I’m not sure if most people understand just how important oil and gas and other mining has become to the Canadian economy. More specifically, how dependent we have become on non-renewable resources royalties to fund public services and infrastructure.
According to the federal Department of Finance, there are six provinces in 2011-12 that received equalization payments from Ottawa. Quebec garnered the highest amount at $7.8-billion followed by Ontario ($2.2-billion), Manitoba ($1.67-billion), New Brunswick ($1.48-billion), Nova Scotia ($1.17-billion) and Prince Edward Island ($329-million).
In order to qualify for equalization, a province has to be deemed unable to raise enough revenue (the technical term is a lack of ‘fiscal capacity’) to adequately fund public services.
The four ‘have’ provinces all generate a substantial portion of their revenue from royalties skimmed off the top from non-renewable resource industries such as oil, gas and potash mining. The Government of Newfoundland and Labrador produces 38 per cent of its revenue from royalties. Alberta is the second-most reliant at 24 per cent of revenue. At 21 per cent of total revenue, Saskatchewan is also highly dependent on royalties from non-renewable resources. British Columbia generates 7.5 per cent of its annual revenue needs from royalties.
The six ‘have-not’ provinces derive only from 0.1 per cent to 1.5 per cent of total government revenue from royalties on non-renewable resources.
These extractive industries are filling provincial government coffers in other ways. They pay a disproportionate share of corporate income taxes and above average wages lead to higher levels of personal income taxes paid. Across Canada, the average weekly wage in the oil and gas extraction sector is 88 per cent higher than the all-industry average.
Nova Scotia has received a taste of the seductive power of natural gas from its offshore fields -- Cohasset and Sable. Royalty and related provincial government revenue exploded from around $20-million per year in the early 2000s to $500-million in 2009. However, offshore gas is now in decline leaving a province looking for new opportunities. Nova Scotia is thought to have a large store of natural gas trapped in its shale beds.
New Brunswick is estimated to have 87 trillion cubic feet of natural gas trapped in its shale bed in just two areas under exploration. According to geological data, the potential for shale gas extends from the southern part of the province through to the far northeastern corner. The government has said that if the industry takes off it could lead to an ongoing royalty revenue stream of $200-million per year and tens of millions more in taxes from other sources.
But I fear the industry may never get the chance to be a game-chagers. I have never seen such a passionate outcry against any form of industrial development in my nearly 25 years studying economic development. Environmental groups, opposition provincial political parties and even most local politicians appear to be nervous about what shale gas might do to the environment. One company doing exploration in New Brunswick has reported vandalism and has hired security guards to protect its workers from angry protestors.
Across North America, the shale gas industry will be an important economic growth engine. The Obama administration has called shale gas a vital part of the U.S. energy strategy and former president Bill Clinton says shale gas will be one of the economic drivers that will revive the moribund U.S. economy.
It remains to be seen whether or not the Maritimes take advantage of this resource to revive a struggling regional economy.
David Campbell is an economic development consultant and columnist based in Moncton, New Brunswick. He also authors a daily blog on economic issues in Atlantic Canada which can be found at www.davidwcampbell.com.