Commentary: The super-sized contributions from oil and gas, Albertans to Ottawa

Canada's parliament building in Ottawa. Getty Images photo

No matter how you slice it, Canada’s oil and natural gas sector has been one of the nation’s most significant contributors to jobs, GDP and tax revenues over the decades.

Even in down years, such as in 2016 (for which we have comprehensive data), the oil and gas extraction sector (narrowly defined to include conventional and the oil sands but not pipelines) was twice the size of the automotive sector as a percentage of nominal GDP. It was four times the size of the aerospace industry.

In 2016, the oil and gas sector employed over 200,000 Canadians and paid average weekly earnings that were 172 per cent higher than the all-industry average ($2,727 weekly versus $1,001). It employed 28,800 new immigrants to Canada. It paid those of First Nations ancestry better than any other sector: $144,034 was the median income for oil and gas Indigenous workers. That was far higher than in the motor vehicle ($78,019) or aerospace ($64,631) manufacturing sectors.

As a proportion of its workforce,  the oil and gas industry also employed more Indigenous Canadians than any other industry (5.2 per cent in oil and gas extraction versus 2.5 per cent in vehicle manufacturing and 1.5 per cent in aerospace). Meanwhile, the oil and gas sector spending on the environment was $24 billion, or 42 per cent of all environmental spending by all companies, between 2006 and 2016.

Those are some of the significant numbers from the oil and natural gas sector before even getting to the benefits of pipeline construction, or the revenues that accrue to First Nations reserves and cities, towns, and villages across the country that profit from oil and gas activity.

On carbon emissions, it turns out that greenhouse gas emissions intensity when properly measured — i.e., including economic activity — has been falling over two decades. That includes measurements per person, per unit of GDP, per unit of energy used, and per barrel of oil produced.

In addition to such progress and a cornucopia of benefits to legions of Canadians, there are specific impacts on federal finances. Case in point: The gusher of revenues sent eastward from Alberta’s oil and gas extraction sector, and from Albertans more generally, to the federal government.

Most people are likely aware that in broad strokes Albertans are the largest net contributors to federal finances through federal taxes paid by individuals and companies. Three University of Calgary economists pegged the average annual figure between 1961 and 2018 at $3,700 per Albertan. (Ontario was next at $1,267 per capita with British Columbia’s figure at $603 per person.)

What most Canadians may not be aware of is how much of Alberta’s net contribution comes from the oil and gas extraction sector. Using custom data from Statistics Canada, we added up the corporate and personal income taxes paid by the sector between 2007 and 2018. The conservative estimate of just direct taxes from oil and gas extraction? Nearly $50 billion dollars.

That $50 billion represents just under 10 per cent of the $512 billion sent to the federal government from Albertans between 2007 and 2018 inclusive. And when you perform the net calculation — all the revenue sent to the federal government in those years minus the dollars spent by the federal government in Alberta or transferred to Albertans or the provincial government — the net transfers of cash away from Alberta totalled $252 billion.

Or expressed another way: Fully 20 per cent of the net revenue (nearly $50 billion of the $252 billion) sent to the federal government between 2007 and 2018 came from taxes paid by Albertans who worked in oil and gas extraction sector or oil and gas companies based in Alberta.

That $50 billion represents an average of $4.1 billion annually sent to Ottawa in those years. It is part of the larger, Alberta net cash flow to Ottawa that, depending on the year, has ranged between $16.9 billion (in 2016) and $27.4 billion (in 2014). The net annual average sent to the federal government between 2007 and 2018 was $21 billion.

Some caveats. The $50 billion figure from the oil and gas extraction sector is a conservative estimate. It measures just direct taxes paid but not indirect taxes (GST, excise taxes, fuel taxes and the like).

Also, on the question of net transfers between Albertans and the federal government, some imbalance between cash flow “out” and cash flow “in” is to be expected. For example, when Alberta was booming, Albertans paid a lot in employment insurance premiums whereas very few Albertans collected EI. That’s a natural imbalance.

But when the wider, deeper look at the oil and gas extraction sector is considered, from First Nations to federal finances, any sober analysis about its importance to Canada’s future — GDP, jobs, incomes, or tax revenues — cannot be understated.

The oil and natural gas sector in Canada is one of the country’s most significant industries. The only question is whether political and activist attacks on it will succeed, or if it will blunt such attacks to again thrive.

Mark Milke and Lennie Kaplan are with the Canadian Energy Centre, an Alberta government corporation funded in part by taxes paid by industry on carbon emissions. They are authors of $50 billion and $512 billion to Ottawa: The Alberta oil and gas sector (and Alberta’s) contribution to federal finances 2007-2018.

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