ALBERTA NEEDS INCENTIVES TO DIVERSIFY ECONOMY
Outmoded myths are standing in the way, writes Lori Kent.
Alberta continues to endure the boom-and-bust struggle of a resource-based economy.
The benefits of diversifying Alberta’s economy are welldocumented and most experts agree diversification is imperative to the success of our province and nation. Yet it is slow to be realized. Alberta has largely failed to attract new investment in energy-diversification projects, which has led to continued volatility in the economy, less opportunity for our children and less spending on social programs.
In order to bring these investments to Alberta and grow and stabilize our revenues, we need to compete for the business. Investment-attraction programs, or incentives, are a much-debated but little-understood concept and the “myths” surrounding them cloud their importance.
Myth No. 1: It puts government in the business of business
Creating an investment-incentive program that is transparent, unbiased and predictable is not “doing business;” it is good governance. It is levelling the playing field with competing jurisdictions and combating market failures. The government should be focused on such services as health care, education, and a framework for regulation that protects our citizens. To do that, they need stable and growing revenues that come from capital investments in the province.
Myth No. 2: Let the market decide The market has been deciding — and it has sent close to $237 billion out of $240 billion of new and planned capital investment in petrochemical and chemical manufacturing in recent years to the U.S. Gulf Coast. Alberta has received only $2.5 billion. This is not a perfectly functioning market; other jurisdictions are tilting the field. The U.S. Gulf Coast has aggressive and well-established state and municipal incentives, which are long-term and customizable. The market is responding in a big way.
Myth No. 3: It’s too expensive Other jurisdictions have realized that offering investment incentives generates revenue. A successful Alberta example is the Petrochemical Diversification Program (PDP) that was completed in 2016. This program will award $500 million in royalty credits over three years once the facilities are operating. Before any royalty credits are granted, governments will have collected more than $500 million in taxes, and that is just during construction. Once the projects are operational, the government will continue to collect taxes during the 30-plus-year operating lives of the projects. This is about growing the pie, not dividing it.
There are ways to make incentive programs risk-free for the government. Incentives that are paid after construction, and are contingent on a certain level of investment, operational performance, minimum job creation and environmental and social benefits to the jurisdictions, make a lot of sense — and dollars.
Myth No. 4: Corporate welfare Corporate welfare is used to invoke indignation; big corporations have lots of money, why are we giving them money, or tax breaks, or other incentives?
The truth is, companies are building and expanding facilities all over the world, every day. Companies will build where they can get the best rate of return for their money. The jurisdictions where those facilities are built realize immense benefit in the form of good-paying and highly skilled jobs, tax revenue, and spin-off industries.
It isn’t about whether the companies need the money; it is about Alberta wanting those jobs and taxes long-term, and doing what it can to get them to build here. The competition for Amazon’s HQ2 proved this point — in order to win, you have to be competitive.
Resource Diversification Council members have proposed more than $26 billion in energy-diversification projects that could be built in Alberta. If even only three quarters of these projects go through, their construction alone would add over $3 billion to municipal, corporate and personal income tax, and direct full-time employment of over 42,000 in Alberta and Canada.
Once operational, these projects would add approximately $15 billion in municipal, corporate and personal income tax in Alberta and Canada over their operating life, helping to address the current deficit problems being faced by the province and ensure diversity and prosperity going forward.
We need to dispel these myths and ensure that Alberta is attracting high-quality investments that will support a prosperous, stable future for our province.