Labour, business split on corporate tax cut

The provincial government is betting a controversial corporate tax cut will attract investment and create an estimated 55,000 jobs by 2023, but observers differ on whether the wealth will trickle down to Alberta workers.

“Jason Kenney and the UCP are betting the farm on corporate tax cuts. The problem for Albertans is that it’s a bet that almost certainly will not pay off. This is a policy prescription with a track record which happens to be abysmal. It has never worked anywhere, ever,” said Gil Mcgowan, president of the Alberta Federation of Labour.

Spending reductions to health and education introduced in Thursday’s budget will probably tip the province into a recession, Mcgowan said.

“You can’t take billions and billions of dollars out of the economy and expect to not have a negative impact on economic growth.”

With the aim of being the most competitive jurisdiction to do business in North America, the province will lower its corporate tax rate to eight per cent from 12 per cent over four years, and proponents say that is a good thing.

“It’s part of what’s going to attract investment. We’ve got to get pipelines built, get access to tidewaters, but the business tax reduction is part of the solution,” said Franco Terrazzano, Alberta director of the Canadian Taxpayers Association. In the early 2000s, a reduction in business tax helped spur a booming economy, created jobs, and bumped business tax revenues, he said.

“That’s horse s--t,” said Mcgowan. “The Alberta economy did not recover until the price of natural gas more than quadrupled. The corporate tax cuts were introduced years earlier.”

The budget will create a self-inflicted recession by paying billions of dollars in tax cuts to corporations who have no intention of investing it in Alberta, he said.

Still, a low-tax environment can drive the economy, said Conference Board of Canada’s senior economist Daniel Fields.

“Any incentive to bring investment to Alberta is good from an economic lens,” said Fields.

The plan is also to balance the books by 2022-23 by reducing program spending.

But part of that path to fiscal balance relies on a sizable increase in royalty revenues, which are highly volatile and uncertain, he said.

“If you see a world where oil prices crash again, you’ll see a $5 billion gap that will need to be accounted for,” said Fields.