What are we calling for?
We are calling for the federal government to immediately implement a windfall profits tax: an increase in the corporate tax rate levied on oil and gas companies. The revenue raised should be redistributed to Canadians struggling with affordability via rebate cheques.
- The tax rate should be determined based on the differential between current oil prices and the average price per barrel of a certain time period.
- For example, Congressional Democrats in the US have called for a 50% tax per barrel on the differential between current oil prices and the 2015-2019 average price.
- Ultimately it should be up to experts in the federal government to identify the best tax rate and differential in the Canadian context.
The Canadian Centre for Policy Alternatives has argued for a windfall profits tax. Extreme hikes in oil and gas prices are garnering windfall profits, which economists call economic rent, because it is unearned income by virtue of ownership, as opposed to income flowing from productive economic growth. Economists consider it efficient and fair to tax economic rents at a high rate. Such a tax could be redistributed to Canadians struggling with high prices and inflation.
Why are we calling for this?
Canadians are struggling with record-breaking affordability challenges and oil and gas companies are taking advantage to pad their profits. The federal government has thus far failed to intervene.
As it stands, oil and gas development in Canada is directly exacerbating the climate crisis and having local impacts on communities – such as poisoning water, exposing the public to harmful chemicals, and more.
Oil and gas companies get discounts for operating in Canada. Oil and gas companies have long taken advantage of these subsidies by taking Canadian resources at discount rates and selling them back to Canadians at unduly inflated prices, for profit. Canadians pay extremely high prices at the pump, and suffer the repercussions of externalities to oil and gas development.
- Canadian O&G companies are seeing record breaking profits.
- Cenovus recently announced its best first-quarter profit ever as the company raked in $1.6-billion, compared to $220-million dollars in the first quarter of last year.
- Imperial Oil had its best opening quarter in 30 years as it posted profits of $1.17-billion.
- Canadian Natural resources more than doubled its year-over-year first quarter numbers with a profit of $3.1-billion.
- And Suncor brought home $2.95-billion in quarter one, nearly quadrupling last year’s results of $800-million.
- United Kingdom:
- In May 2022, the British government instituted 25 percent windfall tax on the profits of oil and gas firms that would be used to support $19 billion in assistance for low-income households struggling with a sharp spike in the cost of living.
- In March 2022 the Spanish government removed taxes from home energy bills, offset by enforcing a levy on companies deemed to have profited from high gas prices.
- In May 2022 the Italian government announced that it will tax the profits of energy companies at 25% following soaring energy costs.
- This move was framed as a response to Russia’s invasion of Ukraine and resulting high energy prices.
- The tax is a hike from an existing 10% tax imposed in March.
- In May 2022 the Greek government announced a tax of windfall profits incurred by large power producers.
- The legislation includes a compensation mechanism for power plants based on their operating costs and disconnected from wholesale power prices.
- Sen. Bernie Sanders (I-Vt.) recently introduced legislation in the Senate that would impose a 95 percent windfall tax on the excess profits of major companies
- Sen. Sheldon Whitehouse and Rep. Ro Khanna introduced the Big Oil Windfall Profits Tax.
- American economists have suggested several other options for how a windfall tax could function.