With tax dollars pouring in from YVR's hot housing market, do natural resources still matter?

Government revenues from natural resources and Vancouver's hot housing market are almost at par. What does that say about B.C.'s resource sector?

It’s a common gripe among Northern British Columbians: northerners pull the province’s natural resources out of the ground, and all the wealth ends up in Victoria.  

But as the province’s first quarterly budget update shows, the picture is a bit more complicated. 

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This year, B.C. made nearly as much from taxes on the sale of homes and condos in the Lower Mainland as it did from forests, minerals, and natural gas deposits. 

Natural resources—including natural gas royalties, Crown land tenures, forests and minerals—are expected to add $2.5 billion to the B.C. treasury this year.

But skyrocketing incomes from the province’s property transfer tax alone are set to top $2.2 billion this year. The result? An overall surplus of $1.9 billion, driven largely by those property transfers. 

For a province founded on natural resource extraction, it’s a unique fiscal situation. Housing prices in Vancouver have surged in recent years thanks in part to an influx of foreign cash, while commodity prices continue to be in a down cycle. 

 

 

Natural gas royalties have been particularly hard hit, dropping from $493 million in 2014/15 to $139 million last year.  At the same time, incomes from petroleum and natural gas rights auctions have fallen to historic lows

In fact, royalties from natural gas drilling and production are the fifth-smallest revenue source in the province’s 2016/17 budget—ahead of incomes from the Columbia River Treaty with the United States, “other” income from energy, minerals and commercial Crown corporations, and the province’s tiny income from B.C. Rail.  

The provincial ministry that oversees both natural gas development and housing, meanwhile, has a budget of $453 million this year. 

Stewart Muir, executive director of the think tank Resource Works, said this could be the first time property transfer and natural resource revenues have been on par with one another. 

But royalties don’t fully account for the natural resource industry’s overall economic impact, he said.   

“It’s well and good to look at the one factor of revenues paid to government,” he said. “That’s a very good index of resource activity. However, it’s not a proper representation of all resource activity.”

Resource extraction boosts GDP, generates exports and creates jobs in ways the housing market does not, Muir said. 

“When you’re confronted with these stories saying ‘hey resources don’t matter any more because you’ve got the housing tax,’ well … how many jobs is that creating?” he said. “Not the same as someone who’s put millions of dollars into building a natural gas processing plant in Taylor that’s creating family-supporting jobs.”

With housing affordability emerging as the big issue in the May 2017 election, the B.C. Liberal government has brought in a 15 per cent tax on foreign homebuyers aimed at cooling the Vancouver real estate market. That tax is expected to bring in additional revenue in the short term, before ultimately discouraging the specualtion many believe is driving up home prices.  

In the coming years, the province expects resource and property transfer tax revenues to diverge.  

Property transfers are expected to bring in $1.7 billion in 2017/18, compared to $2.3 billion from natural resources. 

reporter@dcdn.ca

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