Thank you.
I don't plan on going through the full extent of that, but I thought it would be useful to provide your committee with the background documents associated with what's going on in the oil sands industry right now. I will touch on a couple of them to help clarify some of these points.
As Mr. Peeling has already said--so I won't repeat many of the things that are in the first few slides of that--the Canadian oil and gas industry is a major driver in the Canadian economy today and a major contributor to government revenues through royalties, taxes, and fees.
Recently we have heard a number of comments in the media and amongst your committee and others that there is a subsidy that's being provided to our industry by the government. In response to that, we feel it's important that we reiterate the facts about what is going on, to help ensure a full understanding of that.
The first assertion we've heard, which has been covered very well by Mr. Peeling, is that the oil and gas industry pays no royalty or no tax. That couldn't be further from the truth, as you've heard. Mr. Peeling has covered that. But I did want to add one point regarding tax and royalties that he mentioned, and that is the fact that in addition to the direct tax, there is a significant amount of indirect tax that is paid through to local governments in property tax, and to the federal and provincial governments through income tax on employees and on incomes that are generated by our industry.
The Canadian Energy Research Institute recently conducted a study--which is shown on slide 3 of the package I gave you--that showed that just for the oil sands sector, for the period from 2000 to 2002, there was $123 billion that will be generated for governments of all levels--federal, provincial, and municipal. You can see the split that's associated with that.
Actually the federal government, according to that study, because of the indirect taxation, ends up getting 41% of that $123 billion. Now, lest we think that all of these benefits accrued to western Canada, the investment in the oil and gas industry this year of $40 billion will generate economic activity, employment, and taxes across the country. We have a very strong need for goods and services. In fact, Alberta buys more from Ontario and Quebec than they get. So growth in the oil sands industry is benefiting not just western Canada but, as again shown in that study by CERI, there's $155 billion in GDP that is generated to Ontario and Quebec and Atlantic Canada. Along with that, there are employment benefits, to which Mr. Peeling referred. I'll just put a number to that: there are 1.8 million person-years of jobs generated from this activity that go into Ontario and Quebec and Atlantic Canada.
Certainly the second assertion we've heard is that the oil and gas industry receives over $1.5 billion per year in subsidies directly from the government. We've addressed this assertion many times over the past few years, and it's based on an old and incorrect analysis that included many of the tax elements in a system that no longer applies. The assertion relates to tax elements that are simply, as Mr. Romanow referred to them, deductions of actual expenditures. Most of those are the Canadian exploration expense and the Canadian development expense, which are deductions of amounts that we spend on exploration, development, and drilling. Many of the elements in that number that has been thrown around are things that are just no longer there when it comes to oil sands.
For example, the resource allowance is mentioned. That resource allowance is gone as of this year. Earned depletion is mentioned as a tax feature. It is long gone, since 1990. The Syncrude remission order was mentioned. It is now gone. The investment tax credits are gone, except for of course in Atlantic Canada, where they apply to all industries.
The one that actually gets the most attention right now is the accelerated capital cost allowance, and this is where I'd like to spend the last few minutes of my time.
The accelerated capital cost allowance is not a subsidy for the oil and gas industries. As has been explained by other witnesses, it is simply the deducting of capital costs, with restrictions that apply only to the extent of the revenue generated from that mine or that project. This is applicable to the entire mining industry across Canada--from iron ore to potash to coal to diamonds--including oil sands. This has been the prescribed mechanism for deducting capital costs for the mining sector since 1974. Within the oil sands industry, it has been applying only to the oil sands projects, and it levels the playing field between oil sands mining and other mining projects across Canada.
In 1996 it was extended to include the oil sands in situ projects. Those are projects that are not mines but that extract oil from oil sands projects deeper underground. The ACCA is a deduction only of costs that are actually incurred. There has to be revenue from the project before that cost can be deducted. And for an illustration of this, I would ask you to turn to slide 7 in what I handed out. That slide is entitled “Capital Cost Deduction for Income Tax”, and it's simply a bar chart. What it tries to explain is the misconception on what accelerated capital cost allowance is.
As you can see from that chart, you get normal capital cost allowance, but only two to three years after you have spent that money in the oil sands, because you will not get production until year six on most of those projects. And you can see that in years six, seven, and eight what you really are doing is taking the deductions that would happen from year six to year twenty and moving them forward, but again, limited only to the revenue that's generated from that individual mine. So it is not a 100% writeoff of the entire capital in the first year.
Then you'll notice in years nine through seventeen on that chart, actually the deduction then is lower for the remainder of the life of the project. A lower deduction of that same $100 cost in this example means that there are higher taxes generated to governments during those later years of the project. So you can see it is a shift in timing of the same $100 deduction, but it is not a subsidy to the industry.