OTTAWA — Proponents of imposing a windfall tax on the Canadian oil and gas industry now have another global power setting precedent for the policy.
On Wednesday, the European Commission proposed levying such a tax on the energy sector and redirecting funds to households and businesses struggling with high inflation. It estimates the policy would bring in 140 million euros (around $186 million) in revenue.
The European Union is not the only jurisdiction to pursue an extra tax on the energy sector. Earlier this year, the United Kingdom imposed a windfall tax on oil and gas producers. Since then, however, new Prime Minister Liz Truss has come out against the policy and indicated she would not bring in any new windfall taxes.
Progressives in the United States have also campaigned for a windfall tax on oil and gas companies amid rising inflation.
The global push for windfall taxes comes as some corporations, especially those in the oil and gas sector, have posted record profits since the onset of the COVID-19 pandemic.
In Canada, the latest quarterly report on gross domestic product from Statistics Canada says non-financial corporations have benefited from strong energy prices. According to the federal agency, dividends paid out by such corporations were up 9.1 per cent in the second quarter of 2022. Meanwhile, worker compensation in Canada rose two per cent.
Senior economist David Macdonald of the Canadian Centre for Policy Alternatives recently looked at just how much gross domestic product is accounted for by corporate profits. His analysis found that after-tax corporate profits reached a historically high percentage of the total Canadian economy output in the second quarter of this year.
In contrast, Macdonald found workers’ compensation as a share of gross domestic product fell to the lowest level since 2006. “The inflationary period has been a tremendously good period for corporate profits, less so for workers’ wages.”
Macdonald supports imposing windfall taxes to address this trend.
The NDP has been calling on the federal government to extend the windfall tax levied on financial institutions earlier this year to the oil and gas sector as well as big box stores. The party has argued the funds raised from extending the windfall tax could be used to send more money to low- and modest-income families struggling with high inflation.
On the latter proposal, the NDP posted a win when the Liberals announced on Tuesday they would double the GST rebate for six months. As for extending the windfall tax, NDP finance critic Daniel Blaikie said he’s received no indication from Finance Minister Chrystia Freeland that it was on the table.
“We are going to continue to push on these things,” Blaikie said. “And I think the announcement about the GST rebate is cause for some optimism that even when the government gets it wrong out of the gate that we can make them change course.”
The Finance Department declined to comment on whether it is considering extending the windfall tax policy.
Many economists oppose windfall taxes over concerns they can discourage business investment.
Michael Smart, an economics professor at the University of Toronto and co-director of the Finances of the Nation project, said the EU’s pursuit of a windfall tax reflects a unique situation in that region, with energy prices having shot up dramatically.
“We don’t face quite the same situation here,” Smart said, adding that windfall taxes are difficult to implement and should be seldom used.
“I don’t think it’s warranted (here).”
Mostafa Askari, chief economist at the Institute of Fiscal Studies and Democracy, said if the government were to pursue a windfall tax, it would first have to decide its intended purpose.
“Targeting (the) energy sector, to me, it’s somewhat odd, unless there is a desperate need for extra funding for the government,” he said.
Given government revenues have been up because of high inflation, Askari said the case for extra funding isn’t there. The other concern, he said, is oil and gas companies might be able to pass on these additional taxes to consumers through higher prices.
However, despite disagreement among economists on the policy, polling suggests the overwhelming majority of Canadians support a tax on businesses whose profits were extraordinarily high during the pandemic. A poll conducted by Abacus Data on behalf of the Broadbent Institute and the Professional Institute for the Public Service of Canada in July 2021 found 87 per cent of Canadians were in favour of the policy.
The survey was conducted online with 1,500 Canadian adults from July 13 to 19, 2021. It cannot be assigned a margin of error because online polls are not considered truly random samples.
Blaikie said the NDP is relying on public support to convince the Liberals on the policy.
“I think the more Canadians that are out there calling for these kinds of measures alongside us in the NDP, the more likely we are to see a positive result.”
This report by The Canadian Press was first published Sept. 18, 2022.
Demands for government intervention in Air Canada labour talks could negatively affect airline competition in Canada, the CEO of travel company Transat AT Inc. said.
“The extension of such an extraordinary intervention to Air Canada would be an undeniable competitive advantage to the detriment of other Canadian airlines,” Annick Guérard told analysts on an earnings conference call on Thursday.
“The time and urgency is now. It is time to restore healthy competition in Canada,” she added.
Air Canada has asked the federal government to be ready to intervene and request arbitration as early as this weekend to avoid disruptions.
Comments on the potential Air Canada pilot strike or lock out came as Transat reported third-quarter financial results.
Guérard recalled Transat’s labour negotiations with its flight attendants earlier this year, which the company said it handled without asking for government intervention.
The airline’s 2,100 flight attendants voted 99 per cent in favour of a strike mandate and twice rejected tentative deals before approving a new collective agreement in late February.
As the collective agreement for Air Transat pilots ends in June next year, Guérard anticipates similar pressure to increase overall wages as seen in Air Canada’s negotiations, but reckons it will come out “as a win, win, win deal.”
“The pilots are preparing on their side, we are preparing on our side and we’re confident that we’re going to come up with a reasonable deal,” she told analysts when asked about the upcoming negotiations.
The parent company of Air Transat reported it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31. The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
It attributed reduced revenues to lower airline unit revenues, competition, industry-wide overcapacity and economic uncertainty.
Air Transat is also among the airlines facing challenges related to the recall of Pratt & Whitney turbofan jet engines for inspection and repair.
The recall has so far grounded six aircraft, Guérard said on the call.
“We have agreed to financial compensation for grounded aircraft during the 2023-2024 period,” she said. “Alongside this financial compensation, Pratt & Whitney will provide us with two additional spare engines, which we intend to monetize through a sell and lease back transaction.”
Looking ahead, the CEO said she expects consumer demand to remain somewhat uncertain amid high interest rates.
“We are currently seeing ongoing pricing pressure extending into the winter season,” she added. Air Transat is not planning on adding additional aircraft next year but anticipates stability.
“(2025) for us will be much more stable than 2024 in terms of fleet movements and operation, and this will definitely have a positive effect on cost and customer satisfaction as well,” the CEO told analysts.
“We are more and more moving away from all the disruption that we had to go through early in 2024,” she added.
This report by The Canadian Press was first published Sept. 12, 2024.
