Q: Why is CAPP concerned with the issue of municipal competitiveness in Alberta?
A: Municipal taxes are a significant cost burden to producers. We estimate municipal taxes represent $1.1 billion in annual costs to CAPP members—making it the second highest cost factor, after royalties, that producers pay.
More concerning is that here in Alberta, property taxes in rural and specialized municipalities, which is where our members usually operate, have increased by $60 million a year from 2010 to 2014—that’s a seven per cent annual increase. Even before the economic downturn, we were concerned about how inflationary property taxes have become a major driver of rising operating costs for our members—as well as a disincentive for future oil and gas investment and exploration.
The new economic reality of severely depressed oil and natural gas prices, along with cumulative costs associated with last year’s corporate tax increase and changes to the Alberta carbon levy, make the need to address this issue even more pressing.
Q: What’s driving the escalation of municipal taxes on industry?
A: In Alberta, we’re seeing rising local taxes that vary wildly from county to county. In some communities, industrial property taxes have doubled in the past decade.
Central to this issue are changes to how much properties are taxed—in particular, increases to non-residential-to-residential property tax ratios. A sustainable ratio is usually somewhere between 1.0 and 2.0. Throughout the province, however, non-residential tax rates have risen so rapidly that they are now, on average, nearly four times higher than residential rates in rural and specialized communities. That’s an increase of more than 100 per cent over the past decade.
"Property taxes have become a major driver of rising operating costs for our members."Ben Brunnen, Vice President Oil Sands, CAPP
Q: How does Alberta compare to other producing jurisdictions?
A: Oil and natural gas industry assets are valued five times higher in Alberta compared to British Columbia and Saskatchewan. As a result, at equivalent tax rates, property taxes are significantly higher in Alberta. We know that investment capital is mobile and these kinds of imbalances over time discourage investment.
Q: What is CAPP doing about this issue?
A: The Alberta government is in the process of modernizing its Municipal Government Act (MGA). This provides CAPP a unique opportunity. We have been and will continue to participate in consultations that are part of the MGA review process, highlighting issues of increasing property taxes, inconsistencies in assessment preparation and appeals, cumulative cost burden and cost imbalances relative to neighbouring jurisdictions.
We are also raising the profile of issues related to municipal competitiveness as part of our broader outreach program to municipalities, business communities and local media.
Q: Are there specific changes you are looking for in the MGA review?
A: In the short term, we are proposing that the non-residential-to-residential property tax rate ratios be frozen. We are also proposing that Alberta assessments take into account declining construction and service costs when assessing the value of industrial properties.
Over the longer term, we are encouraging the provincial government to consider the creation of a centralized authority to govern how industry assets are valued and assessed. This is the approach used in most other Canadian provinces, and it helps ensure a fair outcome and consistent process.
We also will encourage the province and municipalities to re-introduce a link between non-residential and residential property tax rates so that the ratio stays between one and two.