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Could Alberta’s NDP Government Raise Corporate Taxes to Solve Budget Woes?

Climbing out of the PCs' financial mess is going to be rather complicated.

Alberta Premier Rachel Notley at her swearing-in ceremony. Photo via Flickr user Premier of Alberta

The orange-tinged dust is finally settling from the NDP's big win in Alberta, and dazed voters are beginning to wonder what the hell's next. It's a fair question considering the province is facing a bewildering $7-billion shortfall (ten times Diddy's net worth) and the NDP are committed to increasing spending on semi-important things like education, healthcare, and childcare, all while balancing the books by 2018.

Clambering out of this financial crater will be really, really complicated.

"There are traps everywhere," says David Taras, communication studies professor and political analyst at Calgary's Mount Royal University. "As soon as there appears to be warfare against corporations—even a hint of that—then it could turn ugly really fast. Alberta's teetering on a recession. [Premier Rachel Notley] could be blamed for the recession."

While the revised 2015-16 budget hasn't dropped yet—in fact, a full version won't be released until the fall—there's a fair bit of evidence suggesting how the NDP expect to conjure up oodles of dollars while paying for niceties like free school lunches and loans to install solar panels on your roof.

Unfortunately, taxing rich people—the core of the NDP's fiscal plan—won't help until next fiscal year due to a technical kerfuffle (in short, they missed the deadline to switch things up). Bummer, hey? That leaves increasing corporate tax rates and upping resource royalties as the two most lucrative alternatives. Neither of those options are all that popular with all the Rich Uncle Pennybagses of Alberta. And while different mechanisms, both options can both have similar capital-sucking pitfalls if miscalculated.

Kevin Milligan, economics professor at the University of British Columbia, notes that while a corporate tax increase from 10 percent to 12 percent isn't the end of the world, it's certainly not a step in the right direction: "The basic reason for that is that you're harming the productive capacity of the economy quite a bit in that firms are going to make a choice in where they're going to invest and how much they invest," says Milligan.

The frequent argument against dinging companies is that taxes are only calculated after all expenses have been paid, meaning that any additional tax burden will be passed on to consumers and workers in higher prices in suppressed wages, respectively. Gotta keep those stock prices elevated.

But there are a few dissenters kicking around who contend companies can pay more than they currently are without jumping ship like cowards. Ian Urquhart, political science professor at the University of Alberta points to a 2014 KPMG report which showed Edmonton as having the lowest total tax rate among 107 major international cities for businesses. As a result, Urquhart suggests an increase in corporate tax wouldn't come close to nullifying competitiveness in Canada or anywhere else.

"The idea that a two percent increase in corporate income taxes is going to cripple business in Alberta seems to me to be just ludicrous," he says. "Any business that is going to be crippled by a two percent corporate income tax in Alberta is, in my view, a very marginal business to begin with."

Some also argue that corporate tax cuts—or the maintenance of low rates—doesn't have the intended effect of creating jobs or encouraging investment. Jim Stanford, economist for the massive labour union Unifor, notes that Canadian non-financial corporations (in other words, not banks) are Snorlax-ing on top of close to $700-billion in cash reserves, a number which has been growing over the past few decades. Stanford suggests such dough should instead be put to work or whisked away to invest in public infrastructure and other goodies that would jumpstart the struggling economy.

"Sure, companies are nervous," he acknowledges. "But here's the funny thing: when companies are nervous and don't invest, they themselves can cause the sluggish economic conditions that they worry about. It becomes a self-fulfilling prophecy."

Same story goes for oil and gas royalties. Although distinct in goal—it's a rent paid to dig up gooey oil, not a tax—the view by many is that a review of the royalties is grossly overdue: the last one was in 2007, but the plan got scrapped. Jim Roy, a royalties expert who served as chief architect of the 1992 review panel, suggests that complaints from industry about the review is crude lobbying, and the companies will stick around so long oil's in the ground: "They're not going to go to Tuktoyaktuk or wherever looking for oil," he quips.

Unfortunately, taxing the corporations more and upping royalties won't raise nearly enough to fill in the still-growing $7-billion hole, especially given that solid returns from both of those only come in good economic times. Notley's already summoned the federal NDP legend Brian Topp as her chief-of-staff, so he'll give guidance. But for now, it looks like the full-blown socialist paradise might have to be put on hold for a few years. Unless, that is, they haven't exhausted all their favours from the gods yet.

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