One Third Cut to Business Taxes Would Create at Least 55,000 Jobs, Grow Alberta Economy by $13 billion
Calgary, AB (March 4, 2019): A United Conservative government would get Albertans back to work by delivering a Job Creation Tax Cut which economists estimate would create at least 55,000 jobs, and grow Alberta’s economy by $13 billion.
United Conservative Leader Jason Kenney called today’s announcement “the centre piece of our Job Creation Strategy designed to get Alberta back to work.”
“Last week’s economic news suggests that we may now be in the NDP’s second recession in four years,” Kenney said. “170,000 Albertans are out of work, tens of thousands have given up looking for work, the average family’s take home pay is down by $6,400 since the NDP came to office, and unemployment has been on the rise for six of the past eight months. We cannot continue like this. We need real change that gets Alberta back to work.”
Kenney made the announcement from an empty floor of a Calgary office tower, which he called a symbol of four years of failed NDP economic policy.
“Over a quarter of downtown Calgary looks like this – empty floors that used to occupy tens of thousands of people working in high paying jobs. Empty space like this is growing in Edmonton, and in communities around our province. These vacant offices aren’t going to fill themselves,” Kenney said. “The thousands of businesses that have gone under aren’t going to be replaced by a few government subsidies. The flight of jobs and money from Alberta to the US won’t stop by accident. It will require bold, decisive action to restore investor confidence, to diversify our economy, and to undo the damage of the NDP’s job-killing policies.”
“So today I’m announcing that if elected, a UCP government will implement the Job Creation Tax Cut to reduce the provincial tax rate on employers by one third, from twelve percent to eight percent over four years. This will make Alberta once again a magnet for job-creating investment, with the lowest taxes on employers in Canada.”
The Job Creation Tax Cut will benefit every Alberta business, including the ninety-seven percent of Alberta businesses that are small or medium sized businesses with fewer than 500 employees.
Economist Dr. Jack Mintz, considered Canada’s leading tax policy expert, estimates that the UCP Job Creation Tax Cut will lead to the creation of at least 55,000 new jobs.
The UCP asked University of Calgary economist Dr. Bev Dahlby, who has spent decades researching the economic impact of taxes on the economy, to analyze the impact of reducing the tax on business from 12 per cent to eight per cent. Dr. Dahlby, this based in his 2012 published paper1, to estimate the UCP’s proposed one third reduction in Alberta’s general business tax rate.
Dr. Dahlby found that that tax relief would:
- Result in a $12.7 billion increase in the province’s nominal Gross Domestic Product (GDP,)
- Total revenues to the provincial government would be $1.2 billion higher by 2023 as a result of the economic stimulus created by the tax cut;
- That Alberta’s nominal GDP would grow to $465.4 billion by 2024 under the UCP Job Creation Tax Cut scenario, compared to GDP of $452.7 billion in a scenario where the business tax rate stays at its current 12% rate.
- That that after 10 years per capita real GDP, would be 6.5 percent higher
The UCP Job Creation Tax Cut would reduce the general business rate from 12% to 11% on July 1, 2019, and would then reduce it by a further percentage point each year until fiscal year 2022-23, when it would be by far the lowest rate in Canada, at 8%. Professor Dahlby’s analysis estimates that while total revenues initially decline as a result of the reduction in the CIT rate in 2019-20, other tax revenues and other revenues increase as a result of a faster rate of economic growth and total revenues are higher in subsequent years. In that sense, the tax cut is self-financing.
“The NDP recklessly hiked taxes on job creators by 20% in the middle of a recession,” Kenney pointed out. “Economists and employers predicted that their huge tax increase would stifle growth and kill jobs, but the NDP ignored them because they think ‘profit’ is a dirty word. While the NDP platform predicted that their tax hike would bring in more revenue, they’re actually getting less. Corporate tax revenues this year are projected to bring in $4.08 billion at the NDP’s 12% rate, compared to $5.8 billion that was generated at the old 10% rate in 2014-15, and $1.2 billion less than the NDP projected in their 2015 election platform. The verdict is clear: higher NDP taxes on job creators killed jobs, and reduced government revenue.”
Kenney said the Job Creation Tax Cut is a key part of the UCP’s Jobs Strategy, other aspects of which will be announced in the coming days and weeks. “Alberta led Canada in jobs, incomes and growth in recent decades in part because we had the lowest taxes which attracted hundreds of companies, like Canadian Pacific and Imperial Oil. But now the NDP has given us higher business tax rates than Ontario and Quebec, with no advantage over our neighbouring provinces of BC and Saskatchewan,” Kenney remarked.
“While the NDP is making us less competitive, the world is changing. Tax reform in the United States means that we have gone from having a big tax advantage over our US competitors, to having higher taxes than the vast majority of US states,” Kenney said. “That’s one reason why tens of billions of dollars have moved from Alberta to the US since the NDP came to office, and countries around the world are cutting the business taxes to keep up. Either we get back the Alberta Advantage, or we will see more major employers move jobs and investment from our province to lower taxed jurisdictions.”
With Canada’s general federal business rate at 15 percent and the NDP’s 12 percent rate, Alberta’s 27 per cent tax rate places the province at a continental disadvantage: higher than 32 American states whose combined federal-state rates range from 26.5 percent to 21 percent. By 2022, the UCP plan will make Alberta’s general business tax rate competitive again, and be lower than all but six U.S states and tied with a seventh.
“I admit that this Job Creation Tax Cut is bold, and will be attacked by the NDP with their tired old class warfare rhetoric,” Kenney said. “But frankly, the economic crisis facing Alberta is not going to be resolved by tinkering or half measures. And unlike the NDP, we refuse to preside over the gradual economic decline of Alberta.”
“With this announcement, I want to send a loud message to businesses across Canada and around the world. Come to Alberta. Invest here. Innovate here. You will have one of the lowest tax and red tape burdens in North America, because we are the free enterprise heart of Canada. And we are open for business again.”
Myths and Facts
Myth: Reducing the tax rate on job creators will be a ‘give away’ to big corporations.
Fact: 97% of businesses who pay the so-called Corporate Income Tax in Alberta are actually small and medium sized operations with less than five hundred employees. The Small Business Tax Rate only applies to the first $500,000 of business profit. The vast majority of Albertans work for employers taxed at the higher General Business Tax Rate of 27% (15% is federal, plus Alberta’s current 12% rate.)
Myth: A tax cut on businesses is ‘regressive.’
Fact: As University of Calgary economist Dr. Kenneth Mackenzie has written “some recent econometric evidence which shows that lower corporate taxes lead to higher wages and salaries” and that “This suggests that corporate tax cuts may actually be progressive.”3
Professors Mackenzie and Ferede have written that higher taxes on business means lower pay for workers: “Our computations suggest that for every $1 increase in corporate tax revenue due to an increase in the provincial CIT rate, the associated decrease in aggregate wages ranges from C$1.52 for Alberta.”
Facts: Cutting the rate will generate more economic activity, which will expand the tax base, making the rate cut self-financing.
An econometric analysis of the UCP Job Creation Tax Cut conducted by University of Calgary economist Dr. Bev Dahlby, based on his 2012 study estimates that corporate tax revenues would decline by $348 million in year one (full-year impact), but by 2023-24 total revenues of Government of Alberta are $1.2 billion higher than in the base case because higher output increases other taxes and other sources of revenue.
- The NDP raised the Corporate Income Tax rate from 10% to 12% in 2015, projecting a subsequent $1.1 billion increase in revenues. Instead, CIT revenues have declined, from $5.8 billion generated at a 10% rate in 2014-15, to a projected $4.08 billion generated at a 12% rate in 2018-19. Just as a lower rate can generate incremental economic activity, a higher rate can diminish economic activity and revenues, as predicted by Professor Jack Mintz in 2015. 4
- When Alberta cut its business tax rate from 15.5% to 10% beginning in the year 2000, CIT revenues actually grew by 80% over six years, far more than projected by the government.
- The $348 million revenue shortfall projected for 2019-20 will be offset by cost savings, such as cancellation of the NDP government’s $3.7 billion three year rail lease.
Myth: Businesses will just hoard their profits, and not reinvest in the economy.
Fact: The research is clear: raising business taxes shrinks the economy, while cutting business taxes grows the economy. The University of Calgary’s Dr. Bev Dahlby estimates that every extra dollar raised from the corporate income tax costs the economy $3.39, far more than the economic cost of raising a buck from personal income taxes, estimated to be $1.77.5
In other words, taxing job creators is nearly twice as damaging to the economy as raising personal taxes—which the NDP government also did.
Dr. Ergete Ferede and Dr. Dahlby also found that for one per cent cut in the business tax rate boosts the economy by as much as 0.2%.6
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Reducing the provincial tax rate on employers to create jobs and send a loud and clear message: Alberta is open for business again.
- Calculations by Dr. Bev Dalby, based on Erget Ferede and Bev Dahlby. The impact of tax cut on economic growth: Evidence from the Canadian Provinces. National Tax Journal, September 2012, 65 (3), 563-594.
- Source: Dr. Bev Dahlby calculations, based on Erget Ferede and Bev Dahlby. The impact of tax cut on economic growth: Evidence from the Canadian Provinces. National Tax Journal, September 2012, 65 (3), 563-594.
- Kenneth J. McKenzie. “Jobs and investment; CAW claim that tax cuts have no impact doesn’t hold water.” National Post, April, 21 2011.
- Bev Dahlby and Erget Ferede. The marginal cost of funds and the Laffer Curve. Finance Analysis No 74. Vol 1, 2013. Estimates updated in 2018.
- Erget Ferede and Bev Dahlby. The impact of tax cut on economic growth: Evidence from the Canadian Provinces. National Tax Journal, September 2012, 65 (3), 563-594.