BUSINESS

Alberta wins the second round

JOHN HAY July 5 1982
BUSINESS

Alberta wins the second round

JOHN HAY July 5 1982

Alberta wins the second round

In a case that seemed to meet the highest standards of constitutional contrivance, the Supreme Court of Canada last week ruled against a federal tax on provincial exports of natural gas. The Alberta government had sought the judgment to protect sales of provincially owned gas through a pipeline to the Montana border. What made the issue somewhat fanciful was that there is no such gas, no such pipeline and no such tax. (Then, as now, energy companies exported the gas.) Lawyers and politicians had conjured a fiction to make a point. For Alberta and the industry, however, it was a point worth making.

The dispute erupted at the height of the Ottawa-Alberta energy wars in 1980. Anticipating a federal export tax, Premier Peter Lougheed’s cabinet prepared in advance for a court battle—

drilling the first of three gas wells on a plot of its Crown land and making arrangements for a new pipeline to the U.S. border. Weeks later Ottawa introduced its National Energy Program, including the expected tax on natural gas. Alberta could not prevent the tax from being imposed inside Canada because it was to be applied to consumers and distributors, not to the province itself. But, after carefully setting itself up as an exporter, the Lougheed cabinet referred the export issue to the Alberta Court of Appeal.

With no gas produced in its wells and no pipeline built, the facts were still hypothetical. But the issue was real enough: could the federal government tax a resource owned by the province? When the Alberta court ruled in favor of the province, Ottawa immediately appealed to the Supreme Court.

The federal case rested on Section 91 of the British North America Act (now the Constitution Act). That section gives Parliament power to pass legislation for, among other things, the “regulation of trade and commerce” and for the raising of money “by any mode or system of taxation.” Ottawa argued that a tax on gas exports clearly fell within federal jurisdiction. Alberta based its case on Section 125 of the same act, which says, “No lands or property belonging to Canada or any province shall be liable to taxation.” Since the natural gas would never leave provincial government ownership, it could not be taxed by Ottawa.

In its six-to-three judgment, the Supreme Court found that the federal taxing power is, indeed, limited by the prohibition against taxing provincial property. It left open the possibility that such a tax would be permissible as part of some regulatory scheme, but it ruled that the gas tax was intended mainly to raise money.

The immediate impact of the decision is minimal: while the justices were still considering their decision last September, Alberta and Ottawa struck their energy-pricing deal—which includes Ottawa’s agreement to drop its tax on gas exports to zero until the end of 1986.

The true value of the judgment is longer term. The Alberta government has hinted that if Ottawa attempts to tax gas exports after 1986, the province might block the move by employing the gas companies as its agents. As a result, ownership of the gas would remain in provincial hands. Said Alberta Energy Minister Merv Leitch: “The natural gas industry can now carry on with its investment, exploration and development and be much more confident there won’t be an export tax after the expiration of the energy agreement.”

JOHN HAY

Catherine Rodd