Shifting the Alberta Advantage

The main thing we talked about yesterday at the ONEdmonton forum was economic development. In addition to breakouts and other discussion, we had two informative presentations that I hope to blog about over the next while. In her presentation on Diversifying Edmonton’s Economy, Tammy Fallowfield, EEDC’s Executive Director of Economic Development, touched on shifting the “Alberta Advantage”. Here’s what her slide said:

  • Remain relatively low tax
  • Not a low cost environment
  • Not a surplus of labour
  • Not a currency ‘bargain’

I think the phrase “Alberta Advantage” means different things to different people, but traditionally our low taxes, low cost of doing business, surplus of labour, and being attractive to investment, have all been considered important aspects. Here are a few notes on each.

Alberta’s low taxes remain a strength. From the Alberta Competitiveness Council’s 2010 report (PDF, 14 MB):

[Taxes and fiscal policy] represents the area of best performance for Alberta, with moderately low tax burdens for both corporations and individuals and a strong government financial position.

Of all the measures that report looks at, Alberta performs the best (unsurprisingly) in taxes and fiscal policy.

What about being a low-cost environment? From the same report:

Within Canada, business costs in Alberta (Edmonton) are lower than Ontario (Toronto), but higher than in each of the other provinces compared. This result is due to Alberta’s strong economy of recent years, which led to a much higher increase in business costs – especially labour, electricity, and facility costs – than seen in other provinces.

I haven’t yet found a good comparison of business costs with regions elsewhere in the world, so let me know if you come across something. I suspect the picture is not as rosy as it once was.

How about our labour force? All across Canada the population is aging, and that (along with our very low fertility rate) is going to lead to labour shortages. Here’s a graph from Alberta’s Occupational Demand & Supply Outlook, 2009-2019 (PDF), that shows this trend for our province:

There are many consequences as a result of this trend, not the least of which is Alberta’s challenge to attract and retain labour. Our taxes will likely also be impacted – an older population means higher costs for health care, and a slow growing labour force means a slow growing tax base.

Let’s look at the Canadian dollar (compared to the US dollar).

The strength of the Canadian dollar has an impact on foreign investment, among other things. As you can see, the dollar has been quite strong in recent years (aside from the dip in late 2008/early 2009), which may not be a good thing for Alberta.

So if being low-cost, having a surplus of labour, and being a relative currency ‘bargain’ are no longer part of the Alberta Advantage, what does that mean?

This diagram comes from the Institute for Competitiveness & Prosperity, based on a presentation that Professor Daniel Trefler of the University of Toronto gave here in Alberta on October 15, 2009. The diagram was originally used to illustrate the shift that China and India have yet to make.

On the same slide that listed the four points above, Tammy included this diagram. That’s the shift we need to make here in Alberta – from being a strong low-cost competitor, to being a strong innovation-based competitor.

How are we going to do that? By making strategic choices. Here’s (more or less) what Tammy showed next:

Tammy went on to talk about the industries that are important for us to focus on here in Edmonton, and a similar exercise would apply for Alberta. I’m not sure if what I have written above is exactly what she was trying to get across, but that’s how I interpreted it.

What do you think about shifting the Alberta Advantage?

Reducing GST?

Post ImageOne of the big stories in Canada today was Conservative Leader Stephen Harper’s pledge to reduce our GST from 7% to 5% if his party wins the election. The reduction would be 1% immediately, and another percent sometime within five years. Apparently, savings would be fairly good:

Canadians would have $4.5 billion put back in their pockets with the first reduction, said Harper. An average family of four earning $60,000 a year would pay about $400 less in taxes. The GST reduction would be a “tax cut you see every time you shop. No politician will be able to take it away without you noticing.”

Sounds good, but think about it for a second. Who does GST really affect? People who buy a lot of stuff beyond the basics (GST is not charged on basic groceries, most medical services, etc). Those are typically people who are already rich. So essentially, GST reduction helps those with lots of money. Personal income tax cuts in the lower income brackets, as the Liberals have suggested, help those with less money.

That being said, I agree with NDP Leader Jack Layton:

“Deep tax cuts right now are not what Canadians are looking for.”

Do I really care if GST is around after the election? I have lived most of my life with GST, and I have come to accept that it’s going to be there. Instead of giving that 7% back to me (or even part of it) I’d rather see the government do something meaningful with it. Of course that’s where it gets tricky, because what I think is useful may not be what someone else thinks is useful. For example, I wish we’d stop spending so much money on Africa, though there are lots of Canadian who would disagree with me.

The announcement today by Harper has “dirty” written all over it as far as I am concerned. Recall in 1993 the Liberals promised to abolish the GST and that didn’t happen. I don’t feel the Conservative promise is any more solid. How about announcing something more meaningful? A promise to cut GST is something I’d expect the day before the election to try and win the swing voters, not something you propose right away.

Read: CBC News