Alberta government should cut corporate welfare to generate tax relief

According to a study published by the Fraser Institute, the Alberta government spent nearly $22.1 billion (inflation-adjusted) subsidizing select firms and businesses from 2007 to 2019 (the latest year of available pre-COVID data). In other words, $22.1 billion for corporate welfare.

And that’s not counting other forms of government handouts such as loan guarantees, direct investment and regulatory privileges for particular firms or industries.

Now, according to the premier’s mandate letter to the Minister of Energy and Minerals, the Smith government expects plenty of “investment” in specific energy projects, which may include tax benefits to “incentivize” companies to clean up old oil wells, with taxpayers footing the bill. But rather than continue to spend taxpayer money on corporate welfare, the Smith government should use this fiscal room to reduce taxes for Albertans.

Especially when there’s little evidence that corporate welfare actually generates widespread economic growth and/or job creation. In fact, the evidence suggests it may actually hurt the economy as government handouts to specific firms, technologies and industries help shift investment away from other firms and industries, overriding the preferences of actual investors and customers. This misallocation of resources leads to a less-efficient economy, which means less economic prosperity for Albertans.

If the Smith government stopped this wasteful and inefficient spending, it could create the fiscal room to lower business and personal income taxes. And here, the evidence is clear—tax cuts stimulate investment, job creation and economic growth.

For starters, the government should undo the personal income tax hikes from the last NDP government, which replaced Alberta’s single personal income tax rate of 10 per cent with five tax rates including a top rate of 15 per cent. In 2019 alone, after adjusting for inflation, the Alberta government spent $2.0 billion on corporate welfare—equivalent to $669 per tax filer in the province. That’s a meaningful amount of money that could go towards lowering personal income taxes, particularly now when many Albertans are struggling with the high cost of living.

The Alberta government could also broadly reduce business income taxes. This would ultimately help everyday Albertans as the evidence suggests that workers bear the burden of more than half of any business income tax indirectly through lower wages. For perspective, more than one-third of all business income tax revenue (on average) collected in Alberta was sent back to select firms and industries from 2007 to 2019. Again, that’s a lot of potential tax relief.

Rather than continue to spend billions of dollars of taxpayer money on corporate welfare, with little evidence of benefit, the Smith government should use this money to fund tax reductions that help with economic growth, investment and job investment. And help Albertans keep more of their hard-earned money.