Canada

That didn’t hurt much, did it?

IAN URQUHART May 17 1976
Canada

That didn’t hurt much, did it?

IAN URQUHART May 17 1976

That didn’t hurt much, did it?

As Canada’s 10 premiers sat down for a working lunch over veal cutlets with Pierre Trudeau, no one expected them to find agreement. The meeting in Ottawa earlier this month was the 1976 installment of the now annual ritual at which the provinces that sell oil press for higher prices, the provinces that buy oil argue for lower ones, and Ottawa makes the final decision. As it turned out, the federal government wanted higher prices, but not as high as oilproducing Alberta and Saskatchewan hoped for. Declared Trudeau: “Canadians have to realize that they can’t get away forever with cheap oil.” On the other hand, he added, “there’s some anxiety that prices may go up too much this year because we’re all trying to fight inflation.”

Accordingly, the new oil price that Finance Minister Donald Macdonald will figure into his budget, expected around May 25, is likely to be $9.25 a barrel, up from the eight-dollar level set last year, but still leaving the Canadian price well below the Organization of Petroleum Exporting Countries’ current level of $ 11.50. For motorists, the new Canadian price would translate into an annoying, but bearable, four-cent-a-gallon increase in gasoline prices. What Alberta and Saskatchewan

wanted was a flat, two-dollars-per-barrel hike. But that would have meant a 2% increase in the cost-of-living index, seriously disrupting Ottawa’s anti-inflation fight. (It would also have brought the price of Canadian oil to U.S. levels and removed the competitive edge Canadian business has enjoyed during the past two years.)

On the other side, Ontario’s premier Bill Davis—who suggested rather hyperbolically that too sharp an increase in oil prices could threaten Confederation—argued for a complicated formula for a low, “blended” oil price. Under Davis’s proposal, conventional oil would stay at eight dollars per barrel while “new,” or frontier, oil would be set at the world price, providing for an overall average increase of only 20 cents a barrel. Ottawa countered that the oil industry would need much more than that to carry out badly needed exploration for new oil and natural gas reserves over the next two decades. Responded Davis: Ottawa and the oil-producing provinces could provide that by lowering taxes and royalties. But Ottawa’s tax bite is only 17%, while Alberta and Saskatchewan justify their hefty 43% share on the grounds that petrochemicals are non-renewable resources, not to be syphoned off cheaply.

Ottawa set the stage for an oil price increase late last month with a policy paper called An Energy Strategy For Canada, a document heavily touted by the government’s public relations machinery even though it contained little that was new. The major recommendation—that Canadian oil prices move gradually toward world levels—was actually adopted by Ottawa more than a year ago. The paper did provide a new federal energy slogan, “self-reliance” (a subtle retreat from the policy of “self-sufficiency” grandly announced by Trudeau in 1973; the paper confessed that the earlier policy was based on an overly optimistic estimate of the oil and natural gas reserves available under Canadian soil and on the continental shelf.)

In the time-honored Canadian way, the probable $1.25 increase thus emerges as a neat compromise between the conflicting demands of the regions and estimates of future production. The new price will probably also be the most important item in Donald Macdonald’s first budget. With unemployment still high, inflation not yet beaten, and an expected government defi-

cit in the region of five billion dollars, Macdonald will have little room to manoeuvre. But he might lower or remove the 10-centsa-gallon excise tax on gasoline—imposed by former finance minister John Turner last year—to offset rising prices. Another possibility: special assistance for the Maritimes, the region that is hardest hit by rising petroleum costs. IAN URQUHART