Will Jason Kenney declare that it’s morning again in Alberta?
The United Conservative Party leader kicked off a speech last week asking Albertans if they are better off today than they were four years ago, channelling his inner Ronald Reagan, who famously asked the question in the 1980 U.S. presidential debate.
On Monday, Kenney followed it with another Gipper-like move: a pledge to lower Alberta’s corporate income tax rate by one-third if he wins the upcoming election.
Branded the Job Creation Tax Cut, the policy would leave Alberta with the lowest corporate tax rate in Canada at eight per cent by 2022.
The aggressive move contrasts neatly with the NDP’s decision to increase the rate from 10 to 12 per cent after it won the 2015 election.
The fact Kenney made the announcement on an empty floor in a downtown Calgary office tower served to highlight the economic malaise troubling Alberta today, with low investment levels, stubbornly high unemployment rates and tepid growth.
In an interview, the former federal cabinet minister said he initially thought about returning the corporate tax rate to 10 per cent, but determined that wasn’t aggressive enough.
“The more we looked at the economic data, the more we realized something much more dramatic had to happen,” the UCP leader said.
“We have to take the defibrillator to the Alberta economy.”
Corporate tax rates have been a highly charged political subject in Alberta since the last election.
Rachel Notley campaigned four years ago on boosting corporate taxes, but the province was in a much different economic state in 2015.
Since then, a two-year recession and decline in investment has left the province in a funk and needing a shot in the arm, while the U.S. has since slashed corporate taxes.
If the UCP forms government, Alberta would not only have the lowest corporate taxes in Canada — Quebec and Ontario are slightly below 12 per cent today — but it would drop below all but seven U.S. states.
The rate would decrease to 11 per cent in July, dipping by another point annually until the 2023-24 fiscal year.
Kenney said he wanted the action to be “bold” so executives would feel compelled to examine Alberta when looking at where to locate jobs and capital.
“We have got to do something different,” he added.
“We cannot continue down the current path. If we do, then we’ll just be overseeing the gradual economic stagnation and decline of this province.”
As with any major campaign promise, the cut will come with political risk.
According to analysis done by University of Calgary economist Bev Dahlby for the UCP, the plan would see corporate tax revenues fall by $348 million in the first year, but then recover and grow.
Using economic modelling, Dahlby forecasts the change would lead to a $12.7-billion jump in nominal gross domestic product (GDP) in 2024.
Total government revenues would be $1.2 billion higher by that time, as other revenue sources expand due to a more robust economy.
In essence, the tax cut would be self-financing because Alberta would be “growing the pie,” Dahlby said in an interview.
Separate analysis by tax expert Jack Mintz estimated the cut would generate at least 55,000 new jobs.
But a donnybrook on taxes is coming.
Premier Rachel Notley said the promise would create a $4.5-billion hole in the government’s budget over four years and she has no plans to adjust the rate.
“This is gratuitous,” she told reporters. “This is a historic giveaway to profitable big corporations.”
Voters will soon weigh in with their reaction, while the business community backs the jolt it will deliver to the economy.
“A cut to the corporate income tax is certainly a step in the right direction,” said Mark Cooper of the Calgary Chamber of Commerce.
“This (proposal) is the type of signal that global investors say, ‘that’s different, that’s better and we want to give another look to the jurisdiction,’ ” added Canadian Association of Petroleum Producers president Tim McMillan.
While the political battle is already raging, U of C economist Trevor Tombe said the evidence is fairly clear: lowering corporate rates increases investment.
In turn, that triggers increased labour demand, wages and growth.
“The economics here are fairly simply,” Tombe said.
“We should focus on what are the real economic implications of the tax reduction — and they are very likely to be positive. Then the question is, just how large will that boost be?”
Chris Varcoe is a Calgary Herald columnist.
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