Another lesson from Alberta—reduce taxes on businesses
Last week, I wrote in this space about the differences between Alberta Premier Jason Kenney’s deficit-reduction strategy and Premier Doug Ford’s in Ontario. Kenney’s approach is superior in many ways—it reduces spending, eliminates a larger deficit faster, leads to less debt accumulation and reduces the risk that an economic shock derails the plan between now and the target budget balance date.
But the Ford government should also learn from Alberta’s policy approach to taxes, by reducing the general corporate income tax rate (CIT).
A bit of recent Ontario history is relevant here. In the early years of this decade, Premier Dalton McGuinty reduced Ontario’s general CIT rate from 14 per cent to 11.5 per cent. A large body of economic evidence suggests this move almost certainly helped Ontario’s generally sluggish economy. As such, the CIT reduction stands as one of the Liberals’ most important economic achievements during their time in office.
Unfortunately, after making this progress, the Liberals stopped short of their stated goal of reducing the tax further, to 10 per cent. The delay was promised to be temporary, but here we are nearly a decade later and the promised tax relief remains pending.
And this is important because there’s ample evidence that the CIT is one of the most economically-harmful ways to generate government revenue—it hurts job-creation, lowers wages and generally hinders prosperity.
That’s why the Kenney government in Alberta, despite a large deficit, is wisely pushing ahead with a substantial CIT reduction to help encourage recovery from the brutal recession Alberta endured starting in late-2014. In fact, Kenney is going further than even McGuinty promised, pledging to reduce the rate to 8 per cent over four years.
This is great news for the Alberta economy. In a recent Calgary Herald op-ed, public finance expert and University of Calgary Professor Bev Dahlby presents compelling evidence the tax relief will result in the creation of 58,000 additional jobs in 2022. And that’s in a much smaller jurisdiction than Ontario.
Of course, all this job-creation helps generate more tax revenue, too, blunting the negative effects on government revenue from the tax cut.
Premier Ford can help spur growth in Ontario by following the Kenney government’s lead on the CIT. Critics would surely attack such a move as a handout to “the rich”—but they’d be wrong. CIT reductions help investors throughout the income spectrum including those who contribute to the CPP but hold no other investments in stocks. What’s more, substantial evidence shows that some of the burden of higher CITs is passed along to workers and that reductions in the tax rate therefore help boost wages. So CIT relief doesn’t just help people who own parts of companies, it helps those who work for them.
One of Dalton McGuinty’s most important achievements was cutting Ontario’s CIT rate. Among his mistakes was the decision to stop the reduction at 11.5 per cent instead of pushing on to 10 per cent. Premier Ford should finish the job, follow the Kenney government’s lead in Alberta, and go further by reducing the CIT to 8 per cent to help Ontario’s economy flourish.
Subscribe to the Fraser Institute
Get the latest news from the Fraser Institute on the latest research studies, news and events.