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Saskatchewan and B.C. gaining on Alberta's long-standing claim to best investment climate in Canada; Ontario falling farther behind

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Release Date: December 3, 2009

VANCOUVER, B.C.-Alberta has traditionally been ranked as having the best investment climate in Canada but it's now facing competition as both Saskatchewan and British Columbia have made recent gains, according to a new study released today by the Fraser Institute, one of Canada's leading economic think-tanks.

"For years Alberta enjoyed the so-called Alberta advantage, a combination of low taxes, small government, and the most attractive investment climate in the country. What we're seeing now is a chipping away of that advantage, as both Saskatchewan and B.C. have reduced business taxes and introduced other policies that encourage capital investment," said Niels Veldhuis, Fraser Institute director of fiscal studies and co-author of the 2009 edition of the Institute's Canadian Provincial Investment Climate Report .

Although Alberta again tops the rankings in the 2009 report with an overall score of 8.5 out of 10, its lead over Saskatchewan and B.C. has shrunk this year. Saskatchewan is second overall with a score of 6.6 out of 10 followed by British Columbia at 6.0 out of 10.

"As Saskatchewan and B.C. close the gap on Alberta, we're seeing a growing dominance by Western Canada in terms of government initiating policies that make the provinces attractive for investment," Veldhuis said.

"There's a substantial body of research that shows jurisdictions that implement policies that promote a positive investment climate are more likely to experience economic success and job creation."

While Saskatchewan and B.C. are catching up to Alberta, Ontario and Quebec are falling farther behind. Ontario is ranked fifth overall but with a score of 4.9. Quebec, the country's second largest province, does even poorer, tied for eighth overall with a score of just 3.3.

"If Alberta is the benchmark by which other provinces are measured in terms of attracting investment, Ontario and Quebec are falling behind as the gap in their scores has increased in 2009," Veldhuis said.

"To revitalize Ontario's economy, the provincial government needs to re-establish Ontario as one of the most attractive places to invest in Canada."

Among the remaining provinces, Newfoundland & Labrador ranks fourth with a score of 5.4 out of 10, the only other province aside from Alberta, Saskatchewan, and B.C. to earn a score above 5.0. Manitoba is sixth overall with a score of 4.7, New Brunswick ranks seventh with a score of 4.4. Nova Scotia scored 3.3 to tie for eighth place with Quebec, and Prince Edward Island scored 3.2 to put it last in 10th place.

The index is composed of seven components identified by Canadian investment managers and academic research as the most important contributors to investment climates: corporate income tax, fiscal prudence, personal income tax, transportation infrastructure, corporate capital tax, labour market regulation, and overall burden of regulation.

Alberta ranks first on most indicators including corporate income taxes, corporate capital taxes, personal income taxes, fiscal prudence, and labour market regulation. It ranks second on the overall burden of government regulations or "red tape." However, Alberta ranks seventh out of 10 on transportation infrastructure with a score of 5.7 out of a possible 10. This component assesses the transportation infrastructure in each province, including highways, urban transit, air, rail, and marine service by examining the extent, use, accessibility, cost, and condition of each mode of transportation.

Saskatchewan and British Columbia closed the gap with Alberta in measures on corporate income tax and corporate capital tax. Saskatchewan (placing second) tops B.C. (placing fourth) on fiscal prudence which measures how well provincial governments have managed their budgets and whether government spending is sustainable. Saskatchewan ranks second on corporate capital taxes with B.C. third. Saskatchewan also ranks third on burden of government regulation while B.C. is sixth. But the overall scores of both provinces were dragged down by their performance on transportation infrastructure (Saskatchewan ranks ninth and B.C. 10th).

Ontario scores relatively well in transportation infrastructure and labour market regulation, placing second  in each category. It ranks in the middle of the pack on personal income taxes (fourth), corporate capital tax (fifth), and the overall burden of government regulations (fifth). But poor performance in fiscal prudence (sixth), where the gap between Ontario and Alberta widened, and corporate income tax (seventh) drags its overall ranking down.

Quebec fares relatively well on corporate income taxes, placing third, but poorly on all other indicators. Significantly, Quebec ranks last in fiscal prudence, labour market regulation, and burden of regulation, and ninth in corporate capital tax.

The Atlantic provinces - New Brunswick, Nova Scotia, and Prince Edward Island - trail the rest of the country in fiscal prudence and burden of regulation. There are some bright spots with Nova Scotia ranking first overall for transportation infrastructure and New Brunswick third. New Brunswick also ranks fourth for personal income tax and corporate capital tax.

"As the global recession fades, it's critical for all provinces to seek ways to improve policies to encourage new investment. Governments should pay special attention to competitive tax rates, unnecessary red tape, and labour market regulations," Veldhuis said.

"Capital investment is a leading contributor to economic success and job creation. If provincial governments pursue policies that discourage investment, Canadians will pay the price through a weaker economy characterized by lower rates of job creation, higher levels of unemployment, and slower income growth."



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