Impacts of NDP corporate tax debatable, still may be political hit in Calgary: experts
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A promise to balance the books on the back of a corporate income tax hike with the election’s big battleground being corporate Calgary is arguably the NDP’s biggest gamble of their campaign.
On Tuesday, NDP Leader Rachel Notley said the party, if elected, would increase the corporate income tax rate from eight per cent to 11 per cent, one day after announcing a planned elimination of the provincial small business tax.
The UCP has called it a “job-killing strategy.”
Duane Bratt, a political science professor from Mount Royal University, said perception of the proposed increase depends on whether the observer is someone in a corner office or the mailroom. However, the memory of the previous Notley government increasing the corporate rate to 12 per cent as Calgary’s downtown core was emptying out persists.
“Economically, those were very poor times and Notley was premier at that time — whether that was her fault, it doesn’t seem to matter if you lost your job in 2017,” said Bratt, noting the UCP government benefited from a spike in oil prices.
“Those things land, whether they’re directly related to any policies or not.”
An Angus Reid poll released Wednesday showed a statistical tie in Calgary with 49 per cent intending to vote for the NDP and 46 per cent for the UCP, with the conservatives holding an eight-point lead provincially.
Bratt said a saw-off in Calgary would pave the way for a UCP win due to their rural support.
“The conservative vote is the default option for many Calgarians and you have a growing economy that has allowed the UCP to spend billions of dollars more on health and education and promise a billion dollar tax cut and write $600 cheques,” he said. “The fact that it’s close is because of Smith.”
The question now is whether Calgary voters will view the tax hike for corporations as a threat to the economy.
Trevor Harrison, a sociology professor at the University of Lethbridge, noted tax hikes are anathema to Albertans. However, in the search for additional revenue, taxing corporations always plays better than taxing individuals or small businesses.
He also noted there are other ways the province can raise more revenue through an increase to fees for access to provincial parks or services like car registration. Both parties have done this at length in their terms in office since 2015.
Harrison said the Treasury Board shows Albertans are undertaxed by $14 billion to $15 billion compared to the next closest jurisdiction.
“People tend to vote rather emotionally about these things and taxes is kind of a flashpoint,” he said.
Harrison said there does need to be a way to pay for the billions of dollars in additional spending promised by both parties. He said small businesses may be more inclined to vote NDP this time around because of the elimination of small business taxes but there likely will not be a favourable response from the corporate world.
“There’s no such thing as a free lunch,” he said. “But the NDP, presumably it’s maybe risky simply because of the emotionality of talking about raising any kind of taxes, even corporate ones at a time when corporations are doing actually reasonably well.”
The NDP said they would be able to raise $6.2 billion over three years, including $1.6 billion this year, by increasing the corporate income tax.
Trevor Tombe, an economics professor at the University of Calgary, challenged that forecast. He said the calculation is mechanical, taking revenue already being derived from the tax and extrapolating it over another three per cent. He said this method does not take into consideration other impacts of raising the tax and the likelihood is that the increase in revenue will be about half of that projection.
He noted both parties are still relying on $76-a-barrel oil to balance their budget. The NDP, however, is bumping up the tax rate to help cover their own projected shortfall and their projected corporate tax windfall had a built-in buffer. The reality is they should just break even with the increase if oil hits its target.
Tombe also noted the fear being stirred by the UCP’s Brian Jean about a 38-per-cent increase to the tax bill is also overstated. The reality is, it is difficult to project just how this will impact the economy and jobs in Calgary due to a myriad of other factors at play.
“All we can say is that looking at a lot of jurisdictions over many years, there is a negative effect of a corporate rate increase on the corporate tax base,” said Tombe.
He said there is usually a small decrease in investments, accountants become more aggressive in tax avoidance, and there is some tax shifting activity for multi-jurisdictional enterprises. He also said in the long run, higher corporate tax rates at the provincial level come with a lower wage for workers — it’s not so much job losses as it is lower labour income.
Tombe also said it is incorrect to associate the NDP’s 2015 hike with the loss of jobs and headquarters in Calgary. There were many other factors at play, most prominently the price of oil crashing just prior to the NDP coming into power.
One of the first things the Jason Kenney government did when they were elected in 2019 was lower corporate income taxes to eight per cent from 12 per cent, easily the lowest in Canada. The tax rate has been at the forefront of the Alberta is Calling campaign, pushing Ralph Klein-era Alberta Advantage messaging. While there has been an increase to corporate tax revenue the last couple of years, economists were cautious to say it was purely because of the tax rate.
Charles St-Arnaud, chief economist for Alberta Central, said there are a combination of factors in this, including the price of oil, business community and available talent base. The reality is the tax increase amounts to three cents on the dollar for many companies earning millions and sometimes billions of dollars, which they should be able to absorb — though it’d be a different story if it was a 15-per-cent hike.
“If business taxes are such a big driver of businesses investment decisions Silicon Valley would have never have spruced up — it was one of the highest tax jurisdiction in the U.S., yet it’s the most innovative,” he said. “It’s the whole ecosystem that’s considered.”
Twitter: @JoshAldrich03
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