TAX CUTS A GAMBLE
By planning to slash corporate taxes by a third over four years, Jason Kenney is fulfilling a campaign pledge to voters who bought the idea he was selling: restoring the “Alberta Advantage” for business will shock a moribund economy back to life.
To his credit, he’s wasted little time in delivering on what he pitched. Bill 3 would cut the province’s corporate income-tax rate in a series of rollbacks to eight per cent from 12 per cent. On July 1, when it drops to 11 per cent, Alberta will once again have the lowest tax rate on employers in the country. By the time it reaches eight per cent, it won’t even be close. By 2022, it’s touted that Alberta will boast even lower rates than 44 states, which will be remarkable given American aversion to taxes.
According to Kenney, businesses will stampede to Alberta. Their investments will create 55,000 jobs and boost provincial GDP by $12.7 billion. The extra revenue would help balance Alberta’s budget by 2022-23, a year earlier than the NDP timetable.
But what Kenney isn’t telling Albertans is that the plan is really a calculated gamble, with not insignificant risk.
Some economists concur that cutting corporate taxes will boost the economy through increased investment and employment. But others note that previous cuts didn’t result in predicted economic gains. Opposition Leader Rachel Notley points out that Alberta is already the lowest-taxed jurisdiction in the country by around $11 billion. If low taxes were such a draw, those businesses would already be here.
The real question is: if Kenney is counting on lower corporate levies to renew energy investment in the province, will a few percentage points off the tax rate be enough to counter the “Alberta Disadvantages”: a dearth of pipeline capacity, interminable delays in the Trans Mountain expansion, and the looming spectre of federal Bills C-69 and C-48, which are widely seen as anti-industry?
Even if companies flock to Alberta, it’s no sure bet that their outlays will offset billions in foregone tax income. If the gamble falls short, it’s likely the money will be carved out of spending, since new revenue sources such as a sales tax are off the table from the start. It’s why appointing a blue-ribbon panel to examine the province’s finances but limiting it to only spending, and not revenue, is imprudent.
Albertans desperate to revive the economy may be willing to try slashing corporate taxes, but it’s likely they don’t want to subsidize business with drastic cuts to health care, education, infrastructure spending and other public services — of the kind Albertans saw during the time of Ralph Klein’s “Alberta Advantage.”