A quick review of the OBA’s ‘Oil Tax’

An Oil Tax?

Some interesting reading in the local news today, specifically the proposal for an oil tax – or, to give it it’s official name, the ‘Corporation of St George’s (UNESCO World Heritage Fund & Levy) Act 2013’.

Photo credit to 'Green & Gold News' of the University of Alaska Anchorage.

Photo credit to ‘Green & Gold News’ of the University of Alaska Anchorage.

The complete draft of the proposed legislation is available from the Bernews article, featuring the PLP’s concerns about the legislation.

It’s not a huge document, only four pages.

In a nutshell it outlines a levy of 0.25 cents (a quarter of a penny) on every litre of all petroleum oils and gases, with the resulting revenue being ring-fenced for a UNESCO World Heritage Fund dedicated to ‘maintain, develop and promote the UNESCO World Heritage Site in St George’s’.

The key sections of the legislation are Section 3 (purpose of the fund) and Section 6(1) (which outlines the levy per litre.

How much will this raise?

Now, rather shockingly, the OBA seems to have not bothered to provide even a basic analysis of how much revenue such a levy will generate.

Personally, I find it quite unbelievable that the Government would introduce such legislation without even a basic idea of what such a levy would raise, let alone the pros and cons of such legislation.

Usually legislation comes with explanatory notes, although those are not always available to the public.

Such notes are primarily for the benefit of the various legislators, especially for the legislator proposing the bill, and is supposed to, well, explain the ‘why’ and ‘how’ of the proposed legislation – and would include at least a basic overview of how much revenue this would generate.

My Calculations

I’ve tried to calculate a basic idea of how much this would generate.

Using the data on this site for the total consumption of petroleum products, Bermuda consumed 5k barrels of oil per day in 2009.  The average over the ten years 1999-2009 was 4.6467k barrels of oil per day.

This translates into an annual consumption of 1825000 barrels for the year 2009, or 1696045.5 barrels per year for the average between 1999-2009 (Barrels per day * 365).

The unit ‘barrel of oil’ is standardised at 158.987 litres.

This means that in 2009 Bermuda consumed 290151275 litres; and in 1999-2009 an annual average of 269649185.9085 litres.

At 0.25 cents per litre, this means the proposed levy would have generated $72,537,818.75 – just under $73 million – and an average of $67,412,296.48 – almost $67.5 million – per year between 1999-2009.

Updated – I made an error in my initial calculations, and forgot the step of converting from cents to dollars.  The above figures need to be divided by 100 to get the correct dollar value.  As such, in 2009 the proposed levy would have raised about $725k, and the average annual value between 1999-2009 would have been $675k, approximately.

Limitations of my calculation

I’m not saying my calculations are correct, only that they are (I hope) roughly indicative.

Section 6(1) limits it to petroleum products under three headings of the First Schedule of the Customs Tariff Act 1970, and I haven’t checked to see what exactly that refers to, so I may have overestimated the amounts involved here.

Nor can I say for sure that the data I’m using from that site is legitimate – and if someone has more accurate (and up to date) information, they’ll no doubt be able to obtain a better estimate of the amount of revenue involved here.

Also, there may be something I’ve overlooked – my intent was to simply get an idea of the monies this levy would produce.

Initial Questions

This legislation leads to some initial questions, beyond the simple question of why the Minister seems so unprepared in presenting the idea.

For example, is that money way too much for the needs of ‘maintain, develop and promote’ St Georges?

And if so, what happens to the surplus?

Could it also be used to reduce our reliance on petroleum, such as subsidising renewable energy production?

There’s also the very good question which the PLP has already raised – how does the Government ensure that this isn’t passed on to the consumer, leading to an increased cost of living for Bermuda?

It is unlikely that the private sector would be willing (or even able?) to absorb this cost without passing it on to the consumer – and if prevented from doing so it may render the private sector service here unprofitable, forcing the Government to take over the provision of fuel to Bermuda, with all the additional costs to the public purse that would require.

In the current circumstances, with real wages falling while the cost of living continues to increase, workers (much more than the professional and capitalist classes) are already struggling to get by.

An increase like this, if the cost is passed on to the consumer, is going to hit the working class more than any other, as well as help tip more people into relative poverty.

Now, to be clear, I am not opposed in principle to the idea of a ‘carbon tax’ – I’m just not sure this idea has been properly worked out.  I also imagine that this proposal will mirror somewhat the UK’s oil taxation system, which I’ll have to review later.

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3 thoughts on “A quick review of the OBA’s ‘Oil Tax’

  1. I believe I made an error in my calculations.

    I think I forgot to convert from cents to dollars, which would substantially reduce the amount of revenue generated from this proposed levy.

    Rather than producing just under $73 million in 2009, or an average of $67.5 million over 1999-2009, the correct figure should have been $725k and $675k, respectively.

    Thank you to the readers who pointed out the mistake to me!

  2. I can’t imagine that it is possible to raise and administer a tax, without a cost attached to it somewhere along the way.

    Net benefit may end up even less than your calculations.

  3. Pingback: A note on my oil tax review | "Catch a fire"

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