KVEOY ISLAND, NORWAY—Randi Hokland’s family has scraped a living from a steep slope high above the Arctic Circle for five generations.
She and her husband, Yngve Henriksen, fight the winter cold from a white clapboard house that her great-great-great grandfather built, overlooking an ice-blue fjord, in 1850.
They’re continuing an endless struggle in a northern paradise that leaves you breathless just trying to take it all in.
Without oil, and Norway’s shrewd management of the wealth that flows from deep beneath its seas, Hokland and Henriksen likely would have been forced to give up the land long ago.
The couple, their five kids, and their forever feuding pets, Kelly the black English cocker spaniel and Leif the orange tabby cat, depend even more on oil than their neighbours working the Arctic island soil, near the seaside city of Harstad.
Henriksen earns a healthy wage as an assistant driller and derrickman on floating platforms exploring for more oil in the Barents Sea off Norway’s northern coast.
For every 14 days on the rig, clocking 12-hour shifts, he gets four weeks off and heads home, still drawing his pay while helping his wife tend to their cows and potatoes — keeping alive a tradition of Arctic farming as old as the Vikings.
They’re succeeding because Norway holds an unshakable principle, one that has survived political shifts to the right and left since huge offshore oil reserves were discovered in 1969.
The canon was set four decades earlier in a national debate over ownership of hydro-electric projects, and it bridged a generation, from waterfalls to oil wells: Norway’s natural resources belong to the people.
“International companies resisted the model very much, but they had no choice. They had to accept it,” says Terje Hagen, an economist at the University of Oslo. “I think the agreement in parliament was quite broad.”
Norway’s current Conservative-led coalition government justifies one of the world’s highest tax rates on oil company profits this way: petroleum and natural gas are finite resources that generate higher profits than other enterprises and therefore command higher taxes.
They pour like a river of gold into the Norwegian Pension Fund Global, the world’s largest sovereign wealth fund.
Norway’s government takes 78 per cent of oil company profits in tax, which quickly runs to billions of dollars a year. The fund multiplies through investments in stocks, bonds and property holdings.
It is quickly closing in on $1 trillion, just 18 years after Norway made an initial investment of around $345 million in 1996.
The government spends a portion of the profits each year on improving people’s lives while staying true to the earlier generation who decided it would be wrong to splurge on themselves.
By Norwegian standards, Canada has squandered a lot of its resource riches instead of locking up the royalties and taxes oil companies pay into long-term investments and enjoying the benefits of steadily growing profits.
A small but growing group of policy analysts think Canadians should overcome their history of provinces often jealously guarding resource revenues and do more sharing for the long-term, national good.
In 2008 alone, Canada’s federal and provincial governments gave up $2.84 billion through tax breaks to oil companies, the Winnipeg-based International Institute for Sustainable Development reported in 2010.
The amount of federal tax revenue from the oil and gas industry that Ottawa is forgoing “may already exceed the amount it is collecting — $1.3 billion in 2012,” the Pembina Institute concluded in a study this June.
Alberta’s Heritage Fund, set up in 1976 to save and invest a share of the province’s oil wealth for future generations, and to diversify its economy, started out with $1.5 billion in cash and other assets.
But the provincial government didn’t put any money in the fund from 1997 to 2005.
Yet cash kept pouring out.
Critics say successive governments used the fund as a cash cow to keep personal taxes the lowest in Canada, and corporate taxes among the cheapest.
Under then Premier Peter Lougheed, Alberta’s fund got a strong start: It raked in 30 per cent of the provincial government’s revenues from non-renewable resources in its first year.
At that rate, the fund would have been worth $128 billion by 2008, the Alberta Chambers of Commerce estimated that year. Instead, it held $17.5 billion at the end of March.
The Pembina Institute thinks Canadians would all be better off if we start “to think like owners” when it comes to managing natural resources.
“I think there’s a much clearer sense in Norway that resource development should benefit all people,” says Ed Whittingham, Pembina’s executive director. “They’ve got a high cost of living, but with resource development it becomes one that not everyone, but most people can afford.”
At $1 trillion, the fund is roughly half the size of Canada’s gross domestic product last year and casts a financial shadow across the planet, giving the small Scandinavian country considerable clout in many boardrooms.
The fund’s market value surged to $970 billion at the end of June after earning some $34 billion in the second quarter alone, its managers reported Aug. 20.
The latest bonanza follows one of the fund’s best years: its return on global property and share holdings was 15.9 per cent in 2013. And each new day, it’s making every single Norwegian richer.
The fund’s real-estate holdings include prestige properties on Paris’s Champs-Élysées and London’s Regent Street.
Its mammoth stock portfolio lists shares in most any company that matters, including more than $7 billion invested in several giants of Canadian industry, energy, mining and consumer goods, according to the fund’s most recent public list of international equities holdings, dated Dec. 31, 2013.
If you buy groceries at Loblaws, a muffin at Tim Hortons, tools at Canadian Tire or Rona’s, or see a movie in a Cineplex or Imax theatre, you’re making life a little bit better for a Norwegian.
Their fund holds stocks in those Canadian firms and more than 200 others. The list also includes plane and train builder Bombardier Inc., Imperial Oil Ltd., Cenovus Energy Inc., a major player in Alberta’s oilsands, and beer maker Molson Coors Canada Inc.
Its top three Canadian stock holdings are in banks: more than $838 million in The Toronto-Dominion Bank, $781 million in the Royal Bank of Canada and $595 million in the Bank of Nova Scotia.
The Norwegian fund’s managers even have a taste for Canadian media companies, including Torstar, whose properties include the Toronto Star newspaper and website, and Thomson Reuters Corp., a global news powerhouse.
The fund gives Norwegians a piece of 8,213 companies, with an average holding in the world’s listed companies of 1.3 per cent at the end of 2013.
“Everything that is worth owning, we own it,” Hagen says, and for a moment, the professor smiles like a Wall Street titan.
All Canadians once had a stake in the world’s third-largest proven oil reserve, behind Saudi Arabia and Venezuela, through the state-owned Petro-Canada.
That was in the 1970s, when Prime Minister Pierre Trudeau’s minority Liberal government created Petro-Canada to increase the national take from provincially controlled energy resources.
The Crown corporation was an early investor in the oilsands, then known as tar sands, and extracting light sweet crude from the mixture of oil, clay, sand and bitumen was so hard and expensive, it hardly seemed worth the bother.
Those were the dark days of a global energy crisis, with gas station lineups and campaigns to burn less fuel, which soon gave way to a global push to break down trade barriers. As tariffs fell, pressure built for governments to sell publicly owned assets.
Prime Minister Brian Mulroney’s Progressive Conservatives moved to privatize Petro-Canada in 1990. The federal government sold its final 19-per-cent stake in the firm in 2004. The company merged with Suncor in 2009.
State-owned oil companies are still big players in the oilsands. They’re just not Canadian.
In 2007, Norway’s Statoil made a $2.2-billion cash purchase of Calgary-based North American Oil Sands Corp., giving the state-run oil company leases over 1,100 square kilometres in Alberta’s Athabasca region.
The state-owned China National Offshore Oil Corporation Ltd. bought in last year with a controversial $15.1-billion takeover of Nexen Inc.
China’s Communist government can also profit through PetroChina, a subsidiary of the state-owned energy giant China National Petroleum Corp., which is taking complete ownership of its patch from a Canadian partner.
Compared to Canada, Norway is a runt when it comes to proven oil reserves. Norway, Western Europe’s largest oil power, has more than 5 billion barrels of crude known to be in the ground, according to the U.S. Energy Information Administration.
Canada’s proven reserves are almost 35 times bigger, at more than 173 billion barrels waiting to be exploited.
Yet look closer at how each country demands a share of the revenue from oil companies and Canada seems anemic.
In Norway, all energy taxes flow to the central government, while under Canada’s federal system, provinces control resources, making precise comparisons hard to come by.
But in June, the Organization for Economic Cooperation and Development published a study of Canada’s economy that criticized how Canadians manage the country’s vast energy resources.
The report acknowledged “the federal government has limited powers in this area, although it receives revenues from corporate, wage and consumption taxes, because the provinces have exclusive constitutional rights to manage natural resources.”
Ottawa has more leeway to tax energy, through a carbon tax, for instance. But so far that has been politically toxic even though experts from the right and left continue to press for reforms to put a market cost on carbon that’s fuelling climate change.
Resentment runs deep in Alberta, still raw more than 30 years after Trudeau introduced the National Energy Program in 1980 that gave Ottawa greater control over the energy industry, along with a bigger share of profits for national use.
Canada produces close to 5 per cent of the word’s oil, according to the Energy Information Administration.
The billions of dollars the oil and natural gas industry generate each year account for more than 6 per cent of Canada’s GDP. But compared to other countries, tax revenue from that energy wealth is relatively small, the OECD says.
Its June report notes diplomatically: “Since the early 1980s, the federal government has left the field of resource-specific taxation to the provinces,” adding “but some estimates suggest that Canada’s take is comparatively low.”
Ranked by share of oil and natural gas profits captured by the state, Canada ranks 30th out of 41 countries in the OECD’s report. Norway was 12th.
The governments of Iran, Venezuela and Libya, all members of the Organization of Petroleum Exporting Countries, take the greatest share of energy profits, at around 90 per cent, according to the OECD study.
It’s harder to pin down exactly how Ottawa and the provinces split their cut from energy revenues.
Robin Boadway, a Queen’s University economist and one of Canada’s leading experts on fiscal federalism, works with an estimate from a finance department study from the late 1990s.
“The federal government got something like 27 per cent of the revenues and the provinces got the other 73 per cent,” he says. “The federal revenues were mainly from corporate taxes,” on net revenue.
With a long menu of federal and provincial subsidies on offer, oil companies have a buffet of deductions to choose from before paying the tax tab.
The OECD has advised Canada to get larger, longer-term benefits by investing more resource revenues in a national sovereign wealth fund, suggesting its profits could help level out regional inequalities.
Even after its oil wells are projected to run dry in 2060, Norway expects to be living off the profits because it tries not to take out more money than goes into its sovereign wealth fund.
More than $22.5 billion moved from the fund into government coffers this year, the finance ministry reported to Norway’s parliament, the Storting. That amounts to more than 10 per cent of the country’s budget.
The ministry report added that the global fund is expected to be worth more than 8 per cent of Norway’s GDP by 2030. If that happens, Norway’s sovereign wealth fund will be financing more than 15 per cent of government spending.
That cash already helps pay for a generous welfare state, whose benefits include some of the world’s highest agricultural subsidies. They, in turn, help offset the high cost of running a small dairy farm 235 kilometres north of the Arctic Circle.
When Henriksen is home, he’s out in the sloping fields of the family’s 32-hectare farm, minding their 65 head of beef and dairy cattle.
They toil through 10- and 12-hour workdays, supporting five kids, trying to stay ahead of the bank, and hoping they can keep the farm.
Norway is one of the world’s most expensive places to live, and farming on an island above the Arctic Circle is like shovelling money into a bottomless pit.
But Hokland and Henriksen aren’t hurting: a 50-inch flat-screen TV stands next to their wood stove. They have a couple of Volvos in the dirt driveway, an SUV and a station wagon, both black. And they just bought a 160-horsepower CASE tractor for $140,000.
Then there’s the panoramic view of Kvaefjord, and above it, the red Mount Rodmoldheia, and its soaring, snowy peaks, where hang-gliders hike up to ride irresistible thermals. Priceless.
“We are earning money,” says Henriksen, who takes in $109,000 a year on the rigs, not counting various benefits. “We always want to earn more. That’s life.
“Before I had my other job, we weren’t living like we are now,” he adds. “High spenders. But now, if there’s something we want, we just buy it. If I didn’t have this (oil rig) job, we’d think twice before we did something.”
In Norway, where taxes and daily expenses take a huge bite of an average worker’s paycheque, a salary in the low six figures makes you comfortable, not rich — especially in the Arctic.
Every year, The Economist magazine publishes its Big Mac Index, playfully calling out countries with the world’s most inflated currencies. Norway tops this year’s list.
A Big Mac costs more than $8.30 in Oslo, which, by the reckoning of the Economist’s burgernomics, means the kroner is overvalued by more than 70 per cent.
A quart of milk in Oslo costs about $2.60, a dozen eggs will set you back $7.50, and a loaf of bread is $5.20.
Norwegians often pay double what residents of the European Union spend on food, according to the International Monetary Fund.
Norwegians who need it can get a lot of help from their government. It has money to spread around.
That safety net keeps the country’s Arctic farms, mainly small, family-owned businesses, from collapse. Norway has the biggest farm subsidies in the 34-nation OECD and high tariffs on imported food drive up costs.
Norway’s conservative coalition government spent more than $2.25 billion supporting farmers this year, and the government is pushing to reform the subsidies in favour of larger farms run by full-timers.
“If you took away all the subsidies, I guess you wouldn’t have any farm production very far north. That’s a fact,” concedes Paal Bjornestad, Norway’s state secretary under the minister of finance.
He thinks that would leave larger, more efficient farms in other parts of Norway, which Henriksen fears would destroy an essential, and centuries-old, part of the national soul.
“If farmers quit, the wilderness quickly will take over,” the farmer and oil worker says. “Then we will be like northern Sweden. Just emptiness.”
