HILL: Smith government can deliver tax cut by ending corporate welfare

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In a recent CBC interview, Premier Danielle Smith said she would “love to be able to accelerate our tax cut,” referring to her campaign promise to create a new 8% tax bracket for personal income below $60,000, before adding that her government might not be able to maintain a balanced budget and introduce the cut. Fortunately, there’s a way Smith could achieve both: eliminate corporate welfare.

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First, some background on Alberta’s recent tax changes.

In 2015, the provincial NDP government replaced Alberta’s single personal income tax rate of 10% with a five-bracket system including a bottom rate of 10% and a top rate of 15%. Due to this change (and tax changes at the federal level, which increased the top federal income tax rate from 29% to 33%), Albertans faced significantly higher personal income tax rates.

Smith’s proposed tax cut would reduce Alberta’s bottom rate from 10% to 8% and is expected to save Albertans earning $60,000 or more $760 annually. While this change would fail to restore Alberta’s previous tax advantage, it would be a step in the right direction. But due to fear of incurring a budget deficit, Smith has delayed fully implementing the $1.4-billion tax cut until 2027, contingent on the government being able to maintain a balanced budget.

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Which takes us back to corporate welfare.

In 2019, after adjusting for inflation, the Alberta government spent $2.4 billion on subsidies to select businesses and industries. (In 2021, the latest year of available data, it spent $3.3 billion, however the pandemic may have contributed to this number.) And that’s not counting other forms of government handouts such as loan guarantees, direct investment and regulatory privileges for particular firms or industries.

Put simply, eliminating corporate welfare would be more than enough to offset Smith’s proposed tax cut, which she promised Albertans in 2023.

Moreover, a significant body of research shows corporate welfare fails to generate widespread economic benefits. Think of it this way; if businesses that receive subsidies were viable without subsidies, they wouldn’t need government handouts. Moreover, the government must impose higher tax rates on everyone else to pay for these subsidies. Higher taxes discourage productive activity, including business investment, which fuels economic growth. And the higher the rates, the more economic activity they discourage.

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Put simply, subsidies depress economic activity in some parts of an economy to encourage it in others.

For the same reason, corporate welfare also typically fails to generate new jobs on net. Indeed, while subsidies may create jobs in one specific industry, they pull those jobs away from other sectors that are likely more productive because they don’t need the subsidy.

The Smith government is hesitant to introduce Alberta’s tax cut if it can’t maintain a balanced budget, but if the government eliminates corporate welfare, it can avoid red ink while also fulfilling a promise it made to Alberta workers.

Tegan Hill is director of Alberta policy at the Fraser Institute

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