Alberta Premier Jason Kenney says he’s recently been reading about former U.S. President Franklin Roosevelt’s stimulus-spending response to the Great Depression of the 1930s.
It’s likely a timely read, as his government faces the most severe contraction of economic activity and employment in more than a generation.
On Monday, Kenney and finance minister Travis Toews hoped to channel FDR with a plan to counter the province’s double-digit jobless rate and one of the largest economic contractions among Canadian provinces this year.
The Alberta Recovery Plan features $10 billion in new infrastructure spending and a tax cut to eight per cent from 10 per cent, that takes effect as early as Wednesday, in a bid to stimulate the province’s economy.
The approach, Kenney said, inspired in part by FDR’s attempt to stimulate the U.S. economy during the 1930s and also informed by a report written by a panel led by economist Jack Mintz. The panel also included former prime minister Stephen Harper.
“The $10 billion is not necessarily the maximum,” Kenney said of the spending package, adding that details of the infrastructure projects will be announced in the coming days.
Monday’s announcement seeks more provincial investment and incentives for industries, including petrochemical projects to diversify and support the energy industry, irrigation infrastructure to support the agriculture industry and potentially support for a high-speed railway link between Calgary and Banff being studied by the Canada Infrastructure Bank to boost the tourism industry.
The soon-to-be announced new incentives, new spending and cut provincial corporate taxes is an attempt to drive down the province’s unemployment rate and boost investment after the COVID-19 pandemic and the collapse in oil prices sapped business sentiment.
Every sector in the province took a significant hit during the pandemic and oil prices collapse. Toews said that oil production fell 25 per cent in the second quarter, while the value of non-residential building permits dropped 25 per cent. Meanwhile, retail sales are down 30 per cent and home sales are down 40 per cent since February.
A new Royal Bank of Canada forecast expects Alberta’s economy to shrink by 8.7 per cent this year — the second-worst performing economy in Canada after Newfoundland and Labrador.
“Most dramatically and sadly, more than 330,000 Albertans have lost their jobs. This amounts to the number of jobs Alberta’s economy added over the last decade,” Toews said, adding the official unemployment rate is 15.5 per cent but when the number of people no longer looking for work are counted, the real unemployment rate is closer to 20 per cent.
When the number of people not looking for work are counted, the real unemployment rate is closer to 20 per centAlberta Finance Minister Travis Toews
The NDP, the province’s opposition party, called the economic response to the pandemic a “trick” of trickle-down economics, while its leader Rachel Notley called the tax cuts an attempt to “speed up the rate in which he (Kenney) is handing out billions to big corporations.”
Given the current level of economic uncertainty in the province and in the global economy, it will be difficult to measure the effectiveness of the tax cuts on job creation, said Trevor Tombe, associate professor of economics at University of Calgary.
“It’s going to be hard to quantify the implications of any policy change right now,” Tombe said, adding that the province’s estimate of 55,000 new jobs created by the tax cut over the next four years “is not an implausible estimate.”
A rebound in employment is more dependent on global economic conditions than on the provincial economy, said Joseph Doucet, dean of the Alberta School of Business at the University of Alberta.
“It’s really, really hard to be definitive about numbers because we’re not in a regular or usual environment,” Doucet said, noting that the pandemic had upended economic expectations.
Alberta would also table an economic outlook later this summer that would provide a “frank” look at the province’s finances following the coronavirus-induced shutdown of the economy, Kenney said in an interview.
The province had previously planned to reduce corporate taxes to eight per cent from 10 per cent — a 20 per cent cut — over the next two years, but accelerated those changes in an effort to show companies interested in opening offices in Alberta that “the tax gap is real and it’s now,” Kenney said.
Other governments in Canada and elsewhere had previously promised to cut business tax rates but changed their plans as circumstances changed, Kenney said. As a result, those companies “talked to us and said, ‘Come back when you actually get to eight per cent’,” he said.
Business Council of Alberta president and CEO Adam Legge said many companies in the province are poised to lose money this year “and they’re not going to be paying tax anyway.”
“Alberta can be more highly competitive now. It’s more of a long-term piece than helping in a very down year,” Legge said.
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