UCP drops business tax credits that were backed by tech sector
The UCP government will cancel a business tax credit program that had been widely praised by Alberta companies working in such non-traditional sectors as technology.
The future of the Alberta Investor Tax Credit — which was introduced by the previous NDP government and provided a 30 per cent tax credit to investors who put money into targeted growth industries such as clean technology and digital animation — has been up in the air since Premier Jason Kenney’s government was elected.
In Thursday’s provincial budget, the UCP confirmed it will eliminate the program, along with other targeted tax credits intended to support business and economic diversification in Alberta.
The Capital Investment Tax Credit, the Community Economic Development Corporation Tax Credit, the Capital Investment Tax Credit, the Interactive Digital Media Tax Credit and the Scientific Research and Experimental Development Tax Credit are all being cancelled, a move the government says will result in $400 million in savings by 2022-23.
The UCP said the programs have been hampered by red tape and have been shown to be a relatively inefficient way of delivering benefits to businesses.
It said its move to lower the corporate tax rate for all businesses to eight per cent from 12 per cent by 2022 is a better way to support job creation and grow the economy, since 100,000 Alberta companies will benefit from the tax cut while only 1,500 companies would have benefited from the tax credit programs.
The corporate tax cut translates into a net $2.4-billion revenue reduction for the government over four years.
“We made a commitment to Albertans that we were going to implement initiatives that increase job opportunities and improve the economy, and that’s why we implemented the Job Creation Tax Cut,” Finance Minister Travis Toews told reporters. “Research upon research upon research has demonstrated that as you improve the business environment, as you reduce the taxes in the business environment, you attract investment and create jobs in the long term.”
Toews said reducing the corporate tax rate is expected to lead to $4 billion annually in increased investment in Alberta by 2022-23, and will encourage sustainable diversification of the economy without relying on government handouts.
However, not everyone believes an across-the-board tax cut is preferable to the cancelled tax credits.
Many people in Alberta’s burgeoning tech sector say the Investor Tax Credit in particular — which had approved $28.1 million in tax credits by the end of 2018 and leveraged $94 million in investment for small and midsized businesses — helped get much-needed venture capital into the hands of new industries in a province where investment dollars have typically gone to oil and gas.
The tech sector also benefited from the Interactive Digital Media Tax Credit, which put Alberta companies on a more level playing field with other provinces that have offered similar tax credits for years, said Trent Oster, CEO of Edmonton-based video game developer Beamdog.
“On a dollar-per-dollar basis, we can’t compete with Quebec, with B.C., with Winnipeg. It’s actually a bad business decision for a video game company to do business in Alberta right now, so this (the cancellation of the tax credits) is so disappointing,” Oster said. “A four per cent corporate tax cut doesn’t help establish a new industry, it just helps make existing industries more profitable.”
Mike Holden, vice-president of policy and chief economist with the Business Council of Alberta, said his organization believes the government’s move to cut the overall corporate tax rate is “part of a good path forward” that will enhance competitiveness and investment attractiveness in Alberta.
However, Holden added the Business Council is disappointed to see some of the tax credits, particularly the Alberta Investor Tax Credit, eliminated.
“Technology and innovation is of strategic importance to the Alberta economy ... it’s key to our long-term economic prosperity and competitiveness,” Holden said. “We would support some effort on a redesigned or improved policy that enables activity in that sector.”
The Calgary Chamber of Commerce — while a vocal supporter of lower corporate taxes — had also been a supporter of the investor tax credit and had lobbied the previous NDP government to create the program.
The government said broadbased business tax cuts have already been proven to work in Alberta.
According to the budget document, a low-rate, broad-based corporate tax approach was provincial policy from 2001 to 2014 and, during that time, Alberta led all provinces in growth across nearly every industry sector — with growth in non-resource sectors generally outpacing that in the resource sector.