Mintz said a lower U.S. corporate tax rate combined with the lightening of U.S.regulations would draw investors to the larger and faster-growing U.S. market.

Add in a lack of any plan for a U.S. carbon tax, and Mintz says the oil markets down south could start attracting companies that may have been looking to invest in the Canadian market.

Mintz said the carbon tax would need to be revised to keep Alberta competitive if the proposed tax reforms go through.

"But if policymakers want to deal with competitiveness, they have to get smarter in respect to their carbon policies," Mintz said. "[It] doesn't mean you have to get rid of the carbon policies, it's just that you try to make them as least costly as possible."

Mintz said there is "huge pressure" on Republicans to deliver on tax reform after they failed to pass the American Health Care Reform Act earlier this year or they risk "upsetting their base in 2018."

With files from Dave Will