Alberta’s near-term economic future looks a bit less dire to Jason Kenney than it did in March and April. At the height of the pandemic lockdowns, the Alberta Premier warned his province was headed for a collective experience “unlike any we have seen” save for the droughts and grasshopper plagues of the Great Depression.
But during an interview with The Globe and Mail this week, he took a slightly different tone. “I don’t mean to sound Pollyanna-ish about it, but let me put it this way – I’m a lot more optimistic than I was 10 weeks ago.”
The Premier believes Alberta’s businesses were able to keep operating at some capacity despite the novel coronavirus because of the province’s narrower lockdown. He also said oil prices have rebounded to “survival price-point,” about US$40 for a barrel of West Texas Intermediate, more quickly than he thought they would. In the medium term, tens of billions of dollars of global capital that’s been taken out of upstream oil production and exploration activities could lead to greater demand for Canadian crude.
To be clear, the Alberta Premier is, and should be, still deeply worried about his province. It was already struggling to climb out of an economic slump before the pandemic. Now there is an effective unemployment rate of near 25 per cent, and the historic thumping that oil prices took early this year likely means a long road to any kind of rebound.
Four months into the COVID-19 pandemic, what stands out about Mr. Kenney’s government is its unwillingness to bend from the conservative political philosophy it laid out during last year’s campaign. In fact, it is doubling down.
The province laid out its economic recovery plan this week, with more spending on infrastructure and other areas to immediately kick-start job creation in the economy, and a longer-term vision for diversification that includes hydrogen and strategic rare minerals. It certainly could have used a substantive mention of renewable energy, and more meat on the bones concerning child care or getting more women back to work, post-pandemic.
But the headline item from the plan is the acceleration of a long-promised corporate tax cut to 8 per cent, significantly lower than any other province. In what is becoming a hallmark of this government, the Alberta Premier made the announcement on a Monday, and it became so on a Wednesday. Instead of taking another 18 months for Alberta’s business taxes to drop three percentage points, the plan for 2022 became a reality on Canada Day.
It’s certainly a bold, attention-getting move. Mr. Kenney said it’s important to show companies that might consider setting up shop in Alberta that his government is serious about the tax cut, and to remove any “skepticism” that the province will follow through. “The fiscal crisis here will be completely insurmountable unless we get back to growth. For us, this is the key strategy to do so.”
He’s doubling down on the United Conservative Party mantra that the best way to grow the economy, and government revenues, is a general reduction in the business tax rate along with regulatory burdens. The focus is on creating “optimal overall conditions” rather than government investments or incentives in specific areas. (Of course, there are notable exceptions, such as the government’s $1.5-billion investment in TC Energy Corp.‘s Keystone XL heavy-oil pipeline project to the U.S. Gulf Coast. And Mr. Kenney said Alberta will do more in terms of industry-specific incentives to compete with other jurisdictions.) There will be a push on promotion, with new Alberta offices in Houston, potentially New York, and other centres to make pitches to investors.
But the potential downsides to Mr. Kenney’s plan are stark. Even with the mountains, the space and clean air, along with the relative lack of traffic and affordable home prices, there’s no guarantee fin-tech or e-commerce companies will want to relocate here. Long-vacant office towers in Calgary are less likely to be filled now that more workers and companies have realized during the pandemic they can do so much from home. The high likelihood is that whatever new jobs are created in tourism or agri-foods, they will not pay wages as high as the energy sector has. There’s no hint that Mr. Kenney is seriously considering a provincial sales tax to help stabilize the province’s finances.
The government might not be giving up much in the way of revenues this year – many pandemic-hit companies will be unable to turn a profit and therefore won’t pay corporate taxes. But the hundreds of millions of dollars given up in future years, eventually adding up to billions, could hurt the province’s ability to pay for essential services like health care and education.
The pandemic has not caused Mr. Kenney’s government to back down in its battle with the doctors, or his government’s bid to remake the public service, or his promotion of a “fair deal” for Alberta. And he’s not changing the fundamentals of the UCP’s low-tax and low-regulatory-burden philosophy.
But the provincial debt is the one key area where the pandemic has truly changed the government’s messaging. Alberta’s deficit is likely to triple to about $20-billion this year. In downgrading the province’s credit rating this week, Fitch Ratings noted Alberta’s debt could increase to $133-billion by 2025. In the old days, before COVID-19, Mr. Kenney warned about the NDP digging the province into a debt hole of $100-billion.
When asked about his government’s change of heart on the debt or deficit, Mr. Kenney responded simply that “we’re not going to cut or tax our way out of a $20-billion deficit hole.
“The most important deficit reduction strategy will be economic growth, and increasing revenues.”
But now, if the government is actually able to attract a few new companies to Alberta, and return to a solid rate of economic growth, $100-billion of debt would actually be a better-case scenario. Albertans will be hoping that Mr. Kenney has good reason for his newfound optimism.