Businesses in Alberta will soon receive a tax break according to recent announcements by the provincial government. Phased in over four years, the tax cuts are targeted at small and medium-sized businesses and when fully implemented, they will save the corporate sector $955 million. Alberta Treasurer Steve West explained the reason for the tax cuts.
"Eighty per cent of businesses in Alberta are small businesses," noted West. "They employ 70 per cent of the workforce. It is important that we take the burden off companies to create jobs. We expect the cuts will create 37,000-50,000 new jobs for Albertans."
The new tax plan will see the threshold to be considered a small business doubled to $400,000 while the tax rate in that bracket is cut in half to three per cent. Larger businesses saw their taxes cut to eight per cent.
The Liberal Party welcomes the tax cuts, but feels they are long overdue and are concerned about the management approach the government has taken with tax dollars to date. Opposition Leader
Nancy MacBeth criticized the government’s slow response to the issue.
"We were pleased to see the small business tax cuts announced and felt that they were overdue," said MacBeth. "We realize how much small business is the engine of our economy, independent businesses fall into that middle-income group and this is the group that has been short-changed with the introduction of the flat tax in Alberta."
The tax plan follows recommendations made by the Business Tax Review Committee. Formed eight months ago, the BTRC was designed to assess Alberta’s tax system both at home and internationally to make recommendations to improve the province’s competitiveness.
University of Calgary Economics Professor Ken McKenzie was a member of the committee and feels that reductions to the government’s tax revenue will boost the economy.
"There will be short-term reduction in government revenues," McKenzie noted. "The total impact [will be] $780 million once the cuts are fully implemented on an annual basis. In our view, that figure will begin to decline with more investment and new jobs created. Even in the short run those sorts of activity would be significant, so the tax cuts are quite sustainable and, if we didn’t
do them, our situation would become a
problem."
The move follows similar reductions in Ontario. Including personal, property and other taxes, Alberta will have the lowest rates in the country and be will competitive with American rates.
Not everyone remains convinced such cuts are in the best interest of Albertans. Alberta New Democrat leader Raj Pannu supports tax cuts, but feels that the government approach is not targeting those who most need it.
"To provide cuts in corporate taxes which help the already wealthy is not only unwise but divisive and destabilizing between those who already get the Alberta advantage and those of us who are still burdened with looking after our own needs in health and education," said a concerned Pannu.
McKenzie sees such tax cuts as vital to maintaining the revenues necessary for social programs in the future.
"These sorts of tax cuts don’t light the imagination of average Albertans, but to be competitive into the future we need to be competitive in taxes," said McKenzie. "This means jobs, good jobs, for Alberta. In the long run you have to have a competitive business environment to provide social programs."
Critics like Pannu feel the time to make the investment in social programs is now, and government policy has more to do with lobbying than fiscal realities.
"They are giving tax breaks to corporations which are already making unprecedented profits," Pannu claims. "While schools are not getting any benefits, only one powerful special interest group gets heard; that is big business."