While it may not win the votes of C-suite executives, the Alberta NDP’s plan to raise the tax rate for large corporations recognizes what economists have been documenting for decades now: corporate tax cuts do nothing to benefit the economy.
The Alberta NDP is proposing to restore the provincial tax rate to 11 per cent, the rate that was in place before the UCP government slashed it to 8 per cent in 2020.
A growing body of economic research shows that tax cuts for big corporations don’t create jobs or investment – instead costing governments billions in lost revenue.
Albertans don’t need to look far to see how corporate tax cuts have failed to deliver the economic gains they were promised. A 2022 study by the Parkland Institute looked at the effect of the UCP’s 2019 tax cut on the largest companies in Alberta’s oil industry. Even though corporations received $4.3 billion from the cut, they eliminated thousands of employees from their payrolls – losses driven mostly by automation and industry consolidation, the study found.
The same companies added millions to the compensation of their CEOs and paid out record dividends to shareholders. Meanwhile, the Alberta public paid the price: billions in tax revenue.
This ‘trickle-up’ trend has been well documented by economists across multiple jurisdictions. One of the largest studies of its kind, by the London School of Economics, confirmed that 50 years of tax cuts in 18 developed countries did not grow the economy but likely contributed to inequality.
The reality that corporate tax cuts do not trickle down is even understood by some conservative politicians.
Former British PM Liz Truss walked back a promise to slash taxes for businesses after facing criticism from the International Monetary Fund which cautioned further tax cuts would worsen economic conditions. A study published last year showed business investment in the U.K. fell to the lowest rate in the G7 group of wealthy nations despite 15 years of corporate tax cuts.
Lessons can also be learned from other provinces. The B.C. Liberals slashed taxes for businesses and individuals over a decade, assuring the cuts would “pay for themselves”. The cuts did not fulfill that promise, however, they did cost the province at least $8 billion in lost revenue.
In Canada, decades of successive cuts by federal Liberal and Conservative governments were followed by a steady decrease in business investment in productive capacity. Corporations allocated about 37 per cent of gross corporate profit back into productive assets back in the 1990s. That amount fell to 25 per cent in the 2010s and only 19 per cent in 2021 despite record corporate profits that year.
This trend was evident even back in 2012, when Canada’s former Governor of the Bank of Canada, Mark Carney, cautioned corporations to stop hoarding money and either put it ‘to work’ or return it to investors. Corporations chose the latter as dividend payments climbed in following years alongside record-high executive compensation. This has contributed to excess wealth concentration, which expert bodies such as the OECD and IMF recognize as harmful to the economy.
But there is no starker evidence that corporate tax cuts do not work than what has happened in Alberta.
Alberta’s UPC government slashed the provincial corporate tax rate in 2019-20. Did that lead to more investment in 2021? No. Alberta’s oil and gas companies made record profits in 2021. Did that lead to more investment in 2022? No. In fact, capital expenditure by Alberta’s public companies was lower in both years than in 2018 when the provincial rate was at 12 per cent.
To recover from the pandemic, the Alberta government will need to raise revenue to strengthen public services, help households through inflation, and invest in economic transformation. Albertans know that the province can no longer bank on oil wealth. They will not be well-served by politicians who refuse to acknowledge this reality.
At a time when large corporations are making record profits while increasing CEO and shareholder wealth, they can certainly afford to contribute a greater share of their profits to public investments and growing the economy. It is refreshing to see the Alberta NDP acknowledge that raising the tax rate for large corporations is not only fair but makes good fiscal sense.
DT Cochrane is an economist and policy researcher with Canadians for Tax Fairness, a non-profit organization that advocates for fair tax policies to strengthen the economy and reduce inequality.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
