Will Alberta’s orange crush flatten businesses in the province?

NDP promised higher minimum wage, higher corporate tax rate, job creation tax credit
By Sarah Dobson
|Canadian HR Reporter|Last Updated: 05/29/2015

Following more than four decades of Conservative rule, traditionally blue Alberta is sporting a new colour: NDP orange. 

The May 5 election shocked many as NDP leader Rachel Notley enjoyed a landslide victory, with the New Democrats taking 53 seats. The Wildrose Alliance Party won 21 and the Progressive Conservatives held on to just 10.


No sooner had the results been declared — and even before that — critics were predicting the province would suffer under the new rule, with employers leaving the province and jobs being lost. A group of five CEOs went so far as to hold a press conference before the election expressing concerns about the NDP’s plans.


But the NDP in Alberta are known as being pragmatic and business-friendly, according to Allan Dwyer, assistant professor of finance at Mount Royal University in Calgary.


“They don’t want to come in here and blow the place apart and then get thrown out after four years. They want to be here for a generation because remember, Albertans, that’s what we tend to do — we’ll have a party in for 25 years and we’ll throw them out and put in another party for 30 years.”


It’s not an automatic that an NDP government and small businesses will be at loggerheads, said Dan Kelly, president and CEO of the Canadian Federation of Independent Business (CFIB) in Toronto. However, the area of most concern is labour law, such as occupational health and safety, minimum wage policies, employment standards and workers’ compensation.


“The full gamut of labour policies is often an early target for an NDP government and that… has the potential to really strain the relationship between a government and the small business community,” he said, adding a large number of Notley’s team have deep roots in organized labour.


“If the government does go down that road, if decisions are shifted away from the legislature and instead are being made by union halls, then that would lead to some potential dislocation in the small business-government relationship. And we’ve seen that happen, sadly.”


There’s still a lot of uncertainty as to what will happen, said Jeff Gaulin, vice-president of communications at the Canadian Association of Petroleum Producers (CAPP) in Calgary.


“We’re already faced with a forecast decline in revenues of $50 billion in our industry this year… our capital investment is forecast to be down conservatively by at least $25 billion this year,” he said. “The number of wells to be drilled in Western Canada declined by 50 per cent… and there are 10s of 1000s of people out of work in this industry because of what has happened. So there’s already question marks over the industry and what we can absorb to keep Albertans and Canadians working.”


But the association is comfortable it will be able to find common ground with the new government, said Gaulin.


“The oil and gas industry is, as the premier said, a significant job creator and the engine of the province in Alberta so it’s in everyone’s best interest that it’s strong, healthy and growing.”


Higher tax rate

While many of the NDP’s promises have yet to be confirmed — including a review of the province’s energy royalties — several key policies could have an impact on employers and employees. For one, the new regime said it is looking to increase the corporate tax rate — currently the lowest in Canada — from 10 per cent to 12 per cent. 


 “If you need a 10 per cent corporate tax rate to survive, then you probably shouldn’t survive,” said Dwyer.


“Alberta has kind of cushioned its corporations for a long time and protected them in a way that’s not done elsewhere, and I think it’s healthy to start raising taxes… The confident, successful, competitive firms will shrug off a two per cent tax increase and they just will adjust their planning to make themselves competitive at a 12 per cent tax rate.”


Companies don’t make investment decisions based on small changes to corporate tax rates, said Gil McGowan, president of the Alberta Federation of Labour in Edmonton.


“They invest where they can make money. And even with the declining price of oil, Alberta continues to be a place where corporations both big and small can make money. That’s not going to change under a moderate New Democrat government. So I have no fear that there will be a massive flight of capital from the province.”


For CAPP, it’s about looking at the whole package the government has in mind, rather than any individual fiscal, regulatory or environmental policy, said Gaulin.


“Any one initiative might be manageable but the cumulative effect of all these policies could be quite burdensome on industry at a time when it’s very volatile and very challenging, and so that’s the uncertainty that we have. So we would prefer to see a total package from the government of Alberta so that we have some certainty in all areas that impact our business.”


Minimum wage hike

The NDP also promised to increase the minimum wage from $10.20 now to $15 by 2018. It’s a move that’s definitely needed, said McGowan, as Alberta has one of the lowest rates in the country.


“If there’s any province in Canada that could afford to give its lowest paid workers a (higher) wage, it’s Alberta, and that remains true even with slumping oil prices. The sky is not going to fall.”


By almost any measure, Alberta is the wealthiest province in the country and one of the wealthiest jurisdictions in all of North America, but it has a high number of people working for low wages, he said.


“Alberta currently has the highest levels of income and wealth inequality in the country and a higher minimum wage would go some distance to reducing that inequality.”


The province also has a relatively high cost of living, especially in urban areas such as Edmonton, Calgary and Fort McMurray, said McGowan — but people in low-wage service sectors are still earning $12 per hour.


The wage hike would only impact a tiny group of people who earn minimum wage in the province, according to Dwyer.


“In a boomtown, in a booming society, the cost of living is high… so there’s a problem here with getting kids to work at McDonald’s or Tim Hortons so they bring in temporary foreign workers,” he said. 


“Why clean toilets in Lake Louise for minimum wage when I can go up and work in a work camp in the oil fields somewhere or some kind of assembly plant down around Calgary that’s related to the oil industry and make $35 an hour?”


But many employers would view an increased minimum wage as a troubling development, especially in an economy where growth has really fallen dramatically, said Kelly. 


“If there ever was a time to increase the minimum wage to $15 an hour in a particular jurisdiction, now would not be the time to do that in Alberta,” he said. 


“The effect of the minimum wage in much of Alberta is well above the statutory minimum anyway because employers are just not able to find staff at those lower levels. But… we can’t assume that that’s going to remain the case given the pretty tumultuous year that the oil and gas sectors had.”


Tax credit

The NDP also said it would help create 27,000 jobs by rewarding businesses that hire new employees in Alberta. A tax credit plan would encourage hiring by refunding 10 per cent of each new employee’s salary, to a maximum salary of $50,000.


The AFL supports the call, said McGowan. For one, it’s measured and has been proven to work in other places.


“We also think that it’s appropriate in Alberta at the moment given the climbing price of oil and the impact that that’s had on the labour market. We still have lower rates of unemployment than almost any other province and I think that’s going to continue.”

The CFIB likes the concept, said Kelly.


“We have certainly been advocates of hiring credits — the federal government has one right now with the small business job credit they institute on EI — so we’re not sure what the new government might have in mind in terms of specifics but, conceptually, we like the sounds of it.”


The tax credit sounds like a fantastic idea, said Dwyer.


“Let’s face it, a massive global corporation can handle the tax increase — the problem with the tax increase was how it was going to affect small and middle-sized businesses,” he said.


“It sounds like that NDP plan… is all about assuaging the fears of the small and medium-sized business investors who feel that they would really be squeezed under a tax regime.”

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