Canada's oil and gas industry says the federal government has missed the mark with its plan to tax share buybacks, arguing it could discourage investment in the domestic energy industry.
In a statement, the Canadian Association of Petroleum Producers (CAPP) said the disparity with U.S. policy could funnel investor interest out of Canada and towards lower-tax jurisdictions. “The 2% tax rate is double than what is being considered in the United States and may have the unintended effect of discouraging investment into Canadian-run businesses while putting the shareholder returns of Canadian investors at risk,” it said.
Industry insiders echoed that sentiment – in an email to BNN Bloomberg, Birchcliff Energy Chief Executive Officer Jeff Tonken said Ottawa is ignoring the needs of both the oil and gas industry and the economy writ large.
“The new tax goes directly against what is currently federal policy . On the one hand the liberal government is trying to stop the use of fossil fuels, and is doing everything it can to stop its use … and on the other hand comes out and says, don’t buy your stock back invest in your business. It does not make sense! People are buying their stock back because they do not have confidence in government policies,” Tonken said.
Enerplus CEO Ian Dundas was more blunt when it comes to how Ottawa has handled energy policy in a world rocked by the impact of Russia’s invasion of Ukraine. Dundas has been a harsh critic of federal policy in the past, and has divested nearly all of his company’s Canadian assets.
“It’s truly tragic. The way forward (and there is a way forward – even though there are no quick fixes) should be based upon serious energy policy focused on things that will help encourage investment and increase supply – i.e. stable and well understood regulatory approval processes would be a good start. But higher taxes?  Higher taxes have never been a path to increasing the supply of anything,” he said in an email.
“It’s a pretty straight forward fact pattern. So am I thrilled?  Nope. Will the world end? Nope. Will the tax help with the crisis we are in?  Nope,” he added.
The investment industry, meanwhile, seems to think the surcharge won’t have a material impact given it won’t take effect until 2024. In an email to BNN Bloomberg, Canoe Financial’s Rafi Tahmazian said share buybacks will likely decelerate as share prices rise.
“This tax has virtually no relevance to the energy sector. As valuations creep up, the buybacks incentive drops. So we expect that to be the case by January 1 2024 when the tax takes effect. This tax is two years too late for this sector to contribute,” he said.
“Not sure that the glorification of the tax is got any relevance to the problem at hand. This tax is expected to bring $2.1 billion starting in 2024. Can’t understand the relevance to the issues we are facing today. An analogy would be it is like they are drowning and they’re more worried about what they are going to wear tomorrow.”