Alberta business groups share concern over potential tax hikes as Ottawa balances new spending and fiscal guardrails

‘Basic math tells me that there is going to have to be revenues raised to bridge those two gaps — the spending and the fiscal guardrail,’ said Lindsay Tedds, an economist at the U of C

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Economists expect the federal government will increase taxes in some capacity when it announces its federal budget on Tuesday, leaving Calgary’s business community on edge that it could be targeted.

As Ottawa has embarked on a pre-budget tour over recent weeks, unveiling several billion-dollar announcements related to housing and national defence, there’s been increasing suspicion the Liberals’ solution will be to create new taxes targeting corporations and the wealthy.

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Federal Finance Minister Chrystia Freeland said in a news conference last week that Canada’s deficit won’t increase in the upcoming budget, confirming the promise she made in November to keep the deficit capped at $40.1 billion.

“Basic math tells me that there is going to have to be revenues raised to bridge those two gaps — the spending and the fiscal guardrail,” said Lindsay Tedds, an economist at the University of Calgary.

The federal government hasn’t floated any balloons to indicate its strategy ahead of Tuesday’s budget, with the exception of confirming no tax increases on the middle class. However, Tedds said only a handful of measures could raise the required funds. One that would do significant heavy lifting would be an increase to the capital gains inclusion rate, which currently taxes capital gains at only half the marginal tax rate.

Raising it to 75 per cent would be “within the realm of economic rationale,” Tedds said, and could bring in about $5 billion to $8 billion per year. The rate was reduced from 75 per cent to 50 per cent in 2000 by Jean Chrétien’s Liberal government.

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Mike Holden, chief economist at the Business Council of Alberta, said he believes increasing taxes in any form isn’t a good idea “at a point when the economy is already slowing.”

“The logic suggests that there’s going to be tax increases . . . I’m hoping that there aren’t any, but I’m not optimistic,” he said. The BCA represents 135 chief executives across Alberta.

Potential for windfall tax

One concern in the business community is the potential for a windfall tax on the oil and gas sector and grocery chains, which would tax companies experiencing sudden above-average profits due to certain economic conditions. Environmental groups such as the David Suzuki Foundation have recently advocated for such a measure.

In 2022, the government imposed a one-time 15 per cent windfall tax on Canadian life insurers and banks’ earnings over $1 billion.

The prospect of such a tax has become a growing concern in Calgary’s energy-dominant business community, said Deborah Yedlin, president and CEO of the Calgary Chamber of Commerce.

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“This is not the way to unleash innovation and this is not the way to unleash investment,” Yedlin said.

Deborah Yedlin, Calgary Chamber CEO
Calgary Chamber of Commerce CEO Deborah Yedlin speaks at an event hosted by the Chamber on Thursday, March 2, 2023. Azin Ghaffari/Postmedia file

Companies in Canada’s oil and gas industry have reaped record profits over the past several years, meaning a windfall tax would likely affect the sector, Yedlin said. Holden said he believes a windfall tax is unlikely.

While a windfall tax would present minimal political risk to the Trudeau government, Tedds said such a levy would likely generate only marginal revenue.

‘Two approaches’ to government covering its spending

Still, the possibility remains that the federal government could announce increases to the corporate tax. The Business Council of Canada has warned that increased corporate tax rates would be bad for business investment during a period when the country is struggling with its GDP produced per hour — commonly referred to as labour productivity.

Tedds also expressed hesitation that Canada will increase its overall corporate tax rate due to the likelihood the U.S. will overhaul its own corporate tax regime in coming years — a decision that will likely hinge on the result of the November presidential election.

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Holden and Yedlin meanwhile commended the Liberal government for its housing efforts announced ahead of the budget, and acknowledged the benefits from those investments will take several years to arrive. The two business groups are also seeking a final answer on investment tax credits for carbon capture, utilization and storage projects, a long-awaited key needed to de-risk major projects of that kind, they say.

Overall, Tedds said the federal government has a handful of options to cover its spending.

“There’s two approaches to this: You find a whole bunch of little things, or you hit two big ones — a GST increase and the capital gains inclusion rate — and you’ve probably plugged a big part of the gap.”

‘Poverty is a problem that just becomes more expensive if you do not treat it’

With several housing announcements already public, a local advocacy organization said it’s seeking specific timelines and interim targets from the federal government on its housing goals — particularly as Calgary faces rapidly increasing home and rent prices.

“There’s a lot of urgency in terms of building that can’t be overstated,” said Meaghon Reid, Executive Director of Vibrant Communities Calgary. “One of our concerns around these housing announcements is while they’re great, there’s not a lot of timeframes put around these.”

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Home construction in Calgary
Condo buildings are shown under construction on the east edge of Calgary on Monday, April 15, 2024. Brent Calver/Postmedia

Reid added Canada’s new $1-billion National School Food Program is a major step in the right direction — particularly under the cloud of major increases in food insecurity that have created immense strain on Calgary’s food banks.

Looking ahead to Tuesday’s budget, Reid said she’s interested to see whether affordability measures announced in last year’s budget — such as Canada’s grocery rebate and child benefit supports — will return.

“I would caution against any reaction that criticizes the amount of government spending because poverty is a problem that just becomes more expensive if you do not treat it,” Reid said.

— With files from The Canadian Press

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