Saturday, November 03, 2007

Rabid Over Royalty Taxes

Don’t be surprised by the Royalty tax.

It’s short-term pain for long-term gain, by the gain; I’m referring to the extraction and economic spin-off that the oil sands create in general.

The royalty tax is like when you buy your kids the hottest pair of ‘must have’ sneakers and a few months later they outgrow them (both on the cool factor and on the growth factor). You had to buy the shoes, because your kids needed something to wear. It would be great if they last 2 years, but if they don’t maybe you can pass them down to your younger son if they’re not too trashed.
If the $1.4B annual collection from the royalty tax is put to good use, then Albertans will benefit both in the short and long term (we’ll all get new shoes).

If the cash is squandered and we’re only left with some grotty old ‘hand me downs’ to pass along to our younger generation, we’ll be pretty teed but we’re still not too bad off because the revised royalty taxes aren’t extreme enough to strangle the golden goose of our current economy.
The intention is of course to pass along our provincial wealth to younger generations, and to prevent giving them a shoddy deal (stinky, holey sneakers.

It was indeed interesting to watch the stock market swivel and gyrate as the royalty review was released. Prices of oil sands stocks dipped a bit, and then actually closed a quarter of a percentage point higher after the news soaked in. The energy sector as a whole was up 0.17
Oil was at $93.00 a barrel on Monday (10/29) and the Canadian dollar bought $1.04 USD, which is a first since ’74. We may not necessarily want such a strong dollar in the long term, but it’s still nice to see the strength.

My comments are oversimplifying a complex subject. At the end of the day, we’re still ahead and well on track.

Alberta’s energy industry will endure growing pains and wear out many pairs of sneakers along the way, as the economy grows stronger.

It always hurts a bit to break in a new pair of shoes. Blisters form and they’ll be a few cases of athlete’s foot. However once you get everything broken in and settled you are left with a comfortable fit that lasts a lifetime.

Recently we’ve experienced an overstock of listings, sub-prime scare in the U.S. and the royalty review…

What a perfect time to pick up a deal.

This article was first published in Glenn Simon Inc's Alberta Investment Newsletter

Get Your Free Monthly Copy
Stay on top of Alberta's Real Estate market with deals delivered right to your mailbox.

  • News and Hot Alberta Real Estate Investment deals monthly
  • Canadian content Alberta investment news
  • Edmonton, Alberta Real Estate market news
  • Helpful tips and strategies to meet your Real Estate investment goals
Sign Up Click Here

No comments: