Alberta's slowing economy faces possible headwinds from higher corporate and personal taxes, adding to anxiety over the new NDP government's pledge to review energy sector royalties.
The New Democrats under Premier Rachel Notley this week vowed to raise taxes on businesses and high-income earners, sticking to a campaign promise that helped propel the left-leaning party to power after 44 years of Progressive Conservative rule.
The NDP plan includes raising the corporate rate to 12 per cent from 10 per cent, while abolishing a flat income tax of 10 per cent in favour of a progressive rate. Under the party's election platform, income taxes would rise to 12 per cent for those earning more than $125,000 and peak at 15 per cent for those making more than $300,000 annually.
Analysts say the moves, set to be introduced before the legislature's summer recess, aren't likely to have a major impact on investment levels in the province. The corporate tax hike, for instance, brings Alberta in line with the provincial median in Canada, said Robert Kavcic, senior economist at Bank of Montreal.
However, the changes come with the province's dominant sector mired in a deep funk as a result of the sharp drop in oil prices. Ms. Notley's pledge to review energy sector royalties has unnerved some in the industry, although the government has said it would work in concert with major companies to craft new policies.
"You're coming from an environment where taxes in Alberta were extremely low on a relative basis, so you're just closing that gap a little bit," Mr. Kavcic said Tuesday. "I think the bigger impact is going to be what comes out of the royalty review, and just the uncertainty there over what's coming down the pipeline in the year ahead."
Oil and gas producers have shed thousands of jobs and cancelled billions of dollars worth of spending plans as the impact of tumbling crude prices deepens.
This week, the Canadian Association of Oilwell Drilling Contractors chopped its activity outlook for the second time this year, blaming weak prices and potential policy changes under the NDP. The industry group said thousands more jobs could disappear as drilling companies park rigs for more days than previously expected.
So far, the government has offered few hints regarding its planned review of the province's complex royalty structure – a central plank of the NDP election platform. More details are expected on the scope and timing of the review by the end of summer, Ms. Notley has said.
It comes with Alberta poised to slide into recession as energy-related job losses mount. The province faces a $5-billion deficit and is expected to contract by 0.7 per cent this year, before rebounding and growing at a moderate 1.1-per-cent clip in 2016, the Conference Board of Canada said in May.
A slight increase to the corporate tax rate is unlikely to deter major oil and gas companies from investing in the province, Pedro Antunes, deputy chief economist at the Conference Board of Canada, said, although there may be some impact outside the sector.
On Monday, Imperial Oil Ltd. started production at a multibillion-dollar oil sands expansion ahead of schedule, adding 110,000 barrels a day of fresh capacity in northern Alberta, even as prices remain subdued.