The tax bill opening up the Arctic National Wildlife Refuge to oil drilling is based in part on incorrect accounting. Oil is an inherited asset. The $1 billion that the U.S. Government claims is “revenue” is compensation for the sale of its natural capital, technically a capital conversion. Governments make a fundamental error in accounting for the money received from selling their mineral resources including oil. By opening up the Arctic Refuge, America is consuming both its oil inheritance as well as its exquisite natural and cultural inheritance.
The US tax bill opens the wetlands of the Arctic National Wildlife Refuge for oil drilling. The US federal government estimates it will receive $1 billion of revenues over the next 10 years. The Alaska government will receive an equal amount of revenues, helping bridge their yawning deficit. The Alaska Native Corporations would also benefit from their holdings of land within the Refuge.
The oil deposits in the Refuge are valuable assets, owned by the government under a public trust for the people. The oil as well as the Refuge and the way of life it sustains are a shared inheritance, a common patrimony.
If the Refuge is opened up to oil extraction, it is in effect agreeing to sell the oil. The owners receive compensation, in this case $1 billion. This $1 billion isn’t earned or a tax. It is simply financial capital for selling the oil. The government is converting mineral wealth into financial wealth by selling oil. As this is not earned income, spending it depletes the government’s wealth.
This is an error in government accounting. Since the $1 billion is treated as revenue, it is consumed. The nation is poorer. It will have spent its oil money, and ruined its wetland, endangered the Porcupine caribou herd as well as the way of life of the Gwich’in people. This is no different from the prodigal son, frittering away his inheritance.
Government accounting worldwide wrongly treats royalty and other minerals receipts (where the government owns the mineral) as “revenue”. The global standard, IMF’s Government Finance Statistics Manual 2014, codifies this practice. The Goa Foundation has pointed out this error to the IMF and advocates a change in the government accounting standards.
Politicians love selling off national assets like oil and minerals. It gives them “revenue” without raising taxes, easy money. The politicians choose how to spend the money, and whether to save anything. In this case it is a tax cut. In other countries, it may be to buy arms to stay in power, or to buy support through contracts to cronies. Selling the family silver to consume the proceeds becomes a national project with no regard for future generations.
The consequences aren’t pretty. The Refuge is being opened up to drilling because of the “revenue” that will be received by the federal government, the Alaska government and the indigenous peoples. If they realize that they are selling their birthright for a mess of pottage, would things change? How would ordinary citizens view this project to consume the family silver?
Rahul Basu is the Research Director of Goa Foundation, an environmental NGO in India. The Future We Need is a global movement asking for natural resources to be viewed as a shared inheritance we hold as custodians for future generations. This work is based on the practical work of the Goa Foundation.
Whose Mine Is It Anyway is a campaign to make government finances and national income statistics treat mining as the sale of minerals. Read Mitigating the Resource Curse by improving Government Accounting and Government Accounting and the Resource Curse — Response to FAQs.