Economists and taxpayer advocates have come out in support of Alberta’s Recovery Plan, despite its reliance on deficit spending. Premier Jason Kenney has prescribed tax cuts, infrastructure, and job creation to cure ailing employment numbers.
To boost an economy hit hard by the double whammy of tanking oil prices and the COVID-19 pandemic, the recovery plan announced June 29 represents “the largest infrastructure build in Alberta history,” Kenney said. Ten billion dollars have been earmarked for road projects, pipelines, schools, and hospitals in 2020 alone.
The Job Creation Tax Cut reduces Alberta’s business tax rate from 10 percent to 8 percent. The province expects this change will create 55,000 full-time jobs and $13 billion in economic growth.
The tax cut was welcome news to Gianfranco Terrazzano, Alberta director for the Canadian Taxpayers Federation (CTF).
“The best way to grow a competitive Alberta is to lower the business taxes and just let consumers pick which businesses will be successful,” Terrazzano told The Epoch Times.
“Premier Kenney deserves credit for reducing the business tax to eight percent and making Alberta one of the most competitive jurisdictions in North America.”
The business tax rate was 12 percent when Kenney took office, but has fallen incrementally since. The drop to 8 percent came into effect July 1, 2020, which is 18 months ahead of schedule. However, it was first proposed by former premier Ralph Klein for a budget in 2001.
Ron Kneebone, professor of economics at the University of Calgary’s School of Public Policy, says Ottawa’s Canadian Emergency Response Benefit (CERB) increased aggregate demand, and Alberta’s plan finishes the equation by supporting aggregate supply.
“This is what spending on infrastructure does. It provides better transportation networks in support of private firms and in so doing lowers their costs. Tax cuts also help in this regard by making it less expensive for firms to expand,” he says.
Kneebone says the moves will be “particularly effective” given the low interest rates maintained by the Bank of Canada.
“Hopefully this will lead to wealth creation and jobs,” he says.
Opposition leader Rachel Notley had more criticism than praise for the plan.
“[T]his is an expected gov[ernment] response. It’s a good shock absorber,” the former NDP premier tweeted. But she also called the plan a $4.7 billion “party for profitable corporations and Jason Kenney’s rich friends and insiders” and complained, “Nothing for women. Nothing for families. Jason Kenney’s economic plan leaves everyday Albertans behind, and what’s worse–these are the people who will be paying the price.”
Kneebone has consulted to political leaders of various stripes and says he is “disappointed in Notley. She should be congratulating Kenney for adopting big pieces of the [New Democratic] platform. Her base should love the UCP [United Conservative Party] plan as it means tons of construction jobs. It is a topsy-turvy world.”
The plan calls for the province of Alberta to take a $1.5 billion stake in the Keystone XL pipeline. The government expansion into the realm of private business strikes Terrazzano as socialist, not capitalist.
“Honestly, some of these corporate welfare programs sound like a rehash of NDP policies,” he says. “The NDP never should have brought forward petrochemical subsidies and it’ll be the wrong move if the Alberta government moves forward with it.”
Under the plan, the Alberta Enterprise Corporation will receive $175 million to aid entrepreneurs and technology start-ups. Another $200 million will be provided to help small businesses that had to close due to pandemic precautions. A potpourri of handouts will give millions more to agriculture, tourism, and other sectors.
Terrazzano wishes the government had partnered its corporate tax cuts with personal income tax reductions instead of “bureaucrats and politicians playing investment banker, playing venture capitalist, trying to pick out which business will be winner and loser.”
Alberta’s budget deficit is expected to triple from the $7 billion announced in March, bringing the total to $90 billion. Kneebone believes it’s the right pill, even if it’s tough to swallow.
“The UCP has abandoned the drive to balancing the budget. This is good policy, at least for now. I will be interested to hear how they explain this to their base,” he says.
The deficit spending is not without consequence. On June 30, the Fitch rating agency, based in the United States, reduced Alberta’s credit rating from AA down to AA-.
The CTF warns the day of fiscal reckoning is inevitable.
“None of this money is falling from the sky, right? All of this money is going to have to be paid back by taxpayers in some capacity,” Terrazzano says. “Albertans should be worried that if Alberta continues to increase spending there could be higher tax burdens down the road.”
The Alberta Economic Recovery Council, chaired by economist Jack Mintz, gave input for the plan. Former prime minister Stephen Harper, who steered Canada through the global financial crisis in 2009, was also a part of the council.
The 2009 budget set out a then-record $56 billion deficit. Canada has not had a balanced budget since.