October 28 Federal Budget-spotlight On Energy

Abstract

Abstract The government's proposed National Energy Program stole the spotlight in federal Finance Minister MacEachen's budget which was released on October 28, 1980; and, it's a spotlight which the petroleum industry did not particularly want. Reaction to the Program was slow at first-not surprisingly, in view of the complexity and range of the new energy package, but when the initial reaction did come, it was profound, manifesting itself in plummeting share prices, industry outcry, postponed or cancelled projects, and similar responses. This month, Tax Topics examines the October, 1980 federal budget, with prime focus, of course, on the proposed National Energy Program. Introduction Finance Minister MacEachen confounded the prophets in his budget address on October 28, 1980, by not raising personal or corporation taxes and by making only relatively modest changes in the general tax system. Instead, he concentrated on a sweeping new energy policy. The budget contains a multitude of tax and pricing proposals on oil and gas which are 'estimated to raise federal revenues by perhaps $6 billion a year by 1983/84. However, although both consumers and the petroleum industry will bear substantially higher burdens, Mr. MacEachen went part way to avoid a direct total confrontation with the producing provinces over energy policies. The Finance Minister's proposals on energy pricing, industry taxation, and an enhanced role for the federal government and its agency. Petro-Canada, were greeted with strong opposition from the producing provinces; but he did stop short of imposing a gas export tax which would have been regarded by some Western provinces as a direct challenge to their authority. His "compromise" solution will increase the federal share of petroleum revenues-mainly through new federal taxes on oil and gas. A cutback in depletion incentives to the petroleum industry is to be partly counterbalanced by a new system of direct government grants. The federal energy policy unveiled by Mr. MacEachen also seeks to achieve a substantially higher Canadian owner- ship-50%-of oil and gas production by 1990. This is to be accomplished by channeling higher exploration and development subsidies and grants to Canadian-controlled companies, financed if necessary by an additional tax on Canadian consumers. The general tax changes announced by Mr. MacEachen include:Some tightening in the general tax rules on business-corporations and most businessmen will now have no option but to report interest income on the accrual basis.No change in corporate tax rate.No change in personal tax rates, and indexing of rate brackets and exemption to continue (the factor for 1981 is 9.8%).Increased investment tax credits-up to 50% on qualifying investment in certain designated areas.Reintroduction of the special tax rules relating to Multiple Unit Residential Buildings (MURBs).Higher taxes on alcohol and tobacco- but not until after April 1, 1981-and higher sales taxes on assembly and packing operations.Increased employer and employee unemployment insurance contributions. National Energy Program