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.

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

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

Mintzsaid bothproposed models for U.S. tax reformwould seecorporate income tax rates lowered, bringing the U.S.'smarginal effective tax and royalty ratecloser to ratesin Canadasomething Mintzsaid would have"avery significant impact" on Canada's oil industry.

"Overall, our industrywill probably not be competitive anymoreonce you take into account both regulations and carbon policies,relative to United States, if these plans go ahead," Mintzsaid.

'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.

Mintzcalled the proposals "dramatic," withthe combinedtax burden on U.S oil dropping "from roughly 36 per cent to the Canadian level."

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

The report said Alberta enjoys the lowestmarginal effective tax and royalty rateof all provinces andthe lowestwhen 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 acompletiveedgewhile Saskatchewan would become "one of the highest taxed oil-producing jurisdictions."

Extra pressure

Mintz said a lower U.S. corporate tax rate combined withthe lightening of U.S.regulations would draw investors to thelargerand faster-growingU.S. market.

Add in a lack of any plan for a U.S. carbon tax, and Mintzsays the oil markets down south could start attracting companiesthat mayhave been looking to invest in the Canadian market.

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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'tmean you have to get rid of the carbon policies, it's just that you try to make them as least costly as possible."

Mintzsaid there is "huge pressure" onRepublicans to deliver on tax reform after theyfailed to pass theAmerican Health Care Reform Act earlier this year or they risk"upsetting their base in 2018."

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