Big Companies Use Tax Cut to Automate Away Jobs in the Oil Sands

The biggest oil sands companies received $4.3 billion from the UCP’s “Job Creation” tax cut. Then they eliminated thousands of employees from their payrolls.

Edmonton, Alberta – Three years after the United Conservative Party (UCP) government decreased corporate taxes in the province, a new study from the U of A’s Parkland Institute shows that the stated goal of the tax cut — to create new jobs in Alberta — did not materialize.

At least when it comes to the oil sands biggest companies, the years since the tax giveaway have been marked by job losses driven mostly by automation and industry consolidation. Meanwhile, those same companies added millions of dollars to the compensation of their CEOs and rewarded their shareholders with generous dividends.

“The oil sands majors have been cutting jobs on the frontlines, but CEOs and shareholders have remained very well compensated,” says Ian Hussey, research manager with the Parkland Institute and author of the study “Job Creation or Job Loss? Big Companies Use Tax Cut to Automate Away Jobs in the Oil Sands.”

The study centred on the oil sands majors, the bloc of oil companies (known as the “Big Four”) that operate 86% of oil sands production: Suncor, CNRL, Cenovus, and Imperial Oil. Until 2020, this group  (then known as the “Big Five”) also included Husky Energy, which merged with Cenovus in 2021.

Back in the 2019 election, the top commitment in the UCP’s platform was a tax giveaway for large profitable corporations, which the UCP advertised as a “job creation plan.” The tax cut, they said, would create 55,000 new jobs in the province and result in a “net $2.4 billion revenue reduction over four years” (Budget 2019).

“That is not what happened,” says Hussey. For the oil sands majors, which are among the biggest beneficiaries of the tax cut, the research found that rather than job creation, a total of 3,452 jobs were lost after 2019. “These jobs are probably not coming back, and more job losses are expected because of accelerating automation.”

The government revenue reduction, on the other hand, proved to be much higher than the Budget 2019 figures. According to the oil sands majors’ own estimates, this group of companies alone benefited from $4.3 billion between 2019 and 2022. For reference, with that same amount the government of Alberta would have enough to add more than 10,000 new employees to its payroll in critical areas such as health care and education.

Drivers of job loss

Job losses in the oil sands stemmed from a combination of factors — notably, none of them reversible by a blanket tax cut. “In 2018, the oil sands industry entered the mature phase of its business life cycle,” explains Hussey. In practical terms, that means that the years of intense capital spending — the type of spending that creates jobs — are now over for those companies.

Capital spending for the oil sands majors is now less than half of the $31.7 billion peak of 2014. These levels are expected to remain stable throughout the 2020s. “No new oil sands mining megaprojects are being developed or proposed,” says Hussey. “The UCP’s tax giveaway has not changed that fact.”

Automation is another main driver of job cuts in the field. “A decade-long trend of increasing automation was accelerated after the 2014 oil price crash,” says Hussey. The report shows that the spread of COVID-19 in 2020 has further increased this troubling trend, particularly the digitalization of the Big Four’s oilfield and back-office operations. The trend, however, is here to stay, as a forecast from Ernst & Young and Petroleum Labour Market Information indicates that automation may result in 46,108 job losses in the Canadian upstream oil and gas sector by 2040.

CEO and shareholder compensation

“Albertans are footing the bill for skyrocketing CEO pay and record cash transfers to shareholders,” says Hussey. The research shows that between 2019 and 2021, while the Big Four were enjoying the tax reduction and laying off employees, each of their CEOs had an average annual pay raise of $2.35 million. At the same time, shareholders were receiving record dividends that, in some cases, totalled more than twice the amount oil companies paid the province in royalties.

Report recommendations

“Albertans, not CEOs and shareholders, should be reaping the benefits of our resources,” says Hussey. “Blanket tax giveaways do not work. If targeted tax incentives are one part of a broader provincial jobs plan, then there need to be strings attached to ensure that businesses that receive incentives are creating jobs and increasing investments in local communities.”

The report recommends that Alberta should return to a 12% tax on the profits of large corporations, the same percentage adopted by the other three western Canadian provinces. It also recommends changes to the current royalty rates: “Alberta’s oil sands royalty rates are generous in several respects. Changes are required so Albertans can start receiving a fair share of our resource wealth.” Finally, the Government of Canada should join its international peers in the United Kingdom, Spain, and Italy in imposing a temporary windfall profit tax to help pay for household support programs.

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For the full study, visit https://www.parklandinstitute.ca/job_creation_or_job_loss  

For more information or to arrange an interview, please contact:

Rita Espeschit
Parkland Institute Communications Coordinator
[email protected]