Wednesday, February 25, 2015

UK considers tax decreases to support North sea oil industry

Based on a report by Oil and Gas UK, an interest representing group, that pictures a grave outlook for the industry's activities in the North Sea, the FT [here and here] and the Guardian [here] report that the government is considering corporate tax breaks for the industry in order to stimulate further investment and avoid the scrapping of new projects. Taxes went up when prices were high, taxes may go down when prices are low.

The government's main interest, supposedly, is to maximise tax revenue from oil production and use. Lowering corporate taxation now may insure that new projects are not shelved, but instead developed bringing revenues for many years. Some of the immediate revenues for the government would be given back to the industry to assure 'profitability'. If not through taxation the industry may have to find different means of cutting costs, with as ultimate measure ending production in individual
projects. The question remains whether the government would need to help with this through taxation policy or whether a future oil price increase and technological innovation triggered by hard times would take care of it. Is there really no time to wait a few quarters to see what happens with the oil price?

The call for corporate tax reductions for the oil industry stands in contrast to the calls during the past months [see earlier posts starting here] to increase consumer tax on fossil fuel use based on carbon content.  I'm speculating here, but part of the immediate tax rate decrease may actually be financed by increasing the tax on consumer use of carbon, in some revenue neutralising way of swapping consumer surplus to the oil industry. Why not?  

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