Taking a different tack with taxes

It’s like they’re putting something in Alberta’s water. As that province looks towards a potential $6-billion budgetary shortfall, there’s suddenly some very uncharacteristic talk coming from one of Canada’s traditionally more conservative provinces.

They’re talking taxes — all kinds of taxes.

The Parkland Institute, a social policy think-tank at the University of Alberta, is talking about the province dropping its flat tax rate for a rate that progressively increases for the wealthy. They’re talking about raising that province’s corporate tax rate from 10 per cent to 12 per cent, matching that of its prairie neighbours.

And the institute is suggesting that the province could haul in a staggering $11 billion in new taxes — and still remain the lowest-taxed jurisdiction in the nation.

Other economists are talking dirty — they’re using a kind of smutty talk that has been, for years, the anthema of free-market Alberta. They’re talking about a provincial sales tax, saying revenues from that source could smooth out the huge peaks and valleys of resource royalty revenues.

All in all, it’s quite a change from past years, when provincial governments — like banks and mortgage rates — have seemed to be in a death match to claim the lowest possible tax rates, both for businesses and individuals.

We’ve done a fair amount of the same thing in the past. Lowering tax rates has been a staple for recent Progressive Conservative governments in this province. The idea, apparently, is that low tax rates mean immediate attractiveness for business: moving costs, a skilled, existing anchored workforce, transportation costs to distant markets and overheads apparently are supposed to mean much less to the captains of industry. But here’s a newsflash: the captains of industry don’t get where they are by considering just one of many factors that make a business profitable in the first place.

So you have to ask yourself if lowering taxes, particularly corporate taxes, actually works.

After all, unlike income tax for individuals, corporate tax is levied on profits, on the money collected and pocketed after all expenses are paid, which means corporate taxes are already a dramatically different species than any other income-related tax.

And then there’s what tax cuts are supposed to achieve. The idea is that companies will take those

profits and quickly reinvest them in equipment, technology and improvements.

The actual results have been quite different. Companies have, by and large, stockpiled their extra cash to earn even more in investment income, which they are then taxed at the new lower rate. Either that, or the money has been used in the continuing purchase and amalgamation that’s seeing smaller business gobbled up by larger competitors — something that means larger profits (still being taxed at the new, lower rate) but potentially higher prices because consumer choice is limited.

And the attractiveness of low-tax provinces?

Well, it’s kind of like trying to lure professional sports teams that move to wherever the latest best deal is. If you can move to the cheapest, you do.

But if you are mobile like that — if your business operates as well in Newfoundland as it does in Los Angeles or Vancouver — you move away just as quickly. Usually, in fact, you move as soon as there’s a better deal.

As an economic model, lowering corporate taxes has been a bit of a bust — and the pinch that has resulted is being passed on to the average Canadian citizen in cost-cutting measures.

Being competitive is one thing; being a corporate tax doormat is something else again.

Our part in the battle to the bottom of corporate tax rates should be looked at in a much broader context. When the provincial government was challenged on the fact that it spends far more per capita on health care than anywhere else in the country, the immediate argument was that we are different, that we’re a small population spread over a large area, and because of that, ordinary rules didn’t apply.

It’s a shame that the province doesn’t look at its tax structure in the same way.

And maybe, just maybe, we should be drinking a little of that Alberta water. Having the lowest taxes around might be a great T-shirt slogan — but the real cost of having those low tax rates could mean losing the shirt right off your back.

Russell Wangersky is The Telegram’s

editorial page editor. He can be reached by email at rwanger@thetelegram.com.