Tax cut for corporations a bold move
Bold move amid pandemic downturn lets corporations know Alberta means business
Jason Kenney announcing massive government spending? Using rhetoric that sounds vaguely socialist?
That’s how the premier came across at times in announcing his government’s recovery plan for the Alberta economy.
On Monday Kenney unleashed a blizzard of government programs to help deal with what he refers to as the Triple Threat of pandemic, global economic contraction, and a collapse in energy prices.
If there’s one statistic that sums up our misery, it’s Alberta’s effective unemployment rate of 25 per cent. The imperative, clearly, is to get folks back to work.
The Trudeau Liberals’ impulse has been to spend, spend, spend to help out. The conservative Kenney government is now stepping up in its own way with a huge focus on job creation. It will ramp up spending on roads, bridges, schools and other infrastructure from $6 billion to $10 billion this year.
Other moves include a new array of government incentives and/or strategies to spur investing in everything from aviation to financial technology, from tourism to petrochemicals.
Kenney’s New Deal will try this, try that, try everything, even at the cost of driving up Alberta’s already record deficit.
“Albertans will have tough choices to make about how to get our finances back in order,” Kenney said in defence of such spending. “But right now — in the face of the deepest jobs crisis in nearly a century — we must prudently leverage the province’s balance sheet to build, to diversify and to create jobs.”
I’m not alone in noting Kenney’s new-found openness to government spending. In an interview, University of Alberta economist Andrew Leach said of Kenney: “It’s the type of policies or the type of justification that you would generally think of being more of a left response than a right response: ‘We’re going to borrow and spend in order to stimulate the economy and create jobs.’ But, of course, there are other elements of the plan, notably the corporate income tax change, that is much more in Kenney’s lane.”
Indeed, Kenney went into Full Kenney mode, as bristling as he was articulate, as he discussed the biggest surprise of his plan, the acceleration of the Alberta corporate tax cut from 12 per cent to eight per cent. The new rate is among the lowest in North America, though it’s an average rate for developed and democratic countries.
Kenney argues the COVID pandemic has shaken things up for businesses, which are now looking to cut costs and operate differently. The tax cut is Alberta’s “ace-in-hole” to woo those companies here, Kenney said, and they’ll be “irresponsible” not to consider it.
“The announcement today sends a startling message to business leaders … that our commitment to have the lowest taxes for job creators isn’t just an aspirational, out-there-in-thefuture B.S. target. It’s real and it’s right now. Other governments in Canada committed to lower business taxes but then they pulled back. They didn’t have the grit to do it.”
The Alberta government will lose $300 to $500 million in corporate taxes from existing business due to this acceleration in the tax cut. The New Democrats continue to paint the tax cut as a massive giveaway to wealthy corporations but a cross-section of economists believe the tax cut should indeed create jobs and spur economic activity.
The best argument I heard all day on the tax cut came from University of Calgary economist Trevor Tombe. In an interview, Tombe said Kenney’s move might work in part because it’s sound policy, but also because boldness is needed in the face of unprecedented economic uncertainty.
Some businesses might well have thought that Alberta’s incremental corporate tax cut might be paused or cancelled altogether, Tombe said. “That uncertainty itself is a barrier to investment.”
Locking in the tax cut now tells business they can count on Alberta to be business-friendly. “Accelerating it does provide a strong signal to businesses making decisions that they can count on this tax rate, that the government is behind it 100 per cent and there’s no uncertainty.”
Kenney’s tax cut is indeed bold, but I’ll suggest we’ve actually seen two kinds of boldness during this pandemic, one uncontroversial in left-leaning Canada, the second subject to intense criticism.
The first is the massive public spending by the federal and provincial governments to help out vulnerable people. It’s bold because it’s unprecedented.
The second is this calculated tax-cut gamble.
We can only guess which measures will work and which will fail. No one knows. But I suspect in years to come both aggressive moves in the face of uncertainty will look like the right ones.