March 15 was a big day for small businesses in Alberta—and for the Wildrose opposition. It was the day that Brian Jean and the Wildrose Party released a document titled the Wildrose Jobs Action Plan, outlining 12 recommendations for actions the Alberta government could take to get “Albertans back to work and provid[e] stability for Alberta’s energy sector.”
First among the Wildrose’s recommendations was a call to reduce Alberta’s small business tax rate from three percent to two percent.
That same day, in a media scrum where reporters asked her about the Wildrose recommendations, Premier Rachel Notley hinted that a small business tax cut may actually be in the works as part of the provincial budget to be released April 14.
“On the issue of the small business tax, I would suggest that we simply all stay tuned for the budget,” she said.
It’s incredibly rare in our increasingly combative and oppositional system for the government and the opposition to agree on a policy move of this nature. When it does happen, it is usually in regards to a piece of public policy that carries obvious and substantial benefits for the public interest, the provincial economy or both.
Unfortunately, it does not appear that this move to take a percentage point off the small business tax rate passes either of those litmus tests.
The Wildrose document recommending the tax decrease offers up very little in terms of concrete justification or actual research by way of justifying the move. In fact, all the document really says is that Alberta’s current three-percent rate is higher than that of both British Columbia (two-and-a-half percent) and Saskatchewan (two percent), and that cost to government revenues of dropping the rate by one percentage point would be negligible.
That’s it. No evidence to show how dropping the rate would increase jobs or investment or even business confidence in Alberta. No reason given as to why our rates should be lower than, or as low as, BC and Saskatchewan. And certainly no explanation why, if the actual financial impact is so small, the Alberta government should even bother.
In order for a business to qualify for the small business tax rate, it must generate under $500 000 a year in business income. Many of these are small mom-and-pop operations—businesses that, quite frankly, are not likely to pick up and move to BC or Saskatchewan in order to take advantage of a half-a-percent or one-percent tax difference, especially if the impact of that tax difference would be completely nullified by the provincial sales taxes that exist in both provinces.
It is worth pointing out that not all small businesses are mom-and-pop shops. In fact, as University of Calgary economist Jack Mintz has pointed out on numerous opportunities, across the country some 60 percent of small business deductions go to households with more than
$150 000 in income, and that in many of those cases the small businesses simply exist as a method of reducing personal income tax paid by those households. In other words, reducing the small business tax rate does little to create jobs and actually serves as one more tax break for the top income earners in the province.
Then there’s the question of what a one-percent tax cut would actually mean to a small business operating in Alberta. A business operating at the upper limit of the category would see its business taxes reduced by a grand total of $4 999 a year. While that may seem like a lot to an individual struggling to make ends meet, for most businesses it is meaningless—it would not be enough to fund an expansion or a renovation or increased investment, and it certainly would not be enough to hire more staff. In other words, it would have next to zero impact on job creation or the economy as a whole. The only thing it would accomplish is to remove between $100 and $150 million from provincial revenues at a time when the province is already facing a significant revenue shortfall.
It could be argued that, despite the lack of impact on jobs and the economy, it would be a smart move politically for the government to implement this Wildrose recommendation. The rhetoric from Alberta’s right has been quite successful in convincing many Albertans that the government is simply not doing enough for jobs, businesses and the economy, and this is one move that might actually appease some of those folks.
The bottom line, however, is that there are a broad range of things the province could do with that kind of money that would have an equal or greater political impact while also benefitting the public interest much more significantly. Imagine, for example, what $150 million could do for long-term care, child care, classrooms or even school lunch programs. In tough economic times it is critical that governments find policies that are both low-cost and high-impact. A small business tax cut would simply not measure up.V
Ricardo Acuña is the executive director of the Parkland Institute, a non-partisan, public policy research institute housed at the University of Alberta. The views and opinions expressed are his own and do not necessarily reflect those of the Institute.