A University of Saskatchewan student argues that the absence of reform for potash royalties means the province is losing out on billions.
Tax reform, or a lack thereof, is costing Saskatchewan taxpayers billions.
When the Saskatchewan Party took power in 2007, energy minister Bill Boyd promised that royalty rates would not be hiked for at least 12 years. That promise has a price tag larger than Saskatchewan’s ever-rising debt.
Economist Erin Weir recently completed a report detailing just how much Saskatchewan has missed out on resource revenue windfalls in recent years.
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Of a $10-billion increase in sales for 2022, Saskatchewan only collected $2.4 billion, less than a quarter of the windfall profits from a resource that belongs to Saskatchewan’s people.
Canadian tax policy expert Jack Mintz called Saskatchewan’s potash royalty regime “a mess” in 2010, “incoherent and absurd” in a 2013 paper, and “the least efficient and least competitive in the world” in 2015.
So complex is Saskatchewan’s royalty regime that it is possible for two potash projects to have marginal effective tax and royalty rates diverging by 48 percentage points. Companies in the same industry paying wildly divergent tax rates — you can’t get much more uncompetitive than that.
And yet, after over a decade of calls from economists to simplify royalties, the system remains unimproved.
Mintz and economist Duanjie Chen calculated in 2013 that if Saskatchewan simplified its royalty structure the province could levy a 70 per cent tax on profits and still maintain the current investment incentive.
Applying that rate to Nutrien and Mosaic, between 2017 and 2022, the province could have collected an additional $10 billion. That works out to an average of 38 per cent of sales per year, in contrast to what the province actually collected, less than 13 per cent per year.
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Applying that average across all sales, if Saskatchewan had reformed royalties in 2008 instead of promising to ignore tax reform for over a decade, provincial coffers would be $25 billion better off. That’s more than the entirety of Saskatchewan’s taxpayer-supported debt.
Add in interest saved from the province being debt-free, and Saskatchewan would still be $25 billion richer if the 2017 provincial sales tax hike had never happened.
There’s no plausible reason why a government could want to burden citizens with more debt and taxes and collect less revenue, while simultaneously driving away potential investment with an overly complex royalty system.
But potash royalties aren’t the only taxes in Saskatchewan that get a failing grade on efficiency.
Jack Mintz has acknowledged that Saskatchewan’s New Democrats pursued tax reforms to attract investment in the early 2000s, but wrote that he was surprised that tax reform stopped with the supposedly conservative Saskatchewan Party.
He wrote again in 2015 that Saskatchewan has one of the highest tax burdens on new investment in the world, and suggested that harmonizing the provincial sales tax would greatly ease this burden by taking tax off business inputs.
Still, the province has seen no change on that tax front. The government recently touted lowering income taxes by $830 million since 2007, but the provincial sales tax hike in 2017 was worth nearly $900 million, and the government is collecting $2.7 billion more in taxes than it was just five years ago.
Improving tax efficiency costs nothing. Inefficiency is waste, and reducing waste frees up dollars for public services while keeping taxes low. Saskatchewan has missed out on billions in potential revenues and investment, but the province can prevent these losses in future if it chooses to act now.
It’s time for the government to finally review not only its potash royalty system but its whole tax structure because taxpayers and job seekers across the province are missing out on substantial returns.
Ty Thiessen is a University of Saskatchewan student researching methods of government finance and debt reduction.
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