Premier Jason Kenney is preparing to cut corporate taxes in a bid to boost Alberta’s economy with a policy that will cost the province billions of dollars in forgone revenue over the next four years.
Mr. Kenney’s plan to cut his province’s corporate income-tax rate to 8 per cent from 12 is a reversal from the previous NDP government, which increased corporate taxes by 2 percentage points soon after taking office. It also sets him apart from other conservative premiers, including Doug Ford in Ontario, who have promised modest corporate tax cuts only to change course as they sought to eliminate deficits.
Mr. Kenney, whose United Conservative Party unseated the NDP in last month’s election, said his government would introduce legislation next week to shave one percentage point off the corporate tax rate every year for the next four years. The first cut would take effect in July, followed by another in January, 2020, when the rate would be reduced to 10 per cent. The party’s platform estimated that by 2022-23, the tax cut would result in a net reduction in revenues of nearly $1-billion a year.
The Premier predicted the tax cut would create 55,000 jobs and inject billions into the province’s GDP.
“We have designed this in order to affect the investment decisions,” Mr. Kenney told a news conference in Edmonton.
“We need to take the defibrillator to the Alberta economy.”
After a wave of steep cuts in the 2000s, corporate tax rates across Canada have increased in Alberta and British Columbia over the past few years while largely holding steady in most other jurisdictions.
Prime Minister Justin Trudeau’s government increased personal taxes for high-income Canadians and held corporate tax rates steady after more than a decade of cuts under Liberal and Conservative governments. The federal rate fell from 28 per cent in 2000 to 15 per cent in 2012, where it remains.
In Ontario, Mr. Ford’s Progressive Conservatives campaigned on a promise to cut the province’s corporate tax rate by one percentage point to 10.5 per cent, but the government left the rate alone in its recent budget.
In Saskatchewan, former premier Brad Wall briefly cut the corporate tax rate in 2017 by half a percentage point in what was intended to be the first of two cuts, but the province subsequently returned the rate to 12 per cent.
Mr. Kenney has promised to balance Alberta’s budget by 2022-23, a year earlier than the previous NDP government, largely by freezing spending.
Alberta also plans to eliminate the province’s carbon tax as of May 30, which would cut $1.4-billion a year that the previous government spent on renewable energy, transit and other green projects. That will likely prompt the federal government to impose its own tax, which is offset by rebates, though Mr. Kenney has joined legal challenges against the federal system.
While Mr. Kenney initially promised that his tax cut would pay for itself when he announced it in March, the party’s platform acknowledged that the policy would still leave revenues short. When the tax cut is fully in place, the platform predicted corporate tax income would fall by $1.76-billion, compared with $700-million in increased revenue.
Opposition NDP Leader Rachel Notley, who formally resigned as premier two weeks ago, cast doubt on those numbers.
"I don’t think it will deliver any of what Premier Kenney is suggesting it will deliver,” she said.
“You cannot take that amount of money out of the budget and still meet the other commitments they made around balancing the budget sooner than we were going to without significantly undercutting health care, education and other services.”
Trevor Tombe, an economist who teaches at the University of Calgary, said the province can expect a boost from cutting corporate taxes, both through increased investment and employment, as well as through businesses shifting income to a lower-tax jurisdiction like Alberta.
While he agreed there are benefits to cutting corporate taxes, he said the province is missing an opportunity to also talk about ways to replace that income − such as through a sales tax, which Mr. Kenney has categorically ruled out.
“The way we raise revenue is not only inefficient but it’s also highly volatile,” Dr. Tombe said.
“We should be getting off our reliance on resource revenue. And to do that without dramatically shrinking the size and scope of government is to be introducing new sources of revenue, like a sales tax."
David Macdonald, an economist at the Canadian Centre for Policy Alternatives, said previous cuts to corporate income taxes have not resulted in the increased investment that governments predicted.
“You can certainly cut corporate income-tax rates, and it blows a big hole in your budget," he said. “What it means is that someone else is going to have to make that hole up for you.”