Jason Kenney reaches for economic heights with a race to the bottom – Maclean’s

Alberta's hurry-up corporate tax cut is less an investment in the future than a gift to the biggest current players, say experts

Premier Jason Kenney, with his neweconomic recovery plan Monday, had some words to encourage those of us who despair that too many of Albertas eggs are in one black, tarry basket. Hisgovernment has sector-specific strategies coming for forestry, tourism, aviation and more. Having shredded the former NDP governments tech firm incentive programsand some degree of sectoral confidence with itKenney promises bold, new startup incentive grants to replace them. And to finance thisnewfound bit of interventionism, Finance Minister Travis Toews casually discarded years of his United Conservative Partys deficit-hawk dogma by noting a difference between good debt and bad debtthe sort of thing his crew would pillory Rachel Notleys New Democrats for saying.

Kenney seemed most animated about his new rescue plan for his provinces recessionary economy when he was talking about his pitch to steal financial firms away from Toronto. As of Wednesday, Albertas corporate tax rate will fall to eight per cent, down three pointsfrom the current rate and 3.5 percentage points below Ontarios.

What do you think were going after? Kenney said with such a salesman-like zeal that, if you werent looking, you might imaginehe was whipping off his suit jacket and rolling up his sleeves. All those banks and insurance companies down on Bay Street that are paying way more taxes, their workers are paying way more taxes, they are paying way more for rent, theyre fighting Toronto traffic

Were going to be telling them they can save money for their shareholders, for their workers, for their operations, by relocating financial and fin-tech jobs to places like downtown Calgary and downtown Edmonton.

RELATED:The end of Alberta exceptionalismwell, the part Jason Kenney never cared for

Why, Albertas premier was so convinced of his pitch that he declared firms would be irresponsible if they dont consider moving operations to Alberta.

Reach for the stars, right? That seemed to be the goofy economic-development lesson of cities from Winnipeg to Hamilton, Ont. to Tucson, Ariz. when they launched flashy bids during that Willy-Wonka-meets-corporate-welfare dash for Amazons secondary headquarters. There was a period around 2006, when Albertas oil economy was rocketing upwards so quickly, and big firms like Imperial Oil had shifted their bases west, that a few starry-eyed observers wondered whether a Big Five bank would naturally follow andgaspmaybe the whole axis of corporate Canada would come with it.

In that vein, its charming to see that optimism sparked again in a period when Albertas oil sector is at catastrophically low ebb. A few resource booms ago, being near the hard-chugging engine of the national economy may have been alluring enough to financial institutions to offset the inconvenience of being two time zones away from Bay Street and Wall Street. But now that Calgary has lost its lustre, Kenneys Discount Zone pitch smacks of trying to woo a modern tech giant with oodles of free parking.

Before COVID, with so many of Albertas corporate offices vacant, the appeal of low office rents in high-quality buildings had become a big economic development pitch. Then the pandemic shifted how the world works, making corporations rethink their need for oodles of office space. Soon Calgary may not be alone with its hollow core.

The tax cut on corporate profits, meanwhile, does make Alberta the bargain-basement place to make big money in Canada. The problem is that Kenney announced last year hed slash the rate to eight per cent by 2022hes simply moving it up a couple years. So this isnt new information for anybody in Bay Street plotting a big move of employees that would takeyears.

RELATED:Jason Kenney and the oil sands: look whos statist now

These are long-term, strategic thinkers.The minute the rate cut was announced theyd integrated it into their decisions, says Philip Bazel, research associate with the University of Calgary School of Public Policy. Kenneys team tends to dismiss criticism from the NDP that corporate tax cuts are mere plums for plutocrats, but rushing out the full tax cut all at once is a benefit for current players in Alberta, not future ones. The decision to do it right away is giving a gift to firms that have already made investments and are earning profits on those investments, says Michael Smart, a University of Toronto Economist. The common practice is to avoid that giveaway or windfall gain to existing companies by phasing in that rate reduction over time.

Why do it fast? Kenney says its to prove to investors Alberta wont back down from its tax cut plans the way the United Kingdom did recently, or Saskatchewan did four years ago, or Ontario did way back in 2012. Another possible reason: Kenney cannot double down on the oil sector as he might have in the past, so hes reaching for the familiarity of a key campaign pledge. Its a policy that was supposed to take $2.4 billion from the provincial treasury when it was phased in; there wasno immediate measure of what the all-at-once move will cost the already depleted Alberta coffers. (Meanwhile, those looking for child care or renewable energy in Kenneys recovery plan will be disappointed; he may have a newfound appreciation for deficitsbut hes still among Canadas most resolutely conservative leaders.)

Kenneys government calls it the job creation tax cut,citingpre-pandemic research predicting tens of thousands of jobs would be created by new or relocated companies, as well as existing Alberta firms with more money to spend. With a cut so deep and quick, however, Smart foresees little new job creation but a lot of Ontario-based companies booking profits in Alberta to pay lower tax ratesshades of the Quebec shuffle that occurred in the 1980s when that province slashed corporate taxes to undercut Ontario. Capital moves slowly; accountants move fast, Smart says.

RELATED:The coronavirus market crash leaves Alberta running on fumes

In the meantime, other premiers may be tempted to cut rates apace, creating a race to the bottom that nobody wins. But this is what happens when economic tides shift, and jurisdictions begin competing against each other for investments they might not otherwise get. For many years, the strength of Albertas fossil fuel-based economy allowed it to forego the economic-development competitions that other regions muckaround with.With the resource-driven Alberta advantage greatly eroded, race to the bottom could become a new provincial modus operandi.

Albertas premier flashed another big-dollar item to an anxious public Monday$10 billion in infrastructure, with echoes of the Harper governments response to the 2008 recession. But $7 billion of that was already booked in Albertas budget, and a further $1.5 billion is already pledged toward the provinces new stake in the Keystone XL pipeline, the ever-in-peril Canada-U.S. bitumen conduit. Even when diversification is Kenneys new watch-word, oil habits die hard.

Follow this link:

Jason Kenney reaches for economic heights with a race to the bottom - Maclean's