Finance Minister Mike de Jong will reveal in his provincial budget how his government intends to extract enough revenue from a liquefied natural gas industry to retire the provincial debt – currently $56-billion and growing.
The framework for a tax regime for LNG is not expected to unlock a flood of final investment decisions – industry is likely to wait until legislation is passed later this year. But the budget announcement on Tuesday will include more details setting out how the B.C. Liberal government expects to live up to its election campaign promise of a “debt-free B.C.”
The first LNG dollar isn’t expected flow into the treasury until the year 2017, but the government has been under pressure to lay out the foundation for that campaign pledge.
As for the budget itself, Mr. de Jong confirmed it will forecast a surplus and that the budget for the year just ending will also be in the black.
“It’s almost been relegated to non-news status – but that’s okay, we want that to be the norm,” he told reporters Monday as he donned his old, re-soled budget shoes in the grimy workshop of the Olde Town Shoe Repair in Victoria. Mr. de Jong used the event as a symbol of his government’s commitment to maintaining fiscal discipline.
The balanced budget may not be the headline out of the fiscal plan on Tuesday, but the Finance Minister is also playing down expectations of new spending or tax measures. That may leave the LNG framework at the centre of attention, even though it has no real financial impact on the 2014-15 budget plan.
The B.C. Liberals are banking on a string of LNG plants opening up along the coast, with at least three online by 2020. Premier Christy Clark promised on the eve of the May 2013 provincial election that the Liberals would establish a “prosperity fund” to collect LNG revenues as well as taxes from the proposed Kitimat Clean refinery. The fund would collect up to $100-billion over the next 30 years if five LNG plants are in operation, according to the Liberal election platform. The platform promised that the fund would be used to eliminate not just the direct provincial debt, but also the debt for Crown corporations including B.C. Ferries and B.C. Hydro.
Potential investors will be watching for details of the proposed tax regime, but also for other cost factors such as environmental requirements before any decisions are made to commit to building LNG facilities in B.C., industry spokesman Geoff Morrison said in an interview Monday.
“The market will want clarity,” said Mr. Morrison, of the Canadian Association of Petroleum Producers. “The tax is not the only component; it is the regulatory costs, environmental requirements – the all-in cost.”
Mr. Morrison said the industry expects the government to announce an income tax specific to LNG, but key questions remain, such as when the tax would be due. “It’s a capital-intensive industry. Do they have to pay the tax the minute they start shipping?”
Other details of the LNG framework may be rolled out over the coming weeks. In addition to the tax questions, the government has promised that B.C. LNG would be “the cleanest in the world” and it is not yet clear how that will be achieved. As well, the province is expected to set out a plan for benefit-sharing with First Nations communities, and has already been in negotiations with dozens of aboriginal communities.
Robin Austin, the NDP’s critic for LNG, said the framework is long overdue. “I’m hopeful, like most of us, that there will be some details in the budget,” he said Monday.
“But if it is only more hyperbole around all the jobs which will never be there, the paying off the provincial debt which will not happen – that will tell us the government is seriously in trouble on this file. They have over-promised British Columbians. There is no way they can accomplish all of the goals the government has set while still making B.C. an attractive place to invest.”