Economics in one cheque
On December 1, 2005, Bill 43 “Alberta Resource Rebate Statutes Amendment Act” received Royal Assent in the Alberta Legislature enabling a one-time rebate to be paid to nearly all Albertans residents in Alberta on September 1, 2005 who had filed a 2004 tax return. The refunds were a product of a larger-than-expected surplus generated mostly by high energy revenues. Rebate cheques were sent out in late January 2006.
The $1.4 billion resource rebate program was controversial, with many people arguing that it would be better if government spent the surplus on other priorities: Health, education, post-secondary, infrastructure, social services, etc. Polls at the time revealed a similar number of people in favour of the prosperity cheques as the number opposed.
This program is sometimes used as an example of wasteful government spending. The assertion is that benefits would have been greater if the government had spent $1.4 billion on the priorities above compared to the benefits generated from the estimated 3.5 million cheque recipients each spending $400 as they each saw fit.
Above is the photocopied cheque I was issued. Emulating Bastiat and Hazlitt, this cheque can serve as a focal point economic analysis.
In Alberta, subterranean oil and gas deposits are not privately owned. The provincial government sets the terms and conditions to choreograph development and it fixes royalty rates. The oil sands royalty rate is equal to the greater of: (a) the gross revenue royalty (1% – 9%) for the period, and (b) the royalty percentage (25% – 40%) of net revenue for the period. The royalty percentage of net revenue is also indexed to the price of West Texas Intermediate (WTI). The royalty percentage is 25% when the WTI price is less than or equal to $55/bbl, rising linearly to a maximum of 40% when the price reaches $120/bbl.
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