Saturday, October 26, 2013

Royalties and Balanced Budgets

A year or two ago I decided to look into where provinces were spending and where they were getting their money. My objective was actually to prove that Ontario is under-spending on transportation by showing all other provinces spend more per-person, and, to figure out where it is Ontario is over-spending. In the end, spending figures proved very hard to compare as no two provinces seem to count in the same way. Revenue figures, however, became very easy to compare. Thus my project to push for more roads funding turned into a search for where the money comes from. To my surprise, the answer was obvious, but something I'd not thought of.

Royalties.

Every province not receiving equalization had significant amount of royalties.

It should have been obvious! But it was not. It may not be to you either. I decided to go back though all the numbers, using updated figures, and see where things stand today.

In order to make the numbers easy to compare, I decided to see how much the province would need to raise it's sales tax by to make up for all royalties. Why sales tax? It's the easiest to compare, and, the simplest to represent.

Here's an example using the documents from New Brunswick.

http://www2.gnb.ca/content/dam/gnb/Departments/fin/pdf/Budget/2013-2014/ME2013-14.pdf

N.B. has a 8% PST rate (as a share of it's HST)

You can see on page 188 (193 in the file) all the various revenue streams. The province collects 1.1656B on their sales taxes. Divide that by the 8% rate and you get $145.7M per point. Scroll down to the next page to see the royalties this year are expected at 89.6M. I'll be nice and round up, meaning that for New Brunswick, our rate is 1%.

Alberta, which has no PST, needs to be estimated by averaging the sales taxes collected in other provinces. We end up with a rate around $250 million*, per point, per million persons. Alberta has 4 million persons living within it's borders, making the translation easy, at $1B per point. With $7.3B in royalty revenues, we easily arrive at our figure of 7%

So, what are the results? They are as follows.

(Edit) I actually decided to do a "live review" of Newfoundland as I type this, just to ensure nobody can accuse me of cooking the books. The estimates documents can be found here:
http://www.budget.gov.nl.ca/budget2013/estimates/estimatesbook2013.pdf
The first thing I do is look for the revenue section. A quick glance at the Table of Contents shows me that I may be able to find all the answers near the top, so, I begin to scroll down. I scroll pass a bunch of words arriving on numbers on page 10 of the PDF file. Sadly, this does not break down revenue by source. The next page, however, does!

I can see, quite easily, the result. Sales taxes are 1,000,835 while Royalties are 2,067,393, and that does not even count mining royalties (which I will be counting, as I count all royalties) Adding the two gives us 2,237,142 (I double check with a calculator, yes I'm right)

Newfoundland has the "standard" HST, which means a 8% PST rate. To make this easier I throw our royalty number into a calculator and divide by the sales tax. I also round to make it easier to calculate. 1.0 and 2.2 (I round down, again, to avoid accusations of cooking the books) giving me a total of 2.2 (duh, so busy doing math to use common sense) which I then multiply by our sales tax (8 points) to get a result of 17.6, or, 17.5 rounded down.

Results:

17.5% - Newfoundland and Labrador
10% - Saskatchewan
7% - Alberta
2.5% - British Columbia
1% - New Brunswick
1% - Quebec
0% - Manitoba
0% - Nova Scotia
0% - Ontario
0% - Prince Edward Island


Note that provinces where the final result was below 0.249% sales tax got recorded as 0%


* I arrived at figures of $211M in ON, $280M in SK, and $200M in BC. I rounded up a bit to make the end rate lower and so that nobody could accuse me of fudging the numbers.

2 comments:

  1. The full and combined tax rates for the provinces (since all provinces already have some kind of sales tax) would thus be as follows:

    30.5% - Newfoundland
    20% - Saskatchewan
    16% - Quebec
    15% - Nova Scotia
    14.5% - British Columbia
    14% - Manitoba
    14% - New Brunswick
    13% - Ontario
    13% - Prince Edward Island
    13% - Manitoba
    12% - Alberta

    A note too on Quebec; the combined figure is 14.975% since Quebec taxes the GST. The raw total is only 14%, but combined it's close enough to 15% that I'm just rounding up.

    Note that the 25.5% that would go to Newfoundland would be the second highest (that I can find) in the world; combined with the federal rate, it would be the highest by some margin.

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    1. The proper PEI rate should be 14% not 13%

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