EDITORIAL IN NATIONAL POST ABOUT LNG DEAL!!!

It's all in here


The Irving Oil tax act scandal

Terence Corcoran
Financial Post

Thursday, June 09, 2005

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June 7, 2005, 10:07 am ADT: The CBC reports that New Brunswick's minister responsible for local government, Brenda Fowlie, says it could be months before the province makes a decision to approve a special law to allow Saint John to give a tax break to a new $750-million liquid natural gas plant.

June 8, 2005, 1:34 pm ADT: The New Brunswick government introduces a special law that will allow Saint John to give a large tax break to Irving Oil as an incentive to build the new LNG terminal.

In New Brunswick, apparently, a month is not as long as it used to be. Within hours of Ms. Fowlie's first comment, Irving Oil and its Spanish parter, Repsol, announced they had signed a definitive agreement to build the gas terminal, which will import gas, liquify it and then ship it out again to the U.S. and other destinations.

Now maybe Ms. Fowlie was simply out of the loop on the tax deal. If so, she's not alone. The Irving Oil tax subsidy has been looping its way through Saint John and the provincial government for months, a mystery to all but a few insiders. One of those insiders is Saint John Mayor Norm McFarlane, who got the subsidy idea rolling last March 14 when he appeared before council with a dramatic announcement and an ultimatum.

Saint John, said the mayor to a rapt council, had been selected by Irving Oil and Rapsol as the site of a major natural gas investment. But the investment would not be made unless the city gave the plant a tax break that would limit local taxes to $500,000 a year over 25 years. Council members, who had never heard of the deal before, were told by the mayor they had until midnight that night to vote yes or no.

Somebody asked the mayor how he knew this was a do-or-die tax deal. The mayor said he had spoken with Kenneth Irving several times over the previous months. "I asked him very clearly, and looked into his eyes, and said, 'Kenneth, you look into my eyes and tell me, if this does not happen, will this facility not be here?" To which Mr. Irving is said to have responded: "Yes, it is true."

When politicians start looking deep into somebody's eyes for policy guidance, as opposed to applying common sense and a few principles, the game is bound to go downhill. Saint John council, facing the midnight deadline, capitulated and voted for the deal, estimated to be worth about $100-million over the 25-year life of the $750-million plant.

By approving the tax break last March, city council not only caved in under pressure, it also set New Brunswick tax policy back 40 years. Back in the 1960s, the provincial government put an end to local tax subsidy competition. The common practice then pitted one town against another in money-losing battles for industry. The law banning such tax giveaways still exists, which is why Bernard Lord's Conservative government yesterday suddenly ushered in Bill 70, an act to comply with the request of the City of Saint John on taxation of the LNG terminal.

The bill is, quite literally, the Irving Oil tax break. It wipes several clauses of existing law out of existence and makes a specific and exclusive exception for the Irving LNG terminal. All other industries will continue to pay the full Saint John tax rates, although Ms. Fowlie did not rule out other exceptions. The province, she said yesterday, is willing to look at other projects providing they were "site specific."
One of the lost tax principles here is that taxes, tax increases and tax cuts should apply to all industries equally. Tax preferences on a company by company basis are distorting and unfair, if only because they pass the tax burden over to companies not receiving the benefit. Special concessions create utter confusion over the tax base and the nature of tax revenue. Even worse, perhaps, are the backroom-deal cutting and ugly political games that inevitably follow a system that gives politicians power to swing deals on a company by company basis. Looking deep into somebody's eyes doesn't rate as a guide to public policy.

In this case, moreover, there is much doubt that the tax break was a deal breaker. In the days following the council's midnight vote, information surfaced to show how other places were actually collecting bonuses from LNG plant builders. A town in Louisiana said its LNG plant generates municipal taxes and land fees worth millions of dollars annually.

Nothing in the public domain supports the idea that the business plan for the Saint John plant, to be built on Irving land adjacent to existing Irving facilities, was that tightly tied to a tax break. On the other hand, there's not a whole lot of public information available, especially for a project that has a city council and the Lord government scrambling to underwrite and support with special legislation.

So, in a country whose tax and political system is already a national disgrace, the Lord government of New Brunswick, in a scandalous secret deal led by the mayor of Saint John and a hard-ball playing corporation, have set bad policy and a precedent that could set New Brunswick tax policy back decades.
© National Post 2005