Alberta’s corporate taxes will be cut to the lowest level in Canada over the next four years as the province’s newly elected United Conservative government looks to boost economic growth at the cost of billions in lost revenue.
The government tabled legislation Tuesday that would see the province’s business income-tax rate cut by one-third to 8 per cent, from 12 per cent, by 2022 – a key campaign promise that more than reverses the previous NDP government’s increase to corporate taxes.
The corporate tax cut is the centrepiece of Premier Jason Kenney’s economic strategy, along with a bill tabled last week to cancel Alberta’s carbon tax and begin cutting a swath of provincial regulations.
Finance Minister Travis Toews said the government expects the tax cut will lead to the creation of 55,000 new jobs and $12.7-billion in new business activity in the province’s $330-billion economy. The corporate tax will be cut by one percentage point on July 1, with an additional one percentage cut on Jan. 1 in each of the next three years.
“This is the central part of our plan to reignite Alberta’s economy, create jobs and attract investment,” Mr. Toews told reporters in Edmonton.
A number of economists have supported the government’s expected number of new jobs from the cut. However, they’ve cautioned the decrease in tax revenue will add hundreds of millions of dollars in red ink to a nearly $7-billion deficit.
By the fourth year, the government expects to be $1-billion short compared with if they had left the corporate tax alone. When Mr. Kenney first announced the cut in March, he said it would be “self-financing” and would return billions in additional revenue.
Complicating the fiscal picture for Mr. Kenney’s government, the Conference Board of Canada has warned that Alberta is expected to slip into a mild recession in 2019 because of continuing troubles in the oil patch and the province’s agricultural sector. Despite the looming storm clouds, Mr. Toews said the government won’t change course on the cuts if the province’s fiscal situation worsens.
“They are going into legislation right now. We’re committed to that. I think the Premier has noted that, if anything, there might be opportunity to accelerate the tax cuts for Alberta businesses,” he said. The conservatives have promised to balance the budget before the next election in 2023.
By the time Alberta’s tax is cut to 8 per cent in 2022, the next lowest corporate tax rate could be Ontario’s, at 11.5 per cent. Ontario Premier Doug Ford had proposed cutting his province’s business taxes – however, his government shelved those plans earlier this year because of the need to balance Ontario’s books.
Kevin Milligan, a professor of economics at the University of British Columbia, said the government’s decision to reduce the tax in steps over four years is a wise way to structure the cut. “The goal of cutting the corporate tax rate on profit is to have firms make more investments now. If they make an investment now, they need to know what their profit and investment flow will be in the future. Staggering like this allows you to get some of that benefit,” he said.
One effect of the province’s low tax compared with other provinces could be that businesses based elsewhere in Canada find ways to shift their profits to Alberta to take advantage of its lower taxes, Prof. Milligan said. The corporate tax rate in Nova Scotia and Prince Edward Island will be double what Alberta businesses pay by 2022.
The policy was based in part on research from University of Calgary economist Bev Dahlby. “The important message is always that lowering the corporate tax rate is good policy in general, because it’s going to increase employment, increase overtime and salaries, and generate more income for Albertans,” he said.
Sandip Lalli, the Calgary Chamber of Commerce president, said she expects the government’s move will help bring investment back to the province, especially in Calgary, where a quarter of downtown office space remains vacant.
“Certainty is going to allow for further investment. There is a lot of investment capital that is sitting idle and it is looking for investment,” she said.