Varcoe: NDP would cut small business tax, hike larger businesses rate

Varcoe: NDP would cut small business tax, hike larger businesses rate

With the second half of the provincial election campaign heating up, the discussion has turned to the future of business and investment in Alberta

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Alberta’s NDP made a $150-million campaign pitch this week to wipe out the small business tax for many entrepreneurs.

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The next day, it pledged to boost the overall corporate income tax rate from eight to 11 per cent in a bid to raise $6.2 billion in revenue over three years — including nearly $1.6 billion this year — although one economist questioned its projections.

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With the second half of the provincial election campaign heating up, the discussion has turned to the future of businesses and investments in the province, and the taxes applied to firms of all sizes.

NDP Leader Rachel Notley announced Monday her party will eliminate the small business tax of two per cent — applied to the first $500,000 of business income — for more than 100,000 companies, such as restaurants and retailers, if her party wins the May 29 vote.

It’s something business groups have called for coming out of the COVID-19 pandemic. Ending the small business tax would cost the provincial treasury about $150 million annually, while saving some companies up to $10,000.

“We’re trying to focus on that mom-and-pop operation that is trying to make a go of it,” Notley told reporters.

Not all small businesses would get the break; the current rate would still apply to professional corporations, such as accountants and legal firms.

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On Tuesday, the NDP released the full costing of its campaign plan and included an increase in the general corporate tax rate to 11 per cent, effective July 1.

NDP candidate Shannon Phillips, the party’s finance critic, said it’s asking profitable Alberta companies “to pay just a little more.”

“It will still be the lowest corporate tax rate in Canada.”

In the 2023 campaign, the UCP has already pledged not to increase personal or business taxes.

The taxing debate has intensified as many small business owners continue to struggle with high debt levels piled up throughout the pandemic, while the overall economy has strengthened with higher oil prices, and the unemployment rate sat at 5.9 per cent in April.

The Canadian Federation of Independent Business (CFIB) reports 58 per cent of small businesses surveyed this month are making less than their normal revenues.

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A survey conducted by the group in late March and early April found 74 per cent of its members said reducing the tax burden on small businesses was their top election priority, slightly ahead of reducing energy costs.

“The small business tax rate (elimination) is a positive move. Most small businesses are going to be impacted by that reduction,” said Annie Dormuth of the CFIB.

“However, it’s important to note that there’s still a quarter of small businesses who’ve already told us they are impacted by the corporate tax rate. . . It’s not the time to be increasing taxes or costs on businesses, period.”

The UCP noted the proposed hike by the NDP would amount to a 38 per cent boost to the general corporate income tax rate in Alberta at a time when major projects are taking off.

“Investment and job creators are flocking to Alberta because we have a low rate on business taxes,” UCP candidate Brian Jean told reporters.

“Wow, 38 per cent — she wants to take business taxes from 8 to 11 per cent in one fell swoop. That is an investment killer.”

If this seems like a familiar political battle in Alberta, it is.

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UCP candidate Brian Jean speaks in Calgary at Hotel Arts during a campaign announcement on Tuesday, May 16, 2023.
UCP candidate Brian Jean speaks in Calgary at Hotel Arts during a campaign announcement on Tuesday, May 16, 2023. Photo by Jim Wells /Postmedia

After winning the 2015 election, the NDP government raised the corporate tax rate from 10 per cent to 12 per cent.

Four years later, the UCP under Jason Kenney won the general election and lowered it to eight per cent (as of July 2020) to draw more investment into the province.

Today, Alberta has the lowest corporate tax rate in the country, ahead of Ontario and Quebec at 11.5 per cent, and 12 per cent in British Columbia, Saskatchewan and Manitoba.

However, the small business rate is zero in Manitoba and Saskatchewan.

In the current budget year, Alberta expects to collect $307 million from the small business tax, while the general corporate income tax is forecast to raise about $5.6 billion.

The UCP’s budget in February projected a $2.4-billion surplus. The NDP projects its plan would lead to a $1.2-billion surplus.

University of Calgary economist Trevor Tombe questioned the NDP’s forecast that its higher corporate tax rate would generate an extra $1.58 billion in revenues this year — and $2.3 billion next year — given the “significant negative effects” it would have on the province’s tax base through lower investment and companies shifting finances to other jurisdictions.

“Overall, it looks like they’ve made a $1-billion error in their costing of the general tax rate increase. And so that’s a pretty big miss,” Tombe said, noting that’s the size of the NDP’s budget surplus this year.

“When you tax something, you get less of it. . . It affects business decisions because it lowers the rate of return on investment.”

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However, former ATB chief economist Todd Hirsch, who advised the NDP and endorsed its fiscal plan, said the UCP dropping the corporate tax rate to eight per cent hasn’t led to a large inflow of investment or companies coming to Alberta.

Moving it up to 11 per cent “is not going to have a substantial difference on it,” he added.

All of this leaves business owners wondering what other promises are in store in the final days of the campaign.

Randy Shapiro, co-owner of the Discovery Hut stores in Calgary, welcomed the plan to eliminate the small business tax, but wondered about the soundness of raising the corporate tax rate as companies of various sizes remain in recovery mode.

He wants to see the entire slate of business proposals from both parties as entrepreneurs face the ongoing pressure of higher costs, interest rates and wages.

“It really goes the question of what does the whole plan look like?” Shapiro said.

“There will be a net saving for small businesses, to incentivize more people to take the risks of going into a small business — because it is a risk.”

Chris Varcoe is a Calgary Herald columnist.

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Varcoe: NDP would cut small business tax, hike larger businesses rate
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