Record spending, tax cuts fuel bid to reboot economy

Premier Jason Kenney is hoping to jump-start Alberta’s beleaguered economy by providing a few jolts from something old and something new coming from his government.

The province’s economic recovery plan released Monday aims to deal with the punishing fallout from the COVID-19 pandemic, a global recession and low oil prices with a number of measures, including cutting corporate income tax rates faster than expected.

It also includes some oldschool fiscal stimulus. Total capital spending will hit a record $10 billion this year to build new infrastructure projects, creating 50,000 jobs in the process.

And there’s a twist: a new program to assist the province’s burgeoning technology sector is coming, a policy reversal after the UCP government angered the industry by axing some tax credit programs last year designed to grow the industry.

The government hopes the blueprint will spark greater diversification in a province that needs more jobs and investment from all corners of the economy.

“Given the severity of the economic crisis, we must act now,” Kenney told reporters.

With record-high unemployment from the coronavirus pandemic and lower oil prices, a shot of adrenalin is needed.

Alberta’s economic reboot has multiple prongs, punctuated by the surprising move to accelerate the reduction in the provincial corporate income tax rate.

The UCP promised last year to lower the rate to eight per cent from 12 per cent by January 2022, something the NDP opposition has labelled as a corporate giveaway.

The province will cut the rate, now sitting at 10 per cent, to eight per cent on Canada Day, making it by far the lowest level in the country — and something it hopes will help Alberta attract jobs and companies away from other cities.

Finance Minister Travis Toews said reducing the corporate tax rate 18 months earlier than expected will reduce provincial revenues by $200 million to

$300 million this year.

But the province cited research reports the entire tax cut will stimulate $13 billion in economic growth and lead to 55,000 jobs being created.

With companies around the world reassessing where they operate and examining ways to drive down costs, this is the right time to highlight Alberta’s tax advantage, the premier said.

“We thought we had to do something dramatic to get the attention of investors and we had to do it now, not based on some vague promise,” Kenney said in an interview.

“We felt if we were going to get the benefit of that tax cut, we needed to roll it forward to show it’s real.”

Economist Trevor Tombe with the University of Calgary said providing certainty for businesses is critical and lowering the corporate tax rate should attract more investment over time.

“This was a smart move and relative to other initiatives, also fairly low cost,” he said.

The UCP is also taking steps to grow Alberta’s technology sector, following last year’s decision to cancel targeted investor tax credits.

The province will create a new Innovation Employment Grant, providing a refundable tax credit to smaller firms that invest in research and development.

More details will be announced soon. Toews pegged the cost at about $60 million in foregone revenue in the first year.

There’s little doubt this is an area of potential growth, as the number of tech firms in the province has soared by 87 per cent since 2009.

“This has given those of us who promote the sector an opportunity to show what we can do,” said Platform Calgary CEO Terry Rock, co-chair of the Alberta Innovation Corridor, which advocates for the province’s technology industry.

“It’s a nod to the world (that) Alberta is back in the competitive game. It’s a nod we take this seriously, and that we want to be a leader in Canada,” added Adam Legge, president of the Business Council of Alberta.

The province is also investing $175 million over three years in the Alberta Enterprise Corporation “to expand access to venture capital for early-stage startup companies,” according to the provincial strategy.

It’s clear the pushback that came from cutting programs to the industry last year resonated inside the government.

“We don’t want to look back 10 years from now and see that the tech train passed us by in Alberta,” said Kenney.

“I live in the real world and we can see that there are other jurisdictions that have set up massive incentives. We simply have to compete.”

Another major focus is boosting construction of much-needed infrastructure. The government pledged to spend $10 billion this year — the largest capital budget in Alberta’s history — and up about 40 per cent from the February budget.

Sector-specific strategies will be rolled out in the coming weeks in areas including financial services, tourism and petrochemical manufacturing.

Lowering the tax rate will reduce costs for large companies and make the province more competitive to attract investment, said Alberta Chambers of Commerce CEO Ken Kobly.

The emphasis on economic diversification is also welcomed. “It’s important to talk about economic diversification, but also important to take some steps toward it,” Kobly said.

The government pegged the incremental cost of its new announcements Monday at just over $2 billion. Kenney reiterated Alberta’s deficit this year is estimated to be around $20 billion.

Overall, the various measures, while meaningful, are classic policy responses to a recession. However, with such a unique economic downturn, more will need to be done, said Tombe.

“There is no thinking outside-the-box here, which is a little disappointing, but maybe we’ll get some more innovative ideas to come,” he added.